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SEWRC Needs a Peer Review
Dietmar Preinstorfer, Head of Int. Relations at E-Control and alternate member of the BoR of ACER
AUTHOR: Atanas Georgiev

Mr. Preinstorfer, what is the current state of regulators' cooperation in the EU and how ACER supported this process during the time of its operation?

- The EU’s 3-rd legislative package on energy liberalisation came into force in September 2009 and gave member states until March 2011 for transposition into national law. The third package’s main achievements are: stricter unbundling rules; strengthened consumer rights; emphasis on the independence of the national regulatory authorities (NRAs); provisions for the development of cross-border electricity and gas trading rules; and the establishment of the Agency for the Cooperation of Energy Regulators (ACER). Located in Ljubljana, Slovenia, ACER formally took up operations on 3 March 2011. In addition to its Director and the Board of Regulators, ACER has an Administrative Board concerned with matters of business planning and a Board of Appeal.

The Board of Regulators (BoR) brings together the heads or high-level representatives of EU NRAs and as the technical body in ACER plays an important role in the Agency’s regulatory work. It takes most decisions by two-third majority and operates on the one country-one vote principle. When we speak up, Austria and Bulgaria’s voices thus have the same weight in deliberations as those of larger member states.

ACER’s Regional Initiatives date back to 2006, when they were created as a stepping stone from national markets to the Internal Energy Market (IEM). Through the intermediate step of regional energy markets, coherence and convergence are slowly built. Austria leads the Central and Eastern Europe region and is part of the Central South region in electricity. In gas, Austria and Bulgaria are both members of the South-South East region. The regional initiatives are one forum for regulators to also cooperate with TSOs and other market players.

Even before ACER was established, European regulators created the Council of European Energy Regulators (CEER) as a platform of their own to exchange experience and deliver a European perspective. A non-profit association, CEER takes a complementary approach to ACER, which operates within its statutory tasks and obligations. CEER is more flexible and out of the wide range of possibilities members have chosen to focus on support to NRAs in their daily tasks, consumer and international affairs, and strategic policy work. Unlike ACER, CEER is open to participation from non-EU regulators. Some countries that are part of the European Economic Area (EEA) can become full members – such as Norway. Others are subject to a number of criteria, and can contribute as observers – such as Switzerland.

In addition, the Energy Community Regulatory Board (ECRB) as the regulatory body of the Energy Community is of particular importance for southeast Europe. Austria and Bulgaria are participants in the process, which aims to extend the EU’s energy legislation to the Balkans as well.

What were the main challenges for ACER after its creation? And what are the main challenges ahead for your institution?

- ACER is working towards the Internal Energy Market for electricity and gas. To achieve this goal, a broad range of binding rules designed to make the cross-border electricity and gas markets more secure, efficient, transparent and straightforward are being established. This process involves ACER releasing framework guidelines based on which the European Networks of Transmission System Operators (ENTSO-E for electricity and ENTSOG for gas) develop network codes. These become legally binding by virtue of Comitology, kicked off by the European Commission.

In addition, ACER has been assigned a number of monitoring tasks with particular emphasis on electricity and gas consumer prices, grid access and compliance with consumer rights provisions.

One of ACER’s main functions is its coordinating role in NRA cooperation. A peer review mechanism enables the Agency to deliver opinions on NRA decisions and hand down recommendations to support NRAs in exchanging good practices. In cases where decisions on cross-border infrastructure are delayed because the concerned NRAs reach no conclusions within six months, ACER takes binding decisions. The NRAs may also jointly decide to hand such cases to ACER before this period has expired.

And ACER keeps receiving new tasks: the Gas Security of Supply Regulation, the Regulation on Energy Market Integrity and Transparency (REMIT) and the future Energy Infrastructure Regulation all hold additional responsibilities and challenges for the Agency.

From your point of view, currently what are the main challenges for national energy regulatory agencies? Do they have enough independence, capacity, and resources to implement properly the requirements of EU's liberalization policies?

- The overall aim of NRAs is the establishment of the IEM. To achieve this, the creation of regional wholesale markets is the logical interim step. And this in turn depends on functioning national regulatory frameworks.

Assuming that NRAs have done their homework and national rules are in place and working, contributing to ACER is likely to be the greatest challenge at the moment. It is the regulators’ task to design and approve rules for cross-border energy trade through their participation in ACER.

Regulation aims at stable or improved supply quality at reasonable prices. In this endeavour, a regulator’s most valuable asset is its independence. NRAs can only earn and secure market players’, investors’ and consumers’ trust alike if they apply objective criteria and transparent methods in carrying out their duties. In its third package, the EU has further strengthened the independence of NRAs: the previous requirement for them to be independent of the regulated industry has been extended and regulators must now also be independent of their national governments. Some criteria for how to ensure this are sufficient human and financial resources for NRAs to properly carry out their tasks, and complete budgetary independence.

