Last January, the Russian-Ukrainian gas crisis caused serious disruptions of gas supplies to the Community. The Commission has failed to deal efficiently with the gas dispute.
The existing Directive 2004/67/EC concerning measures to safeguard security of natural gas supply has been deemed by Brussels to be no longer adequate to deal with supply disruptions. According to the European Commission, “Member States still enjoy a large margin of discretion as to the choice of measures” as regards the security of gas supply.
The Commission wants to put in place a common approach to security of supply. Hence, on 16 July, it adopted a proposal for a regulation concerning measures to safeguard security of gas supply, repealing Directive 2004/67/EC.
This time, the Commission decided to propose a regulation rather than a directive thus the provisions would be directly applicable to Member States and gas undertakings. The national transposition phase would be therefore bypassed.
Unsurprisingly, the Commission has proposed for itself new powers over security of gas supply.
Member States would be required to designate a competent authority to be responsible for security of gas supply. Such competent authorities would be responsible for monitoring security of gas supply at national level, assessing risks to supplies, establishing preventive and emergency action plans. Unsurprisingly, they would be coordinated by the Commission at the Community level through the Gas Coordination Group.
Under the draft regulation, each competent authority would be required, by September 2010, to assess the risks affecting the security of gas supply in its Member State. Moreover, they would have to establish, by March 2011, a preventive action plan which must contain the necessary measures to mitigate the risks identified and an emergency plan containing the measures necessary to mitigate the impact of a gas supply disruption. But, before adopting such plans, the competent authorities are required to consult the Commission. The Commission would assess the plans of all Member States and would have the power to require a revision if considers that they are not effective or they do not comply with this Regulation. The competent authorities would have therefore to amend their plans.
The draft regulation would set up a common gas security indicator and supply standard. The proposal provides for a common indicator to define a serious gas supply disruption, the so called N-1. The N-1 indicator describes the ability of the gas infrastructure's capacity to supply gas for maximum demand in a given area in case of disruption of the largest infrastructure. The Regulation would require the competent authority in each Member State to ensure that, by March 2014, in the event of a disruption of the largest gas supply infrastructure, they have the capacity to deliver the necessary volume of gas to satisfy total gas demand, in their country, “during a period of sixty days of exceptionally high gas demand during the coldest period statistically occurring every twenty years.”
The Commission has stressed that Member States would decide how best to achieve the N-1 benchmark. However, each competent authority would have to report to the Commission any non compliance with that standard.
Each competent authority is required to ensure that adequate interconnections, storage and reverse flow capacities are in place as well as demand-side measures, such as fuel switching for power plants and increased use of renewable energy sources. According to the Commission there should be a general requirement of reverse flow capabilities on all intra-EU interconnectors. Under the Commission’s proposal, the transmission system operators would be required to ensure the permanent physical capacity to transport gas in both directions on all interconnections within two years from the entry into force of the regulation, except where the Commission decides that the addition of a bidirectional flow capacity would not improve the security of supply of any Member State.
The European Commission has stated that “Different sources of Community funding are available to support Member States to finance the necessary investment in indigenous production and infrastructure” particularly “loans and guarantees from the European Investment Bank or funding from regional, structural or cohesion funds.” Nevertheless, it is far from clear who would have to bear the costs. According to Europolitics, the gas industry organization GTE+ is concerned over who will pay for infrastructure changes put forward by the Commission.
The Member State’s competent authorities would also have to establish emergency plans taking into account different crisis levels as defined in the Regulation. Such plans would detail the mechanisms used to cooperate with other Member States for each crisis level as well as the required actions to make gas available in case of an emergency. Moreover, they would be required to notify the Commission and provide it with all the necessary information when they declare any of the crisis levels. In case of an emergency, the competent authorities must follow the emergency plan pre-described actions and shall without delay inform the Commission about the actions they intend to take. Unsurprisingly, the Commission would have the power to require the competent authorities to change such measures and to lift their declaration of emergency.
The Commission has demanded extensive coordination powers during crises. Under the draft regulation, the Commission would be allowed to declare a Community emergency at the request of one competent authority or where more than one competent authority has declared a national emergency as well as when the Community loses more than 10% of its daily gas import from third countries.
According to the new chair of the European Parliament’s Committee on Industry, Research and Energy, Herbert Reul “This means that the cutting of just one major pipeline would lead to a emergency situation being called.” Moreover, he said “The Commission is making things too easy for itself with such a definition” which does not take into account the EU’s gas production or storage capacity.
The current proposal is, definitely, an improvement from earlier drafts. Initially, the Commission had proposed to grant itself powers to request Member States to release gas from strategic gas storage in case of emergency. It should be recall that the Council has recently reached political agreement on the directive requiring Member States to maintain minimum stocks of oil or petroleum products. The Commission wanted to be able to require Member States to release oil stocks in an emergency but the Council rejected such idea. Under the Council’s agreement, the Commission may recommend releases.
Nevertheless, under the draft proposal, the Commission would have the power to coordinate actions between Member States and towards third countries and to ensure exchange of information. Herbert Reul has said “The Commission is trying once again to expand its powers. It wants to reserve for itself wide-ranging coordination powers in the event of an emergency (…)” Member States would be obliged to collaborate more closely in a crisis through the revised Gas Coordination Group, chaired by the European Commission.
