Annexes to COM(2001)125-1 - Completing the internal energy market - Main contents

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dossier	COM(2001)125-1 - Completing the internal energy market.
document	COM(2001)125
date	March 13, 2001

agreement of a harmonised system for cross-border tarification.

The Forum rapidly agreed the basic principles upon which such a tarification system must be based; transparency, simplicity, cost-reflectiveness and non-discrimination. Furthermore, it subsequently succeeded in agreeing the basis of the mechanism that would be needed to implement these principles:

*the mechanism must be based on physical flows of electricity, not the distance between two contracting parties;

*where countries export significant net quantities of electricity, they cause physical flows and transits. These transit flows cause costs in countries hosting them;

*these "host" countries should be compensated for the costs caused to their networks by the market parties in the TSO area responsible for them;

*these compensations should be made via payments made between TSOs.

At the fifth meeting of the Florence Forum in March 2000 agreement in principle was reached to introduce a tarification system for cross-border trade in electricity based on the above principles, for a provisional test phase of one year. Thus, TSOs would compensate one another for transits on the basis of financial calculations proposed and verified at national level. One important issue, however, was left to subsidiarity: the way in which national TSOs reflect the result of the compensations paid and received in their national tariff system. On this particular point it was agreed to leave the issue during the provisional one-year period to the discretion of the Member States. However, the national mechanisms would remain subject to overall coordination and control by the European Commission to ensure that the potentially different approaches at Member State level would not result in unreasonable distortion of the internal electricity market.

The Commission has not yet been prepared to endorse the entry into force of the provisional system. On the basis of the information received from all national regulators/competent authorities concerned, it could not be excluded that the potentially different approaches would result in unreasonable distortion of the internal market. In fact, different groups of Member States exist, falling into two broad categories: one group intends to introduce an export charge whereas the second intends to opt for a system of repartition of costs over all users of the network. Under such circumstances an introduction of the provisional system would be likely to lead to an unacceptable degree of discrimination between operators and distortions of trade, the more so as the level of the export charge envisaged by some countries would lead in many cases to considerably higher transaction costs than under current national tariff systems.

This was also stressed by representatives of large industrial consumers, traders, a number of Member States and a number of national regulators which on various occasions expressed their serious concerns with respect to the concept and the level of the intended export charge.

The Commission believes that already the provisional mechanism, though being temporary, needs to be based on principles that ensure a proper functioning of the internal market and does not contain elements, which constitute a barrier to trade. The most appropriate way to achieve this goal is that those two Member States envisaging the introduction of an export charge would examine whether they could refrain from introducing it or whether the proposed level of the charge could be significantly reduced, in order to limit possible distortions of trade and competition.

The Commission has undertaken further discussions with individual regulators/national authorities in order to resolve this issue with the objective of allowing the introduction of the provisional system in the near future.

However, in the course of these discussions the Member States concerned, in particular Germany, have declared to be willing to reduce their intended export tariff only under the condition that all other Member States introduce in turn an export charge of the same level, including those opting for a system of repartition of costs over all users of the network. Such an approach would, however, be unacceptable for the latter Member States and for the Commission. In fact, the Commission in its proposal for a definitive tarification system outlined below (2.4.5.) suggests the principle of repartition of costs for all Member States and, consequently, it would be inconsistent to encourage those Member States willing to adopt this approach already under the provisional system to abandon it and introduce an export charge.

The introduction of a provisional system would have been an important step forward, in order to gain experience with the inter-TSO compensation mechanism and to achieve an abolition of existing tariffs, which would also lead to a simplification of the tariff structures.

However, if no satisfactory solution can be found, purely national systems will continue to be applied to cross-border transmission, until a robust definitive system enters into force in line with the proposal outlined below (2.4.5.). These transitory national systems will however remain subject to the competition rules of the Treaty.

However, even if the provisional system can finally enter into force, a number of important issues remain to be resolved before a definitive tarification system fully in line with the basic principles mentioned above can be put into place. These include the precise methodology for calculating the cost of hosting transits, harmonisation of the methodology of financing the payments, and the harmonisation of certain aspects of national tarification systems necessary for the development of fair and undistorted trade [15]. It has not been possible to resolve these issues within the context of the Florence Forum.

[15] This concerns notably the extent to which network charges are split between generators and consumers.

2.4.4. Congestion Management

Whilst the Commission places a high priority on ensuring the construction of necessary and economically justified new interconnection capacity, it must be recognised that certain interconnections will remain congested for the foreseeable future. To develop the internal market it is vital, therefore, that the capacity that is available is allocated in a manner most likely to achieve a competitive internal market. The Florence Forum endeavoured to develop commonly agreed guidelines to ensure that this objective was met when Member States allocate capacity. A working group representing the Regulators, Commission, representatives of the Member States and, where appropriate, industry, was set up to draw up such guidelines, which were agreed at the last meeting of the Florence Forum in November 2000. In particular, they conclude that capacity should be allocated through market-based mechanisms. The adoption of these guidelines represents a step forward on this issue. However, their implementation in practice at national level is wholly voluntary in nature.

2.4.5. The need for further measures

The Florence Forum has proven a highly effective tool in developing a degree of consensus on highly complicated, rapidly evolving and controversial issues. Whilst it will remain an important instrument in this respect, in particular because it ensures the representation of industry and consumers, recent experience, in particular in the context of the intended introduction of a provisional tarification system, has demonstrated that the process suffers from a number of disadvantages when it is necessary to reach concrete decisions on specific issues:

*the process is an informal one, based on bi-annual meetings lasting two days. As such it is inappropriate to take concrete decisions on very detailed issues that require in-depth discussions;

*to make progress on any issue requires full consensus of all parties;

*any decisions reached can only be implemented if all parties respect them; there are no procedures to ensure implementation;

*certain issues such as the calculation of the correct level of inter-TSO payments require regular detailed decisions to be taken. The Forum is not able to appropriately address such issues.

In this light, the Commission has concluded that to build on the progress achieved at the Forum, it is now necessary to adopt a legislative instrument for a clear decision-making process for making final progress on the issues of cross-border transmission tarification and congestion management on interconnectors. If the full benefits of the internal market are to fall to consumers, such an instrument is vital. Furthermore, such an instrument will ensure the full involvement of the Parliament and Council.

Member States alone cannot resolve this issue: to develop an effective tarification system a harmonised approach is imperative and cannot be developed at national level. As demonstrated above, an informal collaborative approach will not lead to the implementation of an appropriate system with necessary procedural and democratic safeguards. Such a proposal is therefore wholly in line with the subsidiarity principle, and indeed is made necessary by it. Thus, together with the adoption of this Communication, the Commission has decided to propose to the Parliament and Council the adoption of a "Regulation on conditions for access to the network for cross-border exchanges in electricity in the internal electricity market" [16].

