The European Union has made directives with a view to harmonizing the internal markets for natural gas, electricity, and equivalent utilities. The purpose of the legislation is to provide for the opening up of the markets to competition.
The Directive on the gas market is designed to complete the opening of the national gas markets to competition. The purpose is to increase competitiveness and improve service quality, fair prices, public service obligations, interconnectability and the security of supply.
The directive applies to natural gas and the liquefied natural gas, biogas, biomass gas, and other types of gas that can be transported in natural gas systems.
The EU draws up an annual benchmark report which evaluates progress in the implementation of competitive electricity and gas markets.
Third parties are entitled to nondiscriminatory access to transmission and distribution systems and to liquefied natural gas facilities. New suppliers may enter the market. Consumers are free to choose their gas supplier.
Fair competition conditions are put in place to prevent the risk of abuses of a dominant position. The freedom of choice was extended to industrial operators on 1st July 2004 and to domestic consumers on 1st July 2007.
In each state, system operators must be appointed for the transmission system, storage and distribution system. Their purpose is the operation, maintenance, and development of the transmission, distribution and storage of liquefied natural gas facilities.
The must ensure the safety, reliability, efficiency, and interconnection of facilities with due regard to the environment. Nondiscriminatory and transparent access to the system must be allowed for all users. Fair tariffs must be established which are applied objectively.
System operators may not favour companies, in particular, those with which they are associated. In order to avoid discrimination relating to network access and enable equal access for new entrants, when companies are vertically integrated, transmission and distribution activities must be legally and functionally separate from other activities such as production and supply. Ownership need not necessarily be separated.
System providers are obliged to provide other operators with the information necessary for the safe and effective running of the interconnected systems.
Public Service Obligations
Minimum standards are laid down for consumer protection. This includes the right to change supplier, transparent contract conditions, general information and dispute settlement mechanisms. Measures are to be put in place to adequately protect vulnerable consumers so as to avoid disconnection to the gas supply.
Gas is considered a public interest service to which citizens have the right of access in return for payment. Member states may impose public service obligations to guarantee security of supply, economic and social cohesion objectives, regularity, quality, the price of gas supply and protection of the environment.
There must be independent regulators in each state who are responsible for monitoring the principles of transparency, competition, setting tariffs and methods for their calculation. The regulatory authorities act as dispute settlement authorities.
Derogations are permissible in certain situations.
- for isolated markets.
- for emergent markets for a supplier less than 10 years in existence.
- geographically limited areas.
- in the event of lack of capacity.
- during the development of infrastructure capacity
- if public service obligations are impaired due to serious economic difficulties of the gas company.
Safeguard measures are permissible in the cases of market disruption and where physical safety or security of persons or apparatus or systems are threatened.
Access to Network
An EU regulation provides for conditions for access to the natural gas transmission network. Gas transmission operators must offer their services to all users on a non-discriminatory basis. They must offer the same service to different users under identical contractual conditions including those as to nature and duration. The operator can choose to draw up harmonized transmission contracts or a joint system code.
The system operator may make network capacity available to users in its entirety, taking into account system integrity and the efficient use of the network. Capacity allocation is performed on the basis of non-discriminatory and transparent mechanisms.
The transmission system operator sets fair and transparent technical rules. In order to guarantee continuity of gas supply, it must ensure the system pressure is constantly maintained at a certain level which depends on the bounds between entry and exit of gas in the system.
Tariffs must be set by system operators in a transparent and non-discriminatory way. It must reflect the actual costs borne by them. The price must take account not only of maintenance of system integrity but also an improvement by way of investment incentives and construction of new infrastructure.
Users must have relevant information on the services offered by the operator, the methodology of tariffs, as well as technical capacity and available capacity. This is to encourage efficient access to the network.
Users can use different commercial possibilities offered by the internal market. System operators publish the information with regard to confidentiality and commercial consideration.