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European Gas Market Liberalisation European gas market liberalisation: Are regulatory regimes moving towards convergence? Nadine Haase May 2008 NG 24 i The contents of this paper are the author’s sole responsibility. They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its members. Copyright © 2008 Oxford Institute for Energy Studies (Registered Charity, No. 286084) This publication may be reproduced in part for educational or non-profit purposes without special permission from the copyright holder, provided acknowledgment of the source is made. No use of this publication may be made for resale or for any other commercial purpose whatsoever without prior permission in writing from the Oxford Institute for Energy Studies. ISBN 978-1-901795-73-8 ii CONTENTS Acknowledgement .......................................................................................................................... 1 Summary ......................................................................................................................................... 2 1. Introduction ........................................................................................................................... 3 2. Theoretical framework ......................................................................................................... 5 2.1Goals and neoclassical assumptions of the European gas reform ...................................... 5 2.2Institutional change in the light of New Institutional Theory ............................................ 7 2.3Williamson’s conceptual framework of institutional change ............................................ 7 2.4Conceptual applications to the European gas market reform ............................................ 8 2.5Adjustments to the model ................................................................................................ 10 2.6European harmonisation versus path dependency ........................................................... 12 3. Research outline .................................................................................................................. 17 3.1 Research questions .......................................................................................................... 17 3.2 Policy convergence ......................................................................................................... 17 3.3 Regulatory regimes in the context of European gas market reform ............................... 20 4. European gas market reform, 1998 - 2007: a road map ................................................. 22 4.1 Introduction ..................................................................................................................... 22 4.2 Evolution of the reform ................................................................................................... 22 4.3 First phase – first Directive ............................................................................................. 23 4.4 Acceleration phase: second Gas Directive ...................................................................... 25 4.5 Security of Supply Directive ........................................................................................... 29 4.6 Regulation 1775 .............................................................................................................. 30 4.7 Exploring the potential: evaluation and reinforcement phase ........................................ 31 4.8 Concluding considerations .............................................................................................. 37 4.8.1 Conclusion and expectation ..................................................................................... 37 4.8.2 Outlook .................................................................................................................... 39 5. Regulatory requirements of the European gas market reform: how much leeway do member states have? ............................................................................................................... 43 5.1 Legal framework of the European gas market reform .................................................... 44 5.2 Objectives and principles of the reform .......................................................................... 44 5.2.1 General principles .................................................................................................... 45 5.2.2 Issue related principles ............................................................................................. 46 5.3 Mandatory instruments ................................................................................................... 47 5.3.1 Legal market opening .............................................................................................. 47 5.3.2 Third party access .................................................................................................... 48 5.3.3 Unbundling .............................................................................................................. 50 5.3.4 Balancing ................................................................................................................. 52 5.3.5 Regulator .................................................................................................................. 52 5.4 Conclusion and expectations ........................................................................................... 53 6. Research methodology ........................................................................................................ 56 6.1 Geographical scope ......................................................................................................... 57 6.2 Time-frame and data ....................................................................................................... 57 6.3 Operationalisation ........................................................................................................... 59 6.4 Assessing the comprehensiveness of a regulatory regime .............................................. 59 6.5 Choice of Indicators ........................................................................................................ 60 6.6 Indicators for the dimension of regulatory function ....................................................... 60 iii 6.7 Indicator for the dimension of regulatory competencies ................................................ 63 6.8 Index: Aggregation and weighting of Indicators ............................................................ 64 6.9 Index: Components and scaling of Indicators ................................................................. 66 6.10 Scoring of Indicators describing the dimension of regulatory function ....................... 67 6.10.1 Legal market opening ............................................................................................ 67 6.10.2 Network access conditions and tariffication .......................................................... 67 6.10.3 Gas balancing rules ................................................................................................ 73 6.10.4 Third party access to storage .................................................................................. 74 6.10.5 Gas release programme .......................................................................................... 74 6.10.6 Trading facilities .................................................................................................... 74 6.10.7 Unbundling ............................................................................................................ 75 6.11 Scoring of indicators describing the dimension regulatory competencies .................... 76 6.11.1 Third party access .................................................................................................. 77 6.11.2 Decision of capacity allocation rules ..................................................................... 78 6.11.3 Approval of balancing conditions .......................................................................... 78 6.11.4 Dispute settlement .................................................................................................. 78 6.11.5 Type of regulator .................................................................................................... 78 6.11.6 Ratio market size/staff number of the regulator .................................................... 79 6.11.7 Ratio market size/budget of the regulator .............................................................. 79 6.12 Summary ....................................................................................................................... 81 7. European gas market regulation: do regulatory regimes converge towards best practice? ................................................................................................................................... 85 7.1 Introduction ..................................................................................................................... 85 7.2 Regulatory comprehensiveness at a glance ..................................................................... 86 7.3 Convergence of regulatory functions .............................................................................. 89 7.3.1 Legal market opening .............................................................................................. 89 7.3.2 Network access conditions and tariffication ...........................................................
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