[16] OJ

2.4.6. Gas: The Madrid Forum

The European Gas Regulatory Forum (the Madrid Forum) first met in 1999, and has now met three times.

Work is less advanced in this sector compared with electricity due to the fact that the Gas Directive was implemented 18 months later than the Electricity Directive. However, a number of important issues are now being actively addressed in the Madrid Forum and substantial progress is being made. The third meeting of the Forum held in October 2000 marked a turning point during which the main issues were identified and a number of key principles and a clear agenda for future work was set out.

A higher degree of correlation exists between the physical and contract path for gas than for electricity; in particular in relation to international transits bringing gas from fields of production to consuming markets. Gas transport between and through Member States has taken place for many years and more than 50% of all gas consumed within the EU crosses at least one border. Cross-border tariffs, based on physical flow through systems, already exist.

However, the correlation between physical and contracted flows will be eroded as a result of competition. It is therefore vital to ensure that European gas tarification systems take account of this fact and that third party access tariffs are cost-reflective. For example, tariffs should not be distance related when actual transportation costs incurred do not reflect the notional contracted path e.g. when swaps are involved.

Furthermore, whilst at present congestion has not posed a significant limitation with respect to the development of the European gas market, this is mentioned with increasing frequency as a potential barrier to trade and refusal of access. As a first step towards providing timely and accurate information on available capacities in the European gas grid, the gas transmission system operators have been requested to develop and publish a detailed map of the European gas network identifying available transmission capacities at all major entry and exit points of the network.

Finally, in order to facilitate the entry of new market players, the establishment of non-discriminatory grid access codes defining the rights and obligations of network users will be necessary. The Madrid Forum has called for inter-TSO arrangements to be established with a view to facilitate cross-border trade and to serve as a clearing mechanism for transport between different systems. These additional measures are clearly necessary to ensure that the full benefits resulting from the internal market are passed on to consumers. The work pursued in the context of the Madrid Forum will therefore need to be continued and completed. It is not yet appropriate to propose the adoption of legislative measures with respect to issues such as tarification and congestion management for gas, for the reasons mentioned above. Nonetheless, the Commission will keep this question under review and, if necessary, propose appropriate measures.

2.4.7. Infrastructure: the development of an electricity infrastructure plan and the revision of the TEN guidelines

-Electricity infrastructure

Stimulation of intra-Community trade in electricity depends on an optimum use of the existing interconnections between Member States, to be achieved, as outlined above, through the provision of fair and transparent rules on cross-border tarification and congestion management.

Furthermore, and equally important, the construction of new infrastructure needs to be encouraged. The European transmission system is not yet sufficiently developed for the purpose of a real internal market with effective trade opportunities. This is not surprising since, in the past, interconnection lines were built by vertically integrated monopoly companies that did not have objectives beyond the improvement of their own system security and quality of service.

Two years after the entry into force of the Electricity Directive, the following three main interconnection bottlenecks exist:

-the Iberian peninsula remains, to a significant extent, isolated due to insufficient interconnection capacity with France and, as a consequence, the rest of the European network;

-interconnection capacity available to Italy (from France, Switzerland and Austria) is insufficient;

-the UK has only one interconnector with France with limited capacity; other projects are under examination, but implementation costs are high.

However, congestion problems also occur frequently at other points in the European network, for instance in the Benelux and Central Europe, and between Scandinavia and the continent.

In many cases, as at the France-Spain border, the only solution for developing trade is the construction of new connections or the increase in capacity of existing lines as far as is technically possible.

The construction of new infrastructure is often not a financial problem since the undertakings are prepared to invest in new networks in response to the demand on the market. In general, the problem is more of a political nature. Often, plans to construct new interconnection capacity run up against constraints calling for a balance to be struck between the public interest, whether Community or national, and local reservations about new infrastructure. Construction of new lines often raises local opposition at strategic points, for example, as mentioned above, around the Pyrennees or Alps, making it difficult to go ahead with the intended scheme.

The Community has to play a key role in this respect to ensure that the operation of the market is not hampered by physical constraints. In the Green Paper on Security of Energy Supply [17] the Commission underlined that a lack of network infrastructure can slow the integration of national markets and thus limit security of supply. In this context, due consideration should of course also be given to the enlargement of the internal market and the additional interconnection capacity this requires.

[17] COM(2000) 769, p. 70.

To overcome these problems, effort must first be made to upgrade the capacity available on existing lines. Second, where necessary, the constructions of new lines must be facilitated. For this purpose, work should be initiated to elaborate a European interconnection plan identifying schemes of 'European interest' through a new procedure. A proposal will be presented in line with the forthcoming revision of the guidelines on Transeuropean Networks. Such a plan would help to overcome divergent local and national hurdles.

As a first step in forming this plan, and keeping in mind the objective of better coordination of trade between Member States, the Commission will launch a review with the following themes

1. An analysis of the definitions and criteria used when estimating available capacity at national level as well as by larger associations of networks (UCTE, NORDEL, UK); in certain cases a relative increase in declared available capacity could be proposed. Technical operating standards (maximum temperature of cables, for example) will also be examined and proposals submitted for revision and harmonisation.

2. Possibilities for technical improvements, such as the reinforcement of transformers or certain sections of cable or the introduction of new technology will be examined also with a view to increase physical capacity on certain interconnectors.

3. After this evaluation of possibilities for increasing capacity on existing networks the study will then establish the minimum level of interconnection between networks required for a functioning internal market and will identify the new connections that are needed.

In this context, it is important that the Electricity Directive ensures that Member States have available all necessary instruments to require such reinforcement, and that such measures are compatible with the Directive. Such provisions are therefore included in the proposed revision of the Directive.

-Gas infrastructure

As in the case of electricity, a well-integrated network is an essential precondition for the effective operation of the internal gas market as well as for security of supply. This requirement has been highlighted by the sharp rise in demand for natural gas within the European Union over the past decade and the particular situation that has emerged following the recent implementation of the Gas Directive.

Generally speaking, gas network interconnection within the EU is developing well, driven by a combination of market demand developments, the need for additional transport capacity and gas security considerations.

Over the last few years, a large number of major new pipeline systems have been brought into operation, which have strengthened and further integrated the EU gas network both internally within the EU and in relation to external suppliers. Major new gas transmission infrastructure has been set up by gas operators in recent years to meet growing demand. These include projects in the northern part of the EU (including the UK-Continent Interconnector, new supply pipelines from Norway and related reinforcement in continental Europe), the central part (including various gas pipelines in Germany and Austria) and in the southern part of the European Union (new gas networks in Portugal, Greece and western Spain, new gas pipelines from Algeria).

