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Implementation of the EU Third Energy Package in Member States with Strong Monopolies Cases of Ireland and Greece

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Implementation of the EU Third Energy Package in Member States with Strong Monopolies Cases of Ireland and Greece Faculty of Law Academic Year 2015-2016 Exam Session 1 Implementation of the EU Third Energy Package in Member States with strong monopolies Cases of Ireland and Greece LLM Paper By Chrysi Mitka Student number : 01510502 Promoter: Prof. Inge Govaere 1 To my promotor, Prof. Govaere for embracing the idea and motivating me, and my parents for their greatest support. 2 TABLE OF CONTENTS TABLE OF ABBREVIATIONS 5 INTRODUCTION 6 CHAPTER 1: EUROPEAN LEGAL FRAMEWORK 8 SECTION 1.1 CREATION OF EU ENERGY LAW 8 SECTION 1.2 THE FIRST ENERGY PACKAGE 8 SECTION 1.3 THE SECOND ENERGY PACKAGE 10 SECTION 1.4 THE ROAD TO THE THIRD ENERGY PACKAGE 11 SECTION 1.5 IN DEPTH ANALYSIS OF THE UNBUNDLING PROVISIONS 13 SUBSECTION 1.5.1 WHY IT IS NEEDED-RELATIONSHIP WITH TPA 13 SUBSECTION 1.5.2 OWNERSHIP UNBUNDLING IN DIRECTIVES 2009/92 AND 2009/73 14 I) FIRST OPTION-OWNERSHIP UNBUNDLING II) SECOND OPTION-ISO III) THIRD OPTION-ITO SUBSECTION 1.5.3 CONSIDERATIONS RELEVANT TO ARTICLE 345 TFEU 19 CHAPTER 2: EFFECTIVE IMPLEMPLEMENTATION OF THE EU UNBUNDLING PROVISIONS 21 SECTION 2.1 DEFINITION OF EFFECTIVE UNBUNDLING 21 SECTION 2.2 ASSESSING EFFECTIVE IMPLEMENTATION OF UNBUNDLING- FIRST GROUP 23 SUBSECTION 2.2.1 THE UK 23 SUBSECTION 2.2.2 THE NETHERLANDS 24 SECTION 2.3 ASSESSING EFFECTIVE IMPLEMENTATION OF UNBUNDLING- SECOND GROUP 26 SUBSECTION 2.3.1 FRANCE 26 SUBSECTION 2.3.2 GERMANY 28 SECTION 3 CONCLUSIONS 29 CHAPTER 3: THE CASE OF IRELAND 31 SECTION 3.1 HISTORICAL OVERVIEW OF THE IRISH ENERGY MARKET 31 3 SECTION 3.2 DEVELOPMENTS PRIOR TO THE THIRD ENERGY PACKAGE 33 SECTION 3.3 TOWARDS THE THIRD ENERGY PACKAGE 37 SECTION 3.4 EFFECTIVENESS OF UNBUNDLING IN IRELAND AND RELEVANT CONSIDERATIONS 43 CHAPTER 4: THE CASE OF GREECE 44 SECTION 4.1 HISTORICAL OVERVIEW OF THE GREEK ENERGY MARKET 44 SECTION 4.2 DEVELOPMENTS PRIOR TO THE THIRD ENERGY PACKAGE 46 SECTION 4.3 TOWARDS THE THIRD ENERGY PACKAGE 49 SECTION 4.4 EFFECTIVE (?) UNBUNDLING, THE CRISIS AND THE EXAMPLE OF IRELAND 51 CONCLUSION 57 BIBLIOGRPAPHY 59 4 TABLE OF ABBREVIATIONS NRA NATIONAL REGULATORY AUTHORITY TPA THIRD PARTY ACCESS OU OWNERSHIP UNBUNDLING ISO INDEPENDENT SYSTEM OPERATOR ITO INDEPENDENT TRANSMISSION OPERATOR CER COMMISSION FOR ENERGY REGULATION (IRELAND) DCENR DEPARTMENT OF ENERGY (IRELAND) RAE REGULATORY AUTHORITY FOR ENERGY (GREECE) HRADF HELLENIC REPUBLIC ASSET DEVELOPMENT FUND 5 INTRODUCTION The predominant aim of this paper is to present and critically assess, from a legal point of view, the steps Ireland and Greece followed in order to implement the Third Energy Package Provisions with respect to Ownership Unbundling.1 It should be noted that the two Member States were chosen for this analysis because they present interesting cases for various reasons. Primarily, the geographical position and formulation of the two countries (Ireland is an island, whereas Greece is a peninsula surrounded by two seas and over a hundred inhabited islands) are two crucial factors which have influenced, and will continue to influence, their choices regarding energy policy. In other words, the countries’ location and formulation create special energy needs. The above have been among the reasons both Greece and Ireland had entrusted their electricity and gas operations each to a public company which dominated the market for decades. These companies were (and still are) considered as key national assets. All the more, the energy sector had been functioning as one of the most important public employers in either country, providing for jobs to domestic population. Moreover, the Third Energy Package, found the two countries, each in a severe economic situation, due to the financial crises they were undergoing at the time (at the time of writing, Greece has not yet recovered from the crisis). Being Members States of the Eurozone, both countries concluded financial assistance agreements with the EU and IMF, including provisions regarding the privatization, among others, of a number of national energy-related entities.2 In other words, both Greece and Ireland could be characterized as peculiar cases with respect to energy matters. Precisely, their attempts for a reconstruction of the energy market, in order to meet liberalization and competition objectives, according to the mandate of EU Energy Law, overlapped with the above mentioned geographical, economic and social considerations and all the more, they were sometimes the result of financial agreements falling outside the scope of EU Energy Law (and the Third Energy Package more specifically). It should be noted that the purpose of this paper is to analyze the implementation of the Unbundling Provisions by Greece and Ireland from an EU Energy Law perspective. The legal nature of the