The public opinion does not usually happily embrace situations where politicians announce e.g. that regulated prices will be lowered and the NRA opens a related procedure not long after, handing down a decision in line with the politicians’ announcement quickly and without a objective and transparent procedure. This recently happened in Bulgaria and has deeply ruptured trust in the NRA’s independence. SEWRC (DKEVR) will have to invest much time and effort into rebuilding this trust.

Do you have enough cooperation with the Bulgarian energy regulatory body – the State Energy and Water Regulatory Commission?

- In theory, E-Control cooperates with SEWRC through the Agency for the Cooperation of Energy Regulators (ACER), the Council of European Energy Regulators (CEER) and the Energy Community Regulatory Board (ECRB). However, SEWRC has hardly participated at all in these organisations’ activities for some years, drastically reducing opportunities for cooperation.

This is all the more deplorable as it would be of crucial importance for SEWRC to cooperate internationally, particularly through ACER and CEER: this is where we are developing large parts of the future European IEM rules. Neglecting the chance to contribute to these bodies’ operations means losing the chance for the Bulgarian voice to be heard.

What are the main changes that have to be implemented in the Bulgarian energy sector from regulatory point of view?

- The Bulgarian energy sector faces a number of challenges that should be addressed to create a framework for a market in which consumers and players can move with confidence.

The Bulgarian electricity and gas markets are highly concentrated. In particular, NEK’s dominant position in the production segment and its de facto export monopoly are barriers to the development of competition.

The country needs a reliable plan for phasing out regulated end-user prices. At the same time, effective mechanisms for protecting vulnerable customers must be put in place, but it is important to ensure that these are designed so as not to create distortions.

In terms of the tariff regime, rates should reflect actual costs and avoid cross-subsidisation. Also the export fees that apply at cross-border interconnection points should be abolished.

The regulatory framework should create incentives for future investments. A variety of factors and actions can contribute to an investment-friendly climate, one being the predictability of regulatory decisions that is created by applying objective criteria in regulation.

As pivots of the market, transmission system operators (TSOs) and distribution system operators (DSOs) must be independent in their actions. Market players must be able to rely on their impartiality.

Rules for fair, transparent and market-based balancing are required, particularly in electricity.

The NRA’s independence should be strengthened in line with the 3rd package. Among other things, this refers to the independence and qualification of the regulatory body’s management, and to sufficient numbers of skilled staff. NRAs need to be adequately equipped to be able to take on future challenges. One way to go about this might be to engage an independent body to undertake a peer review and draw up a skill gap analysis.

In the process of market coupling and further integration of Europe's national markets, what will be the role of national regulatory bodies and ACER?

- A single EU price coupling requires huge coordination efforts as the number of involved parties (TSOs and power exchanges) is significant. The whole process covering inputs - calculation steps - results affects the market participants and the consumers. Thus Regulators play a crucial role in ensuring a proper outcome of the market coupling implementation.

For the time being ACER and NRAs are closely following the NWE (North-Western Europe) regional process as this was identified as a pilot project for Europe. This includes all aspects relevant for congestion management and capacity allocation such as the selection of the calculation algorithm, the different rules related to the application or cost recovery. At the same time countries envisaged to join as soon as possible the NWE project are already regularly informed. Since many of the mechanisms need to be harmonized across Europe for a single market coupling project also Regulators do face a coordination challenge. NRAs are required to approve various mechanisms for the implementation. Given that these shall be harmonized also Regulators will have to coordinate for ensuring harmonized approvals. ACER will play a key coordination role in these processes.

Dietmar Preinstorfer is Head of the Department for International Relations at the Austrian energy regulatory agency E-Control. He was born in Gmunden, Upper Austria, in 1968 and graduated Business Administration at the University of Graz. He has been working as a parliamentary assistant with a focus on economic and energy policy from 1998 to 2001 and then started working for E-Control in May 2001. From September 2004 to October 2005 he worked as seconded national expert at the Secretariat of the Council of European Energy Regulators (CEER) in Brussels and since November 2005 he has been head of E-Control’s International Relations department.

Currently Mr Preinstorfer’s responsibilities include contacts with national and international organisations, as well as representation of E-Control in CEER. He is also an alternate member of the BoR of ACER.

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20.03.2022  Teodor Bobochikov, Managing Partner, V-Ridium
Energy Transformation – Trends and drivers
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