However, increased demand and cross-border trade as a result of market opening may result in congestion and the need to deal with congestion issues similar to the ones mentioned above for electricity networks already seem to be emerging, e.g. at the Dutch frontier, in Ireland and in France (liquefied natural gas). An approach similar to the that envisaged for electricity networks with regard to identifying new interconnections, establishing appropriate tarification and capacity allocation mechanisms will, as far as applicable, therefore likewise be adopted for gas networks.

-Revising the guidelines of Trans European Networks

In 1994 the European Union launched the political framework for the promotion of Trans European Networks (TENs) and from 1995 the TENs programme to cover electricity and gas networks started. Currently, 44 projects of community interest covering links between Member States and with third countries have been identified in the electricity sector and 46 projects referred to pipelines, LNG terminals and storage in the natural gas sector. The establishment and development of Trans European Networks for energy are contributing to the achievement of the internal market. It also contributes to the reliability and security of supply of electricity and natural gas in the Community and contributes to the cohesion effort. One of the priorities of the energy transeuropean network policy is the development of interconnectors between Member States and also internal connections, which extend these connections at national level. The development of trade in the framework of the internal market has led the Commission to propose a revision in the guidelines applicable regarding energy transeuropean networks which will stress the goal of the optimal functioning of energy networks in the context of the internal market for energy, with due consideration for its future enlargement.

With this in mind, a report on the implementation of the guidelines for energy trans-european networks, as well as a revision of these guidelines will be adopted shortly by the Commission. In this context it will be necessary to give appropriate support and focus on projects of particular environmental benefit, and in particular those likely to reduce the level of losses on the networks. This revision will include the resolution of problems of missing links in the network, congestion and the recognition of new requirements resulting from the implementation of the Electricity and Gas Directives and the growing number of eligible customers.

2.4.8. Conclusion

It is clear that the development of the conditions to promote trade in electricity and gas, must and will remain one of the priorities for the Commission. The adoption of the proposed Regulation on cross-border transmission tarification and congestion management will represent a major step forward. Nonetheless, this initiative must be complemented by the construction of new infrastructure where technically feasible and economically justified. This latter task will receive particular attention from the Commission.

2.5. Public service objectives

In the context of the electricity and gas sectors, public service issues cover a wide range of aspects relevant to ensure the continued secure supply of high quality electricity and - where connected - gas at competitive prices. In the past, this overall public service objective has, in almost all EU countries, been pursued through the public ownership and operation of all electricity generation, transport and supply functions and all gas transport and supply functions. In these circumstances, only a limited amount of regulation was considered to be necessary to ensure the maintenance of these objectives. However, as privatisation and market opening has taken place, governments have adopted systems of regulation, usually via sector specific regulatory authorities, which lay down minimum standards of public service that must be respected.

In the EU, a number of public service objectives or standards are commonly pursued in the electricity and gas sectors. At the generation level, these concern obligations upon generators to respect minimum environmental standards, to generate minimum levels of renewable sourced electricity or other environmental objectives, or, occasionally, to respect minimum rules regarding the primary fuel source to meet supply security concerns. This aspect is also highlighted in the Green paper on security of supply [18].

[18] See footnote 8.

The key public service issues, however, exist at the transmission/distribution/supply level. In fact, in many respects, the operation of the transmission and distribution systems may themselves be considered public services; they represent a monopoly and an essential service for all citizens and industry. This is particularly the case in the context of liberalised markets, as the transmission and distribution systems represent the key infrastructure permitting competition to exist and develop. Thus, all Member States impose minimum operational or public service conditions on grid operators - for example requiring transmission and distribution companies to guarantee connection to the grid for all citizens under reasonable conditions. In addition to this, Member States often, and increasingly, require transmission and distribution companies to meet minimum service criteria - such as the time within which repairs must be effected and connections made.

Finally, at the supply level, Member States require companies who wish to operate on their domestic markets to acquire a licence to do so. The licence requirements include minimum criteria that must be respected by an operator, many of which are public service in nature. For example, some countries require uniform tariffs to be offered to equivalent customers and special tariffs to low income users, protection from disconnection for vulnerable customers and, for certain countries, requirements as to service standards, including conditions of contracts, transparency of information and complaint handling mechanisms.

The attainment of the highest possible standards of public service in these areas is a primary objective of Community energy policy. This reflects a basic Community policy objective regarding services of general interest, as underlined by the European Council at Nice on 7 and 8 December 2000, on the basis of the Commission's Communication on services of general interest [19]. It is essential that the gradual completion of the internal market contributes to this objective and thus to the maintenance and increase of public service standards. In particular, it is vital that all Community citizens have a universal right to be supplied at reasonable prices and that a minimum set of consumer protection standards is maintained. In this light, the Directives contain a number of provisions, notably Article 3 [20] to ensure that Member States retain the necessary tools in this respect.

[19] Communication of 20 September, OJ C 17, 19.1.2001, p. 4.

[20] But also Article 9(2) of the Gas Directive (obligation to supply a given area), Article 17 of both Directives (refusal of access), Article 20 of the Gas Directive and Article 21 of the Electricity Directive (authorisation to build direct lines) and Article 23 of the Electricity Directive and Article 24 of the Gas Directive (safeguards in the event of a sudden crisis).

These provisions ensure that the measures taken by Member States to pursue legitimate public service objectives remain compatible with the Directives, providing the measures taken are reasonable and proportionate to the objectives pursued. To date, none of the measures taken by Member States have raised substantive questions as to their compatibility with the Directives. Indeed, no Member State has found it necessary to derogate from any provision of the Directive in order to meet their public service objectives.

The choice of the public service measures or standards adopted by Member States is in principle a matter of subsidiarity. However, the Commission, in the light of the fact that the maintenance and increase of such standards overall throughout the Community is an integral part of Community energy policy, has commenced a benchmarking exercise to compare the public service measures pursued in the Member States, the methods chosen to achieve them, and their success in meeting high standards. The results will assist Member States in maintaining and increasing standards.

The first part of this exercise, the completion of detailed questionnaires by Member State administrations and regulatory authorities, is now finished. On this basis the Commission will prepare a detailed Communication. However on the basis of information received, it is already clear that market opening, including the introduction of full competition, has in no way prevented Member States from pursuing a successful policy of maintaining high standards of public service. Indeed as market opening progresses, increasing public service levels have been attained through the imposition of licence requirements or conditions. National regulators monitor the respect of these conditions, and impose penalties in the event of non-compliance [21]. This approach has enabled Member States, by continually raising and improving standards, particularly at the transmission, distribution and supply level, to increase public service standards gradually and continually in a liberalised market.