relative financial agreements and their respective provisions, as well as the relationship between those and EU Energy Law are issues that exceed the limits of this paper and they will not be addressed in detail. Furthermore, in order to acquire a complete picture of the ‘EU Energy Unbundling Puzzle’, it is crucial to examine not only the scope and purpose of the legal provisions, but also to analyze the reasons behind their choice, as well as their effectiveness. Therefore, after presenting the EU Unbundling Legal Framework in the first chapter, the second is dedicated to assessing the effectiveness of unbundling in Member States which are categorized in two groups: The first 1 European Commission, ‘Market Legislation’ available at http://ec.europa.eu/energy/en/topics/markets-and-consumers/market-legislation accessed 11/5/2016 2 See Website of the European Commission, Financial Assistance in EU Member States http://ec.europa.eu/economy_finance/assistance_eu_ms/ireland/index_en.htm for Ireland and http://ec.europa.eu/economy_finance/assistance_eu_ms/greek_loan_facility/index_en.htm for Greece 6 group consists of the most interesting cases of Member States which implemented the Ownership Unbundling Regime on their own initiative, before it became an obligation under EU law, namely the cases of UK and the Netherlands.3 The second group contains Germany and France, two of the most economically strong Member States, which had been strong opponents to the ownership unbundling idea.4 The case of Ireland is the subject of the third chapter, while Greece is analyzed in the fourth chapter. The methodology followed in the paper is the descriptive one. To summarize, the research questions addressed in the present paper are the following: i) How is “effective unbundling” defined in the EU Third Energy Package? ii) How has it been pursued by Ireland and Greece (MS with strong monopolies and weak economies), has it been successful and, if not, are there remedies under EU energy law? iii) Is the definition of “effective unbundling” broader in reality and is it pursued by the EU as such? iv) What is the relationship between Ownership Unbundling and Privatization under EU law? 3 P. Lowe, I. Pucinskaite, W. Webster and P. Lindberg ‘Effective unbundling of energy transmission networks: lessons from the Energy Sector Inquiry’ [2007] 1 Competition Policy Newsletter, Spring 2007 ,23, 29 available at http://ec.europa.eu/competition/publications/cpn/2007_1_23.pdf 4 ‘Eight EU Member States oppose Unbundling, table Third Way’ Euractive (1February 2008 last updated 28 September 2012) http://www.euractiv.com/section/energy/news/eight-eu-states-oppose- unbundling-table-third-way/ accessed 12/5/2016 7 1. European Legal Framework 1.1. Creation of EU Energy Law The initial idea for energy market rules emerged from the realization by the European Commission that the monopolistic5 nature of the energy sector in most Member States created obstacles to the effective functioning of the European internal market.6 According to the Internal Energy Market Working Paper of 1988, the instruments in need to address the obstacles in the energy sector should be the ones provided by the then EC Treaty for the free movement of goods and services and also the provisions on commercial monopolies, competition and state aids.7 The importance of the abovementioned instruments lies on the fact that it was acknowledged for the first time by the Commission that the rules on the free movement of goods apply also to the energy sector.8 The categorization of electricity as a good was made by the European Court of Justice in the Almelo case9 of 1992 and therefore, it comes as a natural consequence that the supply of electricity is a service under the Treaty.10 Thus, in the actions taken against 8 Member States in 1991, the Commission argued that according to Article 86 (2) of the EC Treaty, the then existing monopolies on the gas and electricity sector constituted a breach to the free movement of goods.11 The Court confirmed that Article 86 (2) of the EC Treaty provided a legal basis for initiating actions against monopolies in a number of cases.12 Only a year later, in 1992, the Commission issued proposals with the purpose to introduce common rules and thus, to create an internal energy market.13 1.2. The First Package It took four years for a consensus over the proposed legislation to be reached and when it finally did, in 1996, it included a number of amendments to the initial plan of the Commission.14 It is worth mentioning that the legal basis for the adoption of the Directives 5 C. W. Jones et al EU Energy Law. 1 : The Internal Energy Market : The Third Liberalization Package (3rd edn. Claeys en Casteels, 2010) para 1.3 for the different kinds of state-owned monopolies( = entities that have been granted exclusive rights in law or in reality to operate an economic activity in a specific sector) 6 European Commission, The Internal Energy Market,COM (88) 238, 5 7 ibid 18 8 M.
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