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There could be a single European energy regulator for the wholesale market
Mr. Alberto Pototschnig, Director of ACER
AUTHOR: Interview questions by Atanas Georgiev and Lyudmila Zlateva

We interviewed Mr Pototschnig for the July issue of the Bulgarian UTILITIES magazine and the online portal in the end of May in Sofia, where he met for the first time with the new Chairman of the Bulgarian Energy and Water Regulatory Commission - Assoc. Prof. Ivan Ivanov, who was the first Chairman to be elected by the national Parliament.

Mr. Pototschnig, in 2015 ACER turns 5 years since its establishing. What have been the milestones of its development until now and what will be the next steps?

If we look at where we were back in September, 2010, we have travelled a long distance. When I started back in 2010, I started with a room with two tables and no chairs, eventually swapping a table for a chair. Now we have about 80 people in Ljubljana and 200+ national regulatory authorities (NRA) experts with whom we are working in our Working Groups. We have so far published the framework guidelines in all the 8 priority areas identified by the Commission and recommended for adoption 11 of the 14 related network codes.

We have also managed to meet all the legal deadlines for issuing opinions and recommendations, except for two instances in which we were a couple of days late. I think that for five years, this is a very good performance rate and it has been acknowledged by the European Commission in the evaluation of our work last year. We have managed to cement our reputation as a credible institution and, for a young institution, this is very good. The team in Ljubljana is wonderful, we have 23 nationalities working together, so it is quite interesting from a cultural point of view as well.

I believe we have further enhanced the cooperation of national regulators. There is, of course, a tradition in cooperation dating back to the late 1990s, but I think ACER added a new, European dimension to this cooperation. Under the Third Energy Package NRAs have European objectives, alongside their national ones. Most of the discussions we are having in the Board of Regulators at ACER and with NRAs are about the extent of integration, taking into account national specificities. It is a very healthy debate. We do not always agree, but there is always a very constructive debate. I believe the added value of ACER is to push European integration to the limit of what is feasible. We do not want to become detached from reality and we are always looking for a reality check. We need to know what is happening within national markets and, this is why the involvement of national regulators is so important, so we can push integration further ahead in a sensible way. The feedback we get from the EC and stakeholders is very positive.

What will be the role of ACER in the development and the implementation of the Energy Union strategy?

The Energy Union communication talks about the need to strengthen the independence and the responsibility of ACER. What is more, people started talking about a European energy regulator. I think the truth is somewhere in between. There are areas where the Agency can take incremental responsibilities. In ACER’s Conclusions Paper ‘Energy Regulation: A Bridge to 2025’ we specified a number of areas in which we believe the Agency should be given additional responsibilities, mostly with respect to wholesale markets and Europe-wide infrastructure. We are clearly going towards a single European wholesale market and integrated network, so a governance framework where 28 national regulators have to agree on the applicable EU-wide rules is not very robust.

When it comes to retail markets, it is still useful to have a national regulatory approach, because consumers would not want to come to Ljubljana to have their rights protected. They still want to talk in their language with their national regulator. So, I do not really subscribe to the idea of a single European energy regulator, at least not now. Nevertheless, in the long term we could have a single regulator for the wholesale segment and the horizontal networks, but when it comes to retail and consumer rights and awareness national regulators will still have a lot to do.

Do you see a greater role of ACER in the future as a pan-European regulatory agency, similar to FERC in the USA, or it would be confined to the current obligations?

FERC is a federal regulator which has jurisdiction on interstate issues, so in this respect they could be a reference for us in the longer term, as Europe would like to have a regulator for the wholesale market and horizontal networks. But at present, we are still three or four steps behind getting there. FERC also has strong powers which we do not have. Even though ACER has become very influential, the Agency is issuing recommendations, while the powers remain at national level.

FERC should be considered as a concept, three steps forward, to where Europe might want to get. FERC can issue penalties reaching USD 1 million per breach per day, which makes people listen to them, while ACER does not have any enforcement powers. Either way, I do not think regulation is about penalties, but about getting the market to function well. We talk to FERC, we have a Memorandum of Understanding with them on wholesale market supervision because they have a similar responsibility to ours to monitor markets, except they also have investigation enforcement.

What are the next steps regarding REMIT?

For us REMIT is a big challenge because it is unprecedented. We have been working on it for two and a half years. The next big milestone is planned for October 7 of this year when every market participant will be expected to report, directly or indirectly, trades in wholesale energy products admitted to trading in organised market places. This rule applies also for bilateral trading if it is on contracts admitted to trade on the organised market. Quantities traded according to bilateral contracts under other, customized rules, will have to be reported as of April 7, 2016.

We are talking about huge amounts of data, we expect probably about 1 million trade reports per day. We have the software capacity to manage it, but we are more worried about the human resources. For the moment ACER has just 15 people committed to the entire REMIT project. In comparison, FERC has 55 people for their similar activities and I do not think they need this number of people because of inefficiencies, it is just a tremendous amount of work. Doing with 15 what is being done with 55 is, well, hopeless, so we will be asking for more resources. What we do with these data will depend on whether we are given additional resources.

Reporting and investigation are left to NRAs, which on their turn also have limited resources. This is why some regulators are looking at us to tell them what is going on in their countries. In a certain way it makes sense, as the markets are becoming more and more integrated. If there are instances of market abuse, the responsible market participant(s) would want to make it as hard to detect as possible. So they may trade from one market to another and ACER is the only one able to see these cross border breeches. We have developed tools to monitor different markets in parallel.

Are we near the completion of the Internal Energy Market? What are the main hurdles for its implementation?

