European energy market integration is happening, albeit slowly, Lord John Mogg, president of the European Energy Regulators Group for Electricity and Gas (ERGEG), argued in an interview with EURACTIV Czech Republic.
Lord John Mogg is president of ERGEG, the European regulators group for electricity and gas. ERGEG is a body of independent national energy regulatory authorities set up by the European Commission to advise the EU executive on energy issues.
The third energy liberalisation package includes the establishment of a new EU regulators agency called ACER. What will be the main differences between this agency and the present organisation of European regulators, ERGEG?
There are two organisations at the present time. One is ERGEG, which is the formal organisation established by the Commission’s decision. The other is CEER, which is the bigger and more active organisation involving all EU regulators, and some others, with which we have collaborated for number of years. That is where the most of the work is done.
The big difference is that the agency will be a Community institution funded from the Community budget. The Commission estimates, or two years ago it estimated, that it would need a budget of about nine million euro, with some 45-50 staff and a director. But those details may not actually prove to be case.
It should be located (and there is speculation about two places at the moment) in Romania or Slovakia. There may be some other places, but the decision we expect from heads of government, who will probably decide in March, is crucial for us. If they do not decide, the problem will be how to create the agency and get started when we do not know where it is going to be based.
The main difference is that we will have a physically independent European body working from the cross-border European perspective, whereas the ERGEG represents individual national regulatory authorities.
The second difference is that there are many agencies in the European Union. Some of them are regulatory agencies and some of them are executive agencies.
The big difference for this agency is that it will have a board of regulators, and that board of regulators will have a lot of responsibilities and some powers. It is they, the board of regulators, not the director, under the present drafting, who will make decision. So there is the measure of independence, but mostly it will formally feed into the Commission and its work in terms of comitology.
Discussions were heated about on how strong ACER should be, and what its responsibilities should be, because member states (in contrast to MEPs) wanted to keep regulation mostly at national level. Personally, what do you think ACER’s powers should be?
There are three points. The first and very simple point is that the strength of the regulatory system that is being developed rests on independence and greater powers for national regulators, because still, given that we are not that integrated either into the economy or the energy market, we will inevitably be resting heavily upon national regulators.
But the big absence from the present picture is interconnection between countries. You just do not see the benefits of joining up, especially if you are a transit country. Why bother spending your investment money to see gas transported via you with no benefit for yourself?
So, given that the integrated market is happening, there is a greater need for action that will make sure that the level of attention paid at national level is kept to a minimum. But this is the heart of the issue: how many of the powers of the national regulator should go to the agency. And as you said, there are very few of them at the present time.
The main point about it is that governments are, I think, suspicious and nervous about how the system will work. My view, and I have been around a long time and I have seen the integration of the energy of the European market in 1992 package, is that once there is uncertainty (and recent Ukraine-Russian difficulties demonstrate this), then people are determined to make sure that there is a better set of arrangements, greater interconnections, greater solidarity and so on.
The agency will evolve as a result of that, rather than some artificial idea that an agency can impose rules which will force the integration of the market. And the agency is much better off reflecting the fact that integration is happening and that it needs more powers to deal with this. So its powers will be rather limited.
The third point I want to make is that the Parliament at this moment in the negotiations is rather keen for the agency to have more powers. The difficulty that we as regulators saw, because we also thought we should have more powers, is that there is a principle called the Meroni Principle, a legal principle which dates from mid-1950s, which essentially says that the Commission cannot delegate any of its powers to another institution. In this case, the Commission would be delegating powers.
So it would require the European institutions to change their minds. But it may be possible. Institutions do change their minds.
What relationship will ACER have with the recently established organisation ENTSO-E, which was initially expected to be created by the third energy package, but was finally established independently last December? According to the package, the framework for this body was supposed to be approved by (still non-existent) ACER. Do you see any problems there? Won’t ENTSO be too strong if ACER is weak?
We recently issued a document which takes the Parliament and Council’s first reading text and says how would the agency look, what would its powers be, what would we as regulators see the agency as doing, etc. And the main reason for doing that – actually looking ahead is fairly unusual – was that inevitably there will be 18 months of transposition before the agency starts.
We are now ready to start, having done the consultation on how we think the agency will operate. We, in CEER and ERGEG, will operate as though those powers exist. No, we do not have the powers, but we will proceed by operating in that way. Most of this relates to development of the guidelines, framework guidelines and codes.
It is very good that ENTSOs are starting to be created. What we are now doing is discussing informally with ENTSO, developing our own feelings about the way in which framework guidelines will be developed.