[21] Including, where appropriate withdrawal of the licence.

Almost all correspondents at the public hearing stressed the importance of this issue. The overwhelming majority of those commenting on this issue confirmed that experience clearly demonstrates that public service standards - particularly with respect to issues such as ensuring universal service and consumer protection - can not only be maintained in a competitive market place, but increased.

In conclusion, experience clearly demonstrates that the creation of liberalised gas and electricity markets has not resulted in any decrease in public service standards. On the contrary, with appropriate regulatory control, liberalisation has in fact focused attention on the importance of the level of service provided, leading to improvements. The benchmarking exercise currently underway will permit all Member States to profit from such experience resulting in the attainment of the highest possible standards of public service throughout the Community.

Notwithstanding this, the Commission's experience to date concerning the implementation of electricity and Gas Directive indicates that it would be appropriate to take further measures to re-enforce existing provisions. First, the Commission considers that one basic public service objective - the right for household consumers to be supplied with electricity on reasonable conditions - must be viewed as an underlying objective of the internal market and therefore the Directive. It is thus proposed to require Member States to take the necessary measures to ensure that this is achieved. Secondly, it is appropriate to oblige Member States to take the appropriate measures to ensure that a number of essential public service objectives are met. They should therefore be required, both with respect to electricity and gas, to introduce appropriate provisions to ensure the attainment of essential public service objectives and notably:

*the protection of vulnerable customers; Member States will, for example, need to ensure appropriate protection from unjustified disconnection of, inter alia, the elderly, the unemployed, the handicapped, etc.;

*the protection of final customers; Member States will, for example, need to ensure a minimum set of conditions of contracts, transparency of information, and the availability of low-cost and transparent dispute settlement mechanisms;

*Social and economic cohesion; beyond ensuring universal service, where necessary, Member States will need to take appropriate measures to ensure supplies and connection at appropriate prices to, for example, peripheral areas;

*environmental protection; e.g. demand side management obligations and measures to promote renewables and cogeneration; and

*security of supply; notably through ensuring appropriate levels of maintenance and development of infrastructure, and in particular interconnections.

It is vital that the monitoring and benchmarking exercise mentioned above is completed and continues on a regular basis. Articles 3(2) of both Directives require at present that Member States notify public service obligations to the Commission. This applies, however, only to measures that require a derogation from the Directives. As mentioned above, Member States have not needed to derogate from the Directives to achieve public service objectives. To assist the benchmarking and monitoring process, it would be a significant improvement if Member States were required to notify the Commission of all measures taken. The Commission would issue a bi-annual report on the basis of this information and, where appropriate, issue recommendations of measures that Member States should take to ensure high public service standards.

2.6. Security of supply

The recent Commission Green Paper "Towards a European strategy for the security of energy supply" (COM/2000/769) examines in some detail the question of security of supply and its relation to the establishment of the internal market for electricity and gas. On these issues, it concludes that the "integration of energy markets contributes to security of supply, provided that these markets are truly integrated". In reaching this conclusion, the Green Paper notes, in particular, the vital importance that security of supply is recognised as an essential public service obligation. It further examines the provisions contained in the Gas and Electricity Directives that ensure that in an open and competitive market, security of supply can be met, both at national and Community level.

In essence, the Directives contain provisions that ensure that all the safeguards available to Member States to guarantee security of energy supplies remain unchanged by the introduction of competition. For example, Member States are obliged to provide for the possibility to launch tenders for additional generation capacity backed-up by purchasing agreements. They also retain the possibility, where necessary, to limit gas purchases from a single source. The creation of the internal market will mean a greater degree of interconnection of electricity and gas markets and an increasing number of suppliers. Subject to proper monitoring at both Community and national level and, where necessary, action under the relevant provisions of the Directives, the completion of the internal market for electricity and gas can therefore contribute to security of the Community's energy supplies.

It should be noted that these safeguards, properly implemented by Member States, guarantee that the situation that has developed in California, of a lack of supply and (artificially) escalating prices, will be avoided in the EU. In California, a combination of factors led to the present precarious and unacceptable situation in terms of security of supply; notably the existence of an obligatory pool leading to anti-competitive, oligopolistic pricing practices and the impossibility to offset risk through long-term supply agreements, rapidly increasing demand due largely to the internet explosion, a lack of new generation capacity due to an uncertain regulatory environment and extremely strict planning restrictions, retail price freezes, a lack of a possibility for the TSO itself to launch tenders for the construction of new capacity combined with power purchase agreements, a lack of interconnection capacity and supply arrangements with neighbouring states, and a lack of appropriate intra-state trading arrangements. The provisions mentioned above, notably the possibility for Member States to launch tenders where demand threatens to exceed supply, together with significant and increasing interconnection capacity between Member States, effective trading arrangements and careful monitoring at both Community and national level, means that the development of the "Californian experience" can be excluded in the EU.

However, given the vital importance of this issue - continued secure supplies of electricity is probably the most important public service objective - it is appropriate to reinforce the existing safeguards contained in the Electricity Directive on this point. In particular, it would be appropriate for Member States to be required to carefully monitor the state of the domestic electricity market, and in particular the existing demand/supply balance, the level of expected future demand, envisaged additional capacity under planning or construction, and the level of competition existing on the market. On an annual basis the Member States should be required to publish a report outlining their findings, and indicating any measures envisaged to ensure supply security. Furthermore, given that due to the highly interconnected nature of the EU electricity network, the relationship between demand and supply at the Community level is of vital importance for overall system security, the Commission, on the basis of the national reports and its own monitoring work, should publish a similar Communication covering the Community as a whole.

2.7. Environmental consequences of energy market opening

The creation of an internal market for electricity and gas has been shown, in many respects, to have had positive environmental impacts due to the improvements in generating plants, increased operational efficiency and a switch to cleaner fuels in power production. On the other hand falling energy prices might not be conducive to the development of energy efficiency and renewables.

For example, between 1990 and 1998, the use of natural gas for power production increased by 128% while solid fuels decreased by 18%. In the same period, the average conversion efficiency of thermal power stations has increased by 6% and the carbon intensity (CO2/GWh) has been reduced by more than 15%. The trend towards cleaner power generation plants can be expected to accelerate as market opening progresses. For example, in the United Kingdom, which was the first Member State to liberalise the electricity and gas sectors, the development towards a cleaner energy sector has been particularly significant. Here the share of natural gas increased from 0.5% in 1990 to 38.5% in 1999. The average conversion efficiency increased by 9.5% between 1990 and 1998. CO2 emissions from power generation decreased by 27% in UK compared to only 3% in average in the EU in the same period.