The Energy Union has five dimensions – the completion of the internal energy market, the security of supply, decarbonisation, energy efficiency and research and development. It is a programme for the years to come and certainly the completion of the Internal Energy Market is an important political objective, already set by the European Council in 2011. I believe significant progress has been achieved in this direction. The Council has set 2014 as the target year and now we can take stock of the progress and achievements. Now there is a single wholesale electricity day-ahead market basically from the Strait of Gibraltar all the way to the Barents Sea. We have prices and flows across different jurisdictions which abide by the same algorithm, so this is a single market. There are still bottlenecks, including within national jurisdiction. Sweden, for example, and Italy, have recognised this and are managing them through a multi-zonal market configuration.

In this large region, we are trading electricity across national borders, the same way we do within national borders, which is a major step forward. Market coupling is covering 80 percent of the electricity consumed in Europe. Then, we have another market area which is probably of greater interest to Bulgaria. It consists of Romania, Slovakia, the Czech Republic and Hungary. Plus, there is a new power exchange that is expected to be launched in Bulgaria by the end of the year. This determines the next logic step as coupling it with Romania and through there with the others. In terms of gas there are also a number of regional platforms for capacity allocation. Therefore, we should not diminish the progress of the internal energy market, which was rather significant during the last two-three years.

What is the current level of cooperation between ACER and the Bulgarian Energy and Water Regulatory Commission? Do you see enough input from the Bulgarian Regulator in ACER’s work processes?

I think my visit to Sofia was very interesting because I had the opportunity to hear first-hand about the developments in Bulgaria. I presented the issues at European level and how we intend to bring benefits to consumers. Prof. Ivanov presented his vision for the energy sector. It was refreshing after the last few years in which we have more or less lost track of regulation in Bulgaria. Hearing about the specificities of a country is obviously interesting for us, as in the end, Europe’s single market is composed of different countries, which face specific issues. Unless we address these problems, we will not get anywhere. I am looking forward to having a greater engagement from the Bulgarian regulator, as cooperation could offer great benefits to the regulator through the exchange of practices and views, discussions, etc.

I believe cooperation between European regulators has improved during the last 15 years, but also since the start of ACER. The dialogue is rather positive. We do not always agree, but it is a very constructive process. In the end, if we are trying to create a single market, we have to forge rules which not only promote the internal market, but also provide a reality check with respect to national specificities. So, every regulator in Europe should contribute to this process. The Bulgarian regulator has not been very visible during the last few years, so I was really impressed by Prof. Ivanov’s commitment to bring the Bulgarian regulator back on the European scene.

One of the most discussed topics in Bulgaria is the independence of the Bulgarian regulatory authority. What are the possibilities for strengthening the independence and the administrative capacity of the Bulgarian Regulator under the framework of ACER?

The procedure for appointing the Commission members and chairperson by the National Assembly is a significant step forward. There are still concerns with the funding of the regulator, as independence is also achieved through sufficient resources and capacities. Sufficient funding is also important for a regulator’s capacity to relate with peers across Europe. As far as I understand, this issue is still to be dealt with, as funding of the Bulgarian regulator is not sufficient. It is true that in most European countries the budgetary situation is not prosperous, but here we are talking about investing a few million euros or levs in order to have better regulation and achieve far greater savings, in the likes of billions. We as an agency also face resource issues and we have also been talking with politicians in Europe to grant us more resources. I believe the benefits of investing in good regulation should be made clear. A good regulator is worth a lot.

For the whole of Europe, of course, having better regulation means spending a few hundred millions to ensure that the investment the energy sector requires, in the hundreds of billions in various projects, are developed efficiently. In Sofia Gunnar Lorenz of Eurelectric talked about the required investment in distribution grids, which is essential for accommodating renewables and smarter consumer technology. The Eurelectric estimates point that this amount is 400 billion euros.

Istanbul will host (on May 25-29, 2015) the VI World Forum on Energy Regulation. What are your expectations from this event?

The World Forum on Energy Regulation is the best opportunity to hear what is going on around the world. We talk a lot among ourselves in Europe and we meet with the U.S. regulators once a year or even more frequently. Then again there is much more than Europe and the U.S. So the Forum is a great opportunity to meet with people from around the world and exchange experiences. For example, there is a tradition of regulation in Latin America, but then again other countries come into the spotlight. The forum is also a great way to learn and, eventually, avoid repeating the same mistakes.

Alberto Pototschnig is the first Director of the European Agency for the Cooperation of Energy Regulators (ACER), established in 2010 pursuant to Regulation (EC) No 713/2009. He was appointed in May 2010 and took office on 16 September 2010.
Before joining the Agency, from January 2006 he was a Partner in Mercados EMI, a Madrid-based international consultancy specializing in the energy sector, where he served as CEO and Deputy Chairman. He previously worked at the Italian Transmission System Operators (from 2003 to 2005), served as first CEO of the Italian Electricity Market Operator (from 2000 to 2003) and in the Italian Energy Regulatory Authority (AEEG, from 1997 to 2000), with his final position being Director of Electricity Regulation. Alberto Pototschnig started his professional career in 1989 with London Economics, an international economic consultancy, where he was eventually in charge of the industrial economic advisory practice. Between 2003 and 2005 he acted as an adviser to the Italian Government on environmental policy issues. Since 2004, he is an adviser at the Florence School of Regulation, where he regularly teaches on energy regulation and market design. Alberto Pototschnig holds a Degree in Economics from Bocconi University in Milan and an MSc in Econometrics and Mathematical Economics from the London School of Economics, University of London.

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