Moreover, the Commission would be empowered to require competent authorities or natural gas undertakings to change their action if it is considered inappropriate to deal with a Community Emergency or if it jeopardizes the situation in another Member State. Furthermore, the draft regulation would prevent Member States to introduce any measures restricting the flow of gas within the EU, during a crisis.
The Commission also wants to establish an EU task force to monitor the gas flows within and outside the Community, in cooperation with the supplying and transiting countries. The costs of the monitoring task force would be covered by the Community budget. The Commission would be entitled to deploy such task force. In fact, under the proposal the Commission would be responsible to “coordinate the actions with regard to third countries, working with producer and transit countries on arrangements to handle crisis situations and to ensure a stable gas flow to the Community.”
The Commission has said that, in the case of a Community emergency, Member States should develop solidarity measures, such as “commercial agreements between natural gas undertakings, compensation mechanisms, increased gas exports or increased releases from storages.”
It is important to mention that the Lisbon Treaty strengthens solidarity by introducing an amendment to Article 100 which states “(…) the Council, on a proposal from the Commission, may decide, in a spirit of solidarity between Member States, upon the measures appropriate to the economic situation, in particular if severe difficulties arise in the supply of certain products, notably in the area of energy." It is not clear how such solidarity will take place. But, the UK might be required to supply energy to another Member State in case of crisis.
Furthermore, under the Commission’s proposal gas companies would have to notify to the Commission contracts concluded with suppliers from third countries and Member States would be required to notify the Commission of all intergovernmental gas supply agreements with third countries dealing with security of gas supply. According to the Commission such information is necessary to assess the EU’s security of supply and claims that it will ensure the confidentiality of commercially sensitive information.
The European Commission has called on the Council and the European Parliament to quickly adopt the proposal.
On 7 December, the Energy Council held a policy debate on the proposal for a regulation on the security of gas supply. Member states support, in general terms, the Commission’s proposal. However several member states are concerned over the extended powers that the proposal confers on the Commission.
The Commission has chosen as legal basis Article 95 TEC (measures necessary for the function of the internal market) rather then Article 100 (measures to address difficulties in the supply of certain products). The Commission has stressed that “The Regulation places the main emphasis on the role of the internal gas market to ensure the security of gas supply.” Some member states believe that the draft regulation main aim should be the safeguarding of security of gas supply whilst the functioning of the internal gas market should be secondary.
It is important to recall that the Lisbon Treaty introduces a new legal basis allowing the Union to establish measures relating to energy policy. Energy is one of the Union shared competences with the Member States. The Member States will only be allowed to adopt legislation if the Union has not exercised its competence. The EC treaty does not establish an EU competency on energy. However, the EU has been shaping the energy sector through its competencies regarding the internal market, competition policy and the environment. The Lisbon Treaty has entered into force on 1 December, consequently most member states have now deemed Article 194 TFEU the most appropriate base for this proposal. Nevertheless, the proposal would continue to go through the co-decision procedure, now called “ordinary legislative procedure” with QMV required at the Council.
Several Member States pointed out that the powers of the member states, the Commission and market actors in ensuring the security of gas supply should be aligned with the subsidiarity principle and underlined the need for further clarification of their roles. Hence, those member states asked to be made clear that gas undertakings are responsible for the supply of the market, then, in case of supply problems, the member states are the ones which should take appropriate measures and, consequently the Commission should only intervene as a last resort.
The Parliamentary Under-Secretary of State at the Department for Energy and Climate Change, David Kidney, has said to the European Scrutiny Committee that “It is clear that the Commission is best placed to oversee Community-wide application of the Regulation, the appropriate interaction of emergency plans of Member States, and the co-ordination of action in a Community Emergency e.g. in declaring a Community Emergency or requiring a change of action where an action by a Member State or Competent Authority impacts negatively on the interests of other Member States and/or distorts the internal market.” Moreover, according to David Kidney the government “(…) accepts that some strengthening of the Commission’s powers in this area is consistent with the principle of subsidiarity.” Nevertheless, the government is concerned over the broad scope of the powers that the Commission proposed for itself in several areas.
In fact, most member states have raised concerns over the extended powers which the draft regulation confers on the Commission and considered that they should be reduced. Under the draft proposal, the Commission would be allowed to declare a Community emergency. The Commission would have the power to require a revision of the national emergency or preventive action plans of all Member States if considers that they are not effective or they do not comply with this Regulation. The Government is concerned with the lack of clear criteria for the Commission to require such amendments from the member states. The Government is also seeking clarification as regards the Commission’s power to require the competent authorities to change their emergency measures and to lift their declaration of emergency.
Several Member States are also concerned over the level of information that, under the proposal, they would be required to provide to the Commission, particularly during an emergency.
Furthermore, under the Commission’s proposal gas companies would have to notify to the Commission contracts concluded with suppliers from third countries and Member States would be required to notify the Commission of all intergovernmental gas supply agreements with third countries dealing with security of gas supply. According to the Commission such information is necessary to assess the EU’s security of supply and claims that it will ensure the confidentiality of commercially sensitive information. However, several member states are concerned that confidentiality might not be guaranteed.