However, the environmental consequences of market opening must be continuously monitored [22]. With market opening, electricity prices may decline and this gives rise to a number of environmental challenges that must be addressed. If the market price for electricity reduces, demand may increase, partly at least due to less intensive efforts in energy savings and energy efficiency. In the Green Paper on Security of Supply projections suggest that demand may increase by 20% due to lower electricity prices [23]. Similarly, full competition may mean that electricity from new and less developed energy sources (e.g. renewables and combined heat and power) becomes less attractive. This could reduce the development towards a cleaner fuel mix in the electricity production.

[22] The Commission has launched a study with the aim of assessing the environmental implications of a market opening up to 2010.

[23] See footnote 8.

Both the Electricity and Gas Directives provide Member States with the possibility to address these issues:

-Article 3 in both the Electricity Directive and the Gas Directive provide Member States with the possibility, in the general economic interest, to introduce public service obligations which may inter alia relate to environmental protection. For example, reductions in overall electricity bills do not preclude the adoption of tariff structures to encourage energy efficiency. These could be implemented through cuts to fixed charges, leaving price signals on the variable use of electricity unchanged. Appropriate regulatory incentives would need to be in place in order to encourage such innovative tariff structures to emerge.

-Articles 8(3) and 11(3) in the Electricity Directive allow Member States to require the operators of the transmission and the distribution system, when dispatching generating installations, to give priority to generating facilities using renewable energy sources or waste or producing combined heat and power.

A number of Member States have adopted such measures and have taken additional actions to ensure that high environmental standards are respected in gas and electricity production and supply. Community competition rules, and notably those concerning state aid, normally apply to such schemes. However, as seen in the treatment of such cases, these mechanisms are in principle compatible with the state aid rules providing their effects in terms of restriction of competition are not disproportionate to the pursued environmental objective, and the objective of increasing the EU's security of supply situation [24]. Furthermore recent guidelines have been adopted highly favourable to support mechanisms for renewable sourced electricity.

[24] See footnote 8.

To complement the measures taken at national level, the Commission has itself launched a number of initiatives:

-Renewable energy sources. The Commission has presented a proposal for a Directive [25] on the promotion of renewable energy sources in the internal electricity market. The aim is to ensure that the development of electricity from renewables will be in line with the overall EU indicative target of doubling the share of renewables in the gross inland energy consumption by 2010. On 5 December 2000, the Energy Council reached a political agreement on the proposal, which is likely to be adopted later this year.

[25] COM(2000) 279 final, 10.5.2000, "Proposal for a Directive on electricity from renewable energy sources and the internal market for electricity".

-Combined Heat and Power (CHP). A strategy for further developing CHP was outlined in the 1997 Communication on CHP [26], which also proposed an indicative target of doubling the share of CHP in EU by 2010. The recent Action Plan on Energy Efficiency [27] reaffirmed this target and it listed a range of measures to promote CHP. The proposal for a revised large Combustion Plants Directive also promotes the use of co-generation. In the framework of the European Climate Change Programme CHP has been identified as a promising area for achieving emissions reductions.

[26] COM(97) 514 final, 15.10.1997

[27] COM(2000) 247 final, 26.4.2000, "Action Plan to Improve Energy Efficiency in the European Community".

-Emission standards. Emissions from power plants are regulated through the Large Combustion Plants Directive (88/609/EEC) and the Directive on Integrated Pollution Prevention and Control [28]. On 22 June 2000, the Council (Environment) unanimously adopted a common position on the proposal for revising the Large Combustion Plants Directive. This increases the scope of the Directive and provides for more stringent limits for emissions from new plants.

[28] Council Directive 96/61/EC of 24 September 1996 concerning integration pollution prevention and control.

-Energy efficiency and energy saving. In April 2000, the Commission presented its Action Plan on Energy Efficiency, which calls for a 1% improvement of energy intensity per year compared to a business as usual, scenario. On 30 May 2000, the Council invited the Commission to come forward with detailed proposals for the implementation of the Action Plan. It is essential that efforts continue in this area immediately and in parallel to the market opening process. A fully opened market needs an internalisation of external costs to ensure a fair level playing field. The Commission will therefore promote initiatives in this sense, e.g. an EU-wide energy/CO2 tax, strict rules on State aid, demand side management measures, measures to promote cogeneration and renewables which have a competitive disadvantage as long as external costs are not fully integrated. For example, the Commission will propose the following legislative measures in this field in 2001:

-Proposal for a Directive concerning energy efficiency in buildings;

-Proposal for a European Parliament and Council Directive on the environmental aspects of electric and electronic equipments;

-Proposal for a European Parliament and Council Decision on a multiannual programme aimed at the promotion of renewable energy and energy saving (2003-2006) (follow-up to the SAVE and ALTENER programmes).

Furthermore, it intends to prepare, in 2002, proposals with respect to combined heat and power (CHP).

-Energy taxation. The Commission has proposed the extension of the present Mineral Oil Directive to also cover other competing energy sources, including electricity, gas, coal, lignite, etc. Furthermore, several Member States have introduced energy/environmental taxes to reduce energy consumption.

-Potential future actions. A number of additional and complementary measures are at present being examined at Community and national level. This includes, for example, the issue of green house gas emission trading. The Commission has launched a discussion on the issue in a Green Paper [29] in line with the Kyoto Protocol. The various working groups of the European Climate Change Programme which bring together stakeholders, Member States and the Commission are in the process of identifying possible policies and measures that could be recommended to the Commission with a view to meeting the EU's climate change objectives.

[29] COM(2000) 87 final, 8.3.2000, "Green Paper on greenhouse gas emissions trading within the European Union".

Conclusion

In many respects, market opening could be beneficial in meeting the Community's environmental objectives in energy terms. Notably, the introduction of competitive pressures has been seen to lead to the more rapid introduction of more efficient and cleaner thermal generating units than has been the case under monopoly conditions. However, with the potentially lower prices resulting from market opening, a number of complementary policies become increasingly important, as presented above.

The Commission is currently undertaking a study that will assess the overall environmental impact of liberalisation in the energy markets on the environment. The Commission will monitor the situation closely and, if necessary, propose further measures to safeguard the environment that, at the same time, complies with the internal market rules.

