EU Energy Policy Blog

The newest ACER is not a PC: it stands for Agency for the Cooperation of Energy Regulators. It is a proposal made by the European Commission within the framework of the Third Energy Package. Why such an agency is needed ? Why the current proposal is deceptive ?

The proposal to create a European regulator aroused much criticism for fear of new bureaucracy being established, fear of the Commission expropriating the existing national regulators of their autonomy and, in general, fear of a migration of power from the national capitals to Brussels. The proposal is positive but not very strong, and the new structure appears too heavy. Worse, the proposal risks being further weakened by compromise amendments so as to become less constraining for national governments and regulators on one side, and for incumbent companies on the other. The new Agency would then be not very useful, and the bureaucratic weight would be even less justified.

There is a point in making regulation more European. The idea of a new Agency is the result of an evaluation of the work of ERGEG, the advisory group made by national energy regulators. ERGEG has been useful, but it is now necessary that « the voluntary cooperation of national regulatory authorities evolve towards a well-established Community structure with clear competences and with the power to adopt individual regulatory decisions in a number of specific cases » (Proposal, Recital 3). Consequently, « it was concluded that an independent central entity offered a number of long-term advantages over other options. An Agency for the Cooperation of Energy Regulators […] should therefore be established » (Recital 5).

The proposal turns ERGEG into a 27 – member Board of Regulators which will take regulatory decisions with a two-thirds majority. It is important to nitice that the regulators of Germany and Malta, to make an example, will have the same weight. Our Maltese friends probably agree that this is a bit odd. However, the decreased scope of possible veto power by individual regulators is undoubtedly a major step forward.

The Agency will have a Director to prepare and implement the Board’s decisions. The Director will have staff and a budget, as is necessary. But the risk of an overweight bureaucracy is present. Oversight on the activity of the Director and staff will be provided by an Administrative Board of 12 members (6 appointed by the Commission and 6 by the Council): this is little justified and very worrying.

Note also a curious detail: « In each Member State, the Agency [...] may, in particular, acquire or dispose of movable and immovable property » (art.2.1). I understand this is routine bureaucratics, but someone should notice that it makes no sense.

Of course, the size and the shape of the new agency depend on tasks it has to perform. What are they ? I shall explore them by taking a very ambitious attitude. Prudence will be appropriate in designing the steps of implementation but should not paralyse our search for a rational path. Definition of the target requires a dose of utopia.

As I see it, there are two main reasons in favour of a Agency or similar.

Reason One: the variety of national regulation is an obstacle to the functioning of the internal market. For a new entrant into a national energy market, national regulation is a barrier. Norms, interpretative documents, jurisprudence, procedures must be known and understood. No wonder that companies prefer to buy a local company rather than establishing a local branch or even offering cross-border contracts to individual customers, as one expects it should happen in a single market.

On the contrary, an easily accessible set of rules would make new entry much easier and cheaper. No dramatic decision would be necessary by an energy company in one country in order to start looking for customers in another, or to accompany an existing customer expanding into another country.

Reason Two: national regulation is systematically exposed to a localistic bias as a result of pressure by government and by local stakeholders. Good regulators bravely resist such pressures, but the same people would produce better regulation more easily if they could act from a distance.

ACER or other, what is needed? Well, a body of regulation especially regarding transmission tariffs and rules of access to the grid that is reasonably simple, uniform and accessible. Therefore, it would be useful to have a small European team working on the existing 27 sets of regulatory documents, extracting a ‘document of essentials’ and having it discussed and approved by some body entitled to decide and impose its decision. The Commission and the national regulators should discuss this basic document and adopt it within an agreed time limit. If ACER is the structure which allows this to happen, then it is a great innovation.

The agreed basic document should be published. A number of national and local addenda and exceptions would survive of course; it would be greatly advantageous to have them explicitly justified, written in plain language and published together with the basic document on one website. All the body of regulation would be published in English, plus as many other languages as each regulator wishes. And since it must be readable, all reference to previous national laws and regulatory norms would be banned when it prevents an immediate understanding. If ACER is the structure which allows this to happen, then it is a great innovation.

National sovereignty would be accommodated by allowing some flexibility in the regulatory design. As an example, different levels of the basic transmission tariff would naturally respond to different local cost conditions or national policies for financing common system costs such as the promotion of renewables. But surcharges would be applied to a common basic framework, and would be clearly visible by all, allowing for comparison exercises by users and benchmarking exercises by all stakeholders. If ACER is the structure which allows this to happen, then it is a great innovation.

The European Commission’s proposal is of course much less ambitious. It states that « the Agency should ensure that regulatory functions performed at national level by the national regulatory authorities in accordance with Directive 2003/54/EC and Directive 2003/55/EC are properly coordinated and, where necessary, completed at European level » (Recital 7).

Basically, the Agency will monitor the activities of the Transmission System Operators, will issue opinions to the Commission, and will trigger Commission action to ensure compliance of network operators to the principles of non-discrimination as defined in the directives and regulations.

Cooperation among regulators will be reinforced (art.7) « The Agency shall establish mechanisms which assure cooperation between the national regulatory authorities. These cooperation mechanisms shall for example define the duty for the national regulatory authorities concerned to provide information to the Agency, if a decision to be taken by a national regulatory authority is likely to affect the internal market ». The Agency « may issue an opinion, at the request of any national regulatory authority or at the request of the Commission, concerning the compliance of a decision taken by a regulatory authority with the Guidelines adopted by the Commission » and if the national regulator does not comply, « the Agency may adopt a decision asking the relevant regulatory authority to review its decision ». This is something, but very mild.

A stronger statement, in the same article, is « It shall adopt a decision, upon request by the national regulatory authorities concerned or upon its own initiative, if two or more national regulatory authorities do not agree on the regulatory regime, for infrastructure connecting at least two member States, or if it estimates that decisions taken jointly by two or more regulatory authorities concerning specific markets actors could have a negative effect on the internal market in electricity and natural gas ».

So the Agency can impose some consistency to individual regulators or small groups of them, although not to an alliance of 10 regulators (since, as mentioned above, it acts with a two-thirds majority of 27).

The Agency will also decide on exemptions from Third party access in the case of new electric interconnectors and of new gas infrastructures (art.8).

So my conclusion is that the proposal need be (a) welcomed and carefully examined, (b) reinforced in its reform potential and (c) made lighter in its bureaucratic aspects. Task (b) is usually performed by the Commission and opposed by the Council, so it looks unlikely that the Council will improve this text. Task (c) may be undertaken by national governments and regulators reacting to the Commission’s proposal, with the risk that they will worsen (b) while improving (c). Will the European Parliament help in squarring the circle? Who knows!

This entry was posted on Tuesday, October 2nd, 2007 at 9:13 pm and is filed under Energy Policy, English. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.