2.8. The effects of competition on employment

Though intervening with some delay, the creation of the internal energy market forms part of the 1992 objective to create a fully operational internal market in the European Union, with a view to foster growth and employment opportunities to the benefit of the citizens of the Union. Increased efficiency and lower energy prices as well as opportunities for new technologies resulting from the introduction of competition in the energy sector will, at least in the medium and long term, boost employment in the European industry as a whole.

The European Council at Lisbon in March 2000, when calling for the completion of the internal energy market, stressed the role of the internal market as a key element of the strategy of the European Union to "regain the conditions for full employment", in order "to become the most competitive and dynamic knowledge-based economy in the world with more and better jobs and greater social cohesion". Likewise, the European Parliament, in its Resolution on liberalisation of energy markets of July 2000, said that "competition is having a substantial effect on economies and consumers as a whole, such as ... increased opportunities for new employment, and is having a positive medium-term impact on the labour market in general economic terms".

However, as regards short-term developments in the energy sector alone, the introduction of competition is likely to lead to a reduction in the workforce, as a result of the necessary adaptation of the national ex-monopoly companies to competition through appropriate restructuring measures at company level.

It is important to ensure that such job losses occurring in the transitory period during which companies in the energy sector are adapting to the new competitive environment are recognised and appropriately taken care of by national and Community policies.

Against this background and in order to deepen its understanding of the employment situation in the energy sector, both with regard to experience made so far and possible future trends, the Commission launched a study. This study was designed and completed in close collaboration with representatives of the social partners. Based on available statistics on the quantitative developments of the workforce in the energy sector, it describes and analyses in particular the qualitative aspects of the employment development in the electricity and gas industry in the context of market opening.

As regards developments in the size of the workforce in the two industries concerned, statistics show that the number of people employed in the electricity and gas sectors decreased between 1990 and 1998 [30]. Major reasons for this reduction, which in many Member States clearly started before market opening, have been technological progress and a tendency to "outsource" certain functions. However, market opening has played a role in accelerating the process, particularly in the electricity sector.

[30] On the basis of the available European and national statistics, it has been estimated that more than 250 000 jobs could have been lost in the sector between 1990 and 1998. However, statistics often only show employment developments in utilities as a whole and do not - in case of multi-utilities - differentiate between the different services provided, e.g. gas, electricity and water supply.

The reduction of the workforce was coupled with a change of the skill profile required by the industry. In fact, technical occupations for semi-skilled and skilled employees as well as middle management and associated clerical professions have been reduced over time. New job opportunities have been created in areas such as marketing, customer services, IT and business services. In addition, the emergence of new business activities, such as energy trading, has brought about new jobs.

As regards the manner in which staff reductions were effected, the 10 companies in the UK, Ireland, Sweden, Italy and Germany, which were covered by the case studies undertaken, have managed to effect restructuring in a sociably consensual manner, for instance by applying voluntary early retirement schemes. In addition, a significant number of the larger companies surveyed had instituted re-training and redeployment programmes. Under such schemes retraining was offered, either to allow members of staff to remain with the company in a new position or tofacilitate finding a job outside the company.

Market opening has thus had both a quantitative and a qualitative impact on the employment situation of the electricity and gas industry. Traditional skills have become less relevant whereas new job opportunities have emerged for skills that are important in a competitive environment, such as marketing and customer service.

Thus far, the reduction of staff numbers, where considered inevitable, has been done in a socially responsible manner, through early retirement coupled with retraining schemes. However, as market opening is moving ahead and restructuring continues, it is necessary that alternative measures at company level intended to accompany the restructuring process be further explored and reinforced. Such measures are, for instance, working time reductions and increased retraining, in line with the European Employment Strategy under which, in principle, priority should be given to retraining and redeployment over early retirement. Developing alternative measures is particularly important if the possibilities for companies to handle restructuring through early retirement become more limited over time, due to staff becoming younger on average. Best practice in this respect should be exchanged between companies and the social partners. The Commission will encourage such an exchange of experience, for instance in the framework of the sectoral dialogue committee "electricity" [31].

[31] The Committee was set up on the basis of the Commission Decision of 20 May 1998 on the establishment of sectoral committees promoting the dialogue between social partners at EU level.

The Joint Declaration by the social partners in the electricity industry, published on 27 November 2000, is an encouraging first step in this context [32]. In this declaration, the European electricity industry and trade unions representing employees in the sector launched a common effort to explore ways by which both businesses and their staff could benefit from changes linked to the development of the internal market and to reduce the social consequences of restructuring as far as possible.

[32] Available at www.emcef.org, www.epsu.org, www.eurelectric.org

The opportunities offered under the European employment strategy should also be taken into account. The strategy provides the proper framework for dealing with both the quantitative and qualitative aspects of management of change, in particular the adaptability and employability pillars of the strategy. Adaptability refers to the adaptation of the work organisation of companies as a consequence of the new industrial context. The objective of the employability pillar is to increase employees' skills to cope with change, and includes strategies of life long learning. Actions under these employment policy pillars require the establishment of a strong partnership between public and private actors at different levels and can be financed through the European Social fund in the context of programmes agreed between the Commission and the Member States.

Special attention must be given in this context to developments in the candidate countries. It is important to assist energy companies and governments in these countries in the process of restructuring the energy sector in a socially responsible manner, for instance through sharing with candidate countries the experience made in the Community in this respect. Further monitoring will be undertaken by the Commission in this respect and the countries concerned will be encouraged to strengthen this aspect under the PHARE programme. However, the employment effects of market opening in the energy sector might well make their impact felt most strongly in the candidate countries when they will have been integrated in the internal market and the PHARE programme no longer applies to them. The Commission shall ensure that this aspect of market opening in the candidate countries will receive continued attention and support, also when the candidate countries will have become members of the European Union.

In conclusion, it can be said that it has been possible so far to effect restructuring in a socially responsible manner. However, the situation needs to be closely monitored and, if necessary, additional measures taken, as market opening and restructuring of the industry moves ahead. All relevant players must contribute in order to find solutions that will minimise any negative social consequences of the restructuring of the European electricity and gas industry.

2.9. Trade with third countries

Electricity has been exchanged between the EU and neighbouring non-EU countries for many years, for example between the EU and Nordel member countries. Prior to market opening such exchanges were carried out by the former utilities in the framework of their monopoly position. However, the amount of electricity exchanged was relatively limited, due to technical limitations such as low capacity of interconnections between national systems as well as differing operating standards.

In the liberalised internal market, trade in electricity with third countries is likely to become more attractive. Companies are already increasingly negotiating with third countries on future deliveries of electricity. Furthermore, the situation with regard to technical limitations of interconnections is gradually improving. There are a number of projects aimed at improving connections between Eastern and Central European countries, including the Ukraine and Russia, to the electricity grids of the Community.

A potential intensification of trade in electricity with neighbouring countries would, in principle, be a positive development. It would increase competition, resulting in increased efficiency and possibly provide new investment opportunities for EU companies in neighbouring countries. However, it must be ensured that such an extension of the market is made on the basis of a level playing field for all economic operators. A fundamental precondition for the introduction of Community-wide competition in the electricity market is the existence of comparable framework conditions in all countries concerned.

In view of the potential for increased trade in electricity and the need to make such trade subject to certain conditions, clear legal rules need to be agreed and compliance must be ensured. The enlargement process and the intention to accelerate market opening have accentuated the need for such a framework. The Community needs to be aware of, and prepared for, the consequences of a further opening of the internal market with regard to its trade relations with third countries. As regards electricity undertakings in third countries, they need to have a clear perspective allowing them to develop an effective and coherent strategy with regard to their participation in the internal electricity market.

With regard to gas, it is clear that the external dimension of the internal market is equally important. In view of growing import dependency, however, the issues are different. A reciprocal opening of upstream and downstream markets based on free trade and integration of EU and non-EU markets and closer and strengthened cooperation are important. Depending on developments, the Commission may consider whether specific initiatives are required in order to ensure external reciprocity.

2.9.1. Creation of a reliable legal framework for electricity trade with non-EU countries

It is necessary to create a reliable legal framework for such trade activities. As already spelled out in principle in the Commission Communication "Recent progress with building the internal electricity market" adopted in May 2000 [33], such a framework could be established through the conclusion of regional or bilateral agreements with third countries concerned, where appropriate in the context of existing framework arrangements, for instance the Association Agreements concluded with candidate countries. It appears appropriate to look into the possibility of asking for commitments, on the basis of reciprocity, to address environmental and nuclear safety standards, in particular in order to prevent potential danger to the environment in the Community. Such arrangements would constitute a reciprocity-based framework for trade with third countries, thus ensuring equivalent access to the Community market and third country markets and the respect of basic environmental and nuclear safety standards. In the absence of any specific arrangements, existing international trade rules apply.

[33] COM(2000) 297 final.

The Action Plan providing for technical assistance for the preparation of candidate countries to the internal energy market set up by the Commission in 1998 will facilitate the achievement of this objective. It puts the emphasis on the real need for assistance on regulatory issues, drafting legislation, operation of the market and transmission system, establishment of national regulatory authorities, etc. Tailor-made action is being organised to smoothen the transition process. In view of the proposed acceleration of the opening of the market in the European Union, the Commission will strengthen the Action Plan for technical assistance and its other efforts to assist the candidate countries in adapting their energy sector to meet EU requirements.

2.9.2. Next steps

The Commission shall identify - through the analysis of available information and bilateral contacts - countries, potential candidates for entering into a bilateral or regional agreement/understanding with the Community. In principle, such countries must have an electricity market organised in compliance with the basic principles of the EU Electricity Directive, both in quantitative and qualitative terms (i.e. with regard to the degree of market opening, third party access and unbundling) and must be prepared to grant access to the market for EU companies. Furthermore, the situation with regard to environmental standards applicable to electricity production and nuclear safety standards must be satisfactory.

As regards the accession countries any such agreements must be fully in line with the accession negotiations and future stipulations of the Accession Treaties.

Once potential candidate countries are identified, the Commission would request the Council for a negotiation mandate on the basis of the procedure of Article 228 of the Treaty and enter into the negotiations. It is expected that first mandates could be requested in 2001.

Furthermore, it is necessary to monitor the effects in practice of the concluded agreements. It appears therefore appropriate to require Member States to report regularly to the Commission on past quantities and origins of imports under new bilateral or regional agreements or existing arrangements. The Commission would then produce a report on experience made and, if necessary, propose additional measures at the Community level.

3. Conclusions

Important progress has been made with the development of the electricity and gas markets, in both quantitative (percentage market opening) and qualitative (structural choices on unbundling, network access, etc.) terms. This has led to important price reductions, most significant in those countries with a high degree of quantitative market opening.

As regards public service standards, experience demonstrates that market opening, including full opening, has not resulted in any decline in public service standards. On the contrary, full market opening combined with effective regulation has led to increasing awareness and standards of public service. The Commission feels it is of the utmost importance that public service standards should not decline. Although all the evidence points to public service standards going up, the Commission feels it is important to stipulate at least that in all Member States universal service in electricity should be ensured, meaning the supply of high quality electricity for all households at affordable prices and that a minimum set of final customer protection standards are adopted.

Market opening has also proved compatible with the Community's objectives in terms of security of supply and environmental protection, provided the necessary complementary policies are pursued. Appropriate measures are in place or under preparation, at national and community level, to ensure that the progressive completion of the internal market contributes positively to the Community's objectives in these respects.

Measures can and are being taken to ensure that the necessary restructuring of energy industry takes place in a socially consensual manner compatible with the Community's objectives in terms of employment policy.

Neighbouring countries are already participating or will participate in the internal market, subject however to considerations of reciprocity and environmental protection compatible with the trade rules and necessary to ensure a level playing field. Bilateral agreements could lay the foundation for progress in this respect.

These developments are encouraging. However, the ultimate objective of a fully integrated market has not yet been achieved. Experience has shown that the provisions of the Electricity and Gas Directives regarding two key issues must be reviewed and strengthened in order to complete the internal market.

As regards the level of market opening, most Member States have gone further than requested by the Electricity and Gas Directives. However, the degree of market opening differs considerably between Member States. This situation, if maintained over a longer period, will prevent a real level playing field from developing within the internal market. Such a development was not anticipated at the time the Gas and Electricity Directives were agreed. At that time, it was not expected that an overwhelming majority of Member States would open their markets more than legally required, and certainly not to commit to full opening within a short fixed time scale. Thus the distortion of competition - both between electricity and gas companies, and between electricity and gas users - that presently exists, was not expected. Furthermore, the reciprocity provisions of the Directive do not provide an adequate solution to this distortion.

Market opening is important, but to be effective in practice fair and non-discriminatory access to the network must be guaranteed. Though important progress has been achieved in this respect, in particular in electricity, there is still a need for further improvement. Also, the standards differ between Member States, a situation that is likely to accentuate distortions of the market. The number of respondents that stressed the fundamental importance of these issues at the Public Hearing, both in order to create effective competition and a level playing field shows the importance of this issue.

The Commission believes that the conditions are right for a significant further step in the market opening process, leading to the rapid completion of the internal markets for electricity and gas. As mentioned above, an overwhelming majority of respondents at the Public Hearing confirmed the need to complete the internal electricity and gas market more rapidly. As underlined by these companies, consumer representatives and organisations, the benefits of a fully liberalised market are numerous.

Full opening of gas and electricity markets would provide a level playing field between Member States and for all market players in the internal market, which cannot be expected through the implementation of the current directives, as has been demonstrated above.

As regards the price of electricity in particular, the level of competition that has already been achieved in this area has led to important price reductions. These will maintain and enhance the general competitiveness of EU industry. Market opening is now moving forward quickly in most of the countries with which EU undertakings principally compete. The completion of the single market is vital to keep up with developments of the markets of our trading partners.

Also, competition will lead to a greater homogeneity of prices throughout the Community thereby providing a level playing field for both industrial and private energy users. This is of particular importance for small and medium sized enterprises which at the moment are often disadvantaged compared to large industrial customers, in particular if they are captive customers. In this respect, it is notable that a number of respondents underlined that it cannot be justified to continue to give a competitive advantage to large EU companies over small ones in terms of access to comparative electricity and gas prices. Given the importance of small and medium sized enterprises for the Community, such a situation can only be prejudicial in terms of competitiveness, innovation and employment.

Full market opening will also encourage innovation and the market penetration of new technologies. In fact, many new technological developments are taking place in power generation, notably with respect to micropower technology and renewable energies. Microturbines are increasingly presenting alternatives to customers, and fuel-cell technology is now being introduced. These technologies have considerable advantages for many customers in terms of reliability, environmental impact and often cost. Furthermore, for peripheral areas, such technologies are particularly attractive. The completion of the internal market will provide a level playing field for all competitive technologies in terms of access to customers and will therefore accelerate the introduction of these new technologies.

Further market opening is also likely to increase service levels for customers, particularly at the final consumer level. The quality of service offered, for example in terms of repairs, new services and billing arrangements, are some of the areas on which undertakings compete. This has already been seen in countries where full market opening has taken place.

Finally, the development of "gas-to-gas" competition would be further facilitated by the completion of the internal energy market. At present, the price of natural gas in continental Europe is closely linked to the oil price parity. In Germany, for example, light heating oil prices increased by 50% between July 1999 and July 2000. Gas wholesale prices increased by 42% during the same period. The average December 2000 border price for German gas imports was up nearly 90% on the previous year. It is clearly in the Community's interest that gas-to-gas competition continually develops, de-coupling the oil/gas price relationship since this will improve the diversity of the supply of energy to the EU. The Gas Directive already envisages the development of gas-to-gas competition through the right to get third party access by eligible customers right up to the wellhead. As increasing numbers of eligible customers source competitively, this will require gas producers to increasingly compete between one another in terms of price.

The development of effective gas-to-gas competition in Europe may be hampered by the extent of long-term contracts in European gas supply and transportation. An effective way of opening up the European gas market and developing gas-to-gas competition would be to introduce gas release programmes by opening existing long-term exclusive supply contracts to third parties. A few Member States have introduced such programmes and other Member States should be encouraged to consider such programmes, which would increase liquidity in the gas market.

In order to achieve full market opening, both quantitative and qualitative elements must be addressed. It is necessary to fix a deadline for Member States to permit all customers, both industrial and domestic, to purchase electricity and gas from the supplier of their choice throughout the Community. This will ensure that an internal market develops rapidly and to the benefit of all Community citizens, but also to provide a real level playing field for all EU companies.

Second, it is necessary to ensure an effective system of market access - ensuring that eligible customers and generators are able to have effective and non-discriminatory access to the transmission and distribution grid and other essential infrastructure. Experience indicates that the achievement of the ultimate goal of non-discriminatory access to the network cannot be fully achieved on the basis of the current rules of the Directive regarding third party access and the level of unbundling. In this context, independent national regulatory authorities should be established in all Member States, as they play a pivotal role in ensuring non-discriminatory terms for access to the network. They should at least have the power to fix or approve transmission and distribution tariffs.

High standards must be assured with respect to both the conditions of third party access and unbundling, ensuring a high degree of independence - and thus impartiality - of system operators. Such standards should in principle be comparable in quality in all Member States in order to provide for a level playing field and avoid trade distortions.

The Commission has therefore concluded that proposals meeting these requirements should now be put forward to the European Council and Parliament. Furthermore, such proposals can reinforce the existing provisions regarding public service objectives. These qualitative proposals have already been identified in the Green Paper on security of supply that was adopted by the Commission in November 2000 [34].

[34] COM(2000) 769, pp. 71 and 72.

While it is true that such proposals follow relatively quickly after the implementation of the existing Electricity and Gas Directives, strong grounds exist for proposing new measures. First, market opening has proceeded far more quickly than expected in most Member States, resulting in more important market distortions than expected. Second, existing experience demonstrates that if effective competition is to develop, and a level playing field is to result, equivalent and robust minimum standards must be set regarding unbundling and third party access.

However, it is important that the completion of the internal market does not endanger but contributes to the attainment of the Community's goals in other important areas, such as consumer protection and the protection of the environment, security of supply and other public service issues. Therefore, as market opening accelerates, it must continue to be accompanied by appropriate measures in these areas, both at the national and the Community level. The Commission will closely monitor developments in this regard and make appropriate proposals when necessary.

It should also be underlined, that this next legislative stage is only one of the elements that will need to be undertaken to achieve an effective internal market. Whilst, for example, much has been achieved in the context of the Florence and Madrid electricity and gas fora, further progress is essential, particularly with respect, for example, to the cross-border tarification mechanism and congestion management in the electricity sector. The Commission will formalise the progress that has been achieved so far in the framework of the electricity regulatory forum with legislative measures.

In particular for electricity, it is now necessary to provide for a formal legal framework building on the results of the regulatory Forum relating to cross border access to transmission networks. This will allow the adoption of Decisions on the matter that are directly applicable. The Commission has therefore decided that a proposition fulfilling this requirement should be presented to the European Parliament and Council.

Furthermore, continued progress will need to be made in adopting existing proposals in the environmental and taxation areas. To ensure that continued high levels of public service are maintained and increased, the Commission will continue its ongoing benchmarking exercise, and will adopt a Communication on this issue during 2001. The Commission will also continue work on security of supply issues. The Commission on 29 November 2000 has adopted a Green Paper (COM(2000) 769) on this issue, and continued work on this area will be important. All of these issues will continue to be priority areas for the Commission in parallel to the adoption of further legislative measures aimed at completing the internal markets for gas and electricity.