As it happens, [on 3 February I chaired] a meeting of general assembly at CEER. [We held] an orientation debate, and then I hope in March or April we will start making some decisions and consulting on the way that we will proceed.
But I think that the balance that the Commission has to find in formulating what the agency does and what the ENTSOs do has on the one hand to use all the expertise, local knowledge and long-established experience that many of the TSOs have, looking out for the public interest and looking out for the European dimension.
There is also a need to make sure that the rules are properly drafted [for] the process of setting guidelines for the work on the codes by the ENTSOs, and checking those to make sure that they are meeting the guidelines and telling the Commission that they are. But I believe that a balance can readily be struck.
What we are trying to do is to make it so that it squeezes the best out of the ENTSOs, while also making sure that the public interest is properly safeguarded.
Doesn’t general support for renewables in the EU present a risk for the TSOs? What are these risks and how can they be solved?
The technical issue is a very real one. Renewable energy is mostly intermittent, so unlike electricity generated by coal-fired or gas-fired plants, which can be on-stream and off stream depending on the buttons that you press.
If you rely upon wind, then you cannot be sure that you have constant high supply, because weather changes. For example in Ireland, a lot of people have been applying for planning permission and the right to connect to the network, and the TSO and energy regulators were very worried that the whole system would be unbalanced – that they would have too much intermittent energy and not enough support energy. So they suspended all applications for a moratorium of three or six months. That shows, I think, the essence of the problem.
On the other hand, it is very rare for the Union, across its whole enormous breadth, to have constant high supply, yet not impossible – you have very good weather all way through the Union, but you usually have it one part of the time during the year. Still, it is very rare and mostly when somebody has good weather or high pressure and somebody has got bad weather and low pressure.
The more integrated the system is, the less likely you have to deal with intermittence. So there is the virtue in having an integrated system. There is also a major virtue in having common rules.
The problems we had with major, almost catastrophic blackouts two years ago were partly the result of different operating standards, although this was not the only reason. Having common operating standards for security is fundamental in an increasingly integrating market.
As the Czech Republic is a smaller country in a very dense network of countries, it makes every sense for you. But it makes just as much sense for the UK, as we are becoming more interconnected with the Netherlands, with France and in other ways with Ireland.
So wherever you are, and this is also the case for Nordic countries that have common standards because they are so integrated, I think all these things will be developed sooner or later.
I am saying this even on tape. I detect a real improvement in the way in which people are regarding these measures towards integration. Even if there are some exceptions among TSOs and no doubt some regulators, the general mood is that this is the major project and that it is so important.
Every time you have a shock, like Ukraine, or a major catastrophic failure with domino effects, you realise what dangers you face, and every time you have a disastrous period of economic growth, the need to invest for the future in energy is a very good way of dealing with it.
There are several regions in Europe where the national TSOs cooperate with one another, for example in Central Europe or in the Nordic countries. Shouldn’t common standards be established at EU level instead of having separate areas with their own rules?
Regions can be very, very different. You can imagine that some regions specialise in hydro-power and some do not have any hydro-power at all. So regions are very different, but we introduced a regional initiative plan, which is well-developed in three regions for gas and eight regions for electricity, with a clear, heavy emphasis that regions can develop but they must develop in a way that allows integration into the bigger European market. That is fundamentally important.
So you would always get differences (for example, in some of former Soviet bloc countries, and Ukraine is an example, where supplies solely flow from Russia). The circumstances are very different from one region to another. So you cannot not have a straightjacket. What you have is a system which recognises differences together, but there is a need to make sure that you do not get into a position where regions become completely different territories.
Perhaps having the same rules for TSOs in every country would help. Or do you think that cooperation between TSOs is enough?
Yes, that is the argument that we and the TSOs are going to have in terms of deriving the codes. The lifeblood of the system is the codes that are going to be developed over the next decade. That will be a hard debate, partly due to commercial reasons and partly due to operating reasons that will vary.
There will be tensions, as there always are in the Union. But in the end, if you have a common goal towards greater integration, greater security of supply, greater reliability and other such factors (many more), then you are much more likely to finish up with s solution.
It will be messy. [The Czech Republic] is a new member in the field of EU presidencies and a new member of the Union, but I have been around with my country since the 1970s. It is a messy business.
But amazingly, you come out with quite a lot of very sensible, effective rules to deal with this over time. People who fight in the negotiations do actually leave others thinking ‘why am I fighting this if it makes sense to do that?’
The dynamics is towards an agreement at the end of the day. As I said, I am an optimist.
The Czech Presidency is proposing to introduce a so-called single tariff for electricity transmission. What do you think about that?
It is a formidable objective. Those of us who have been involved in something called transmission charging for transportation of the energy on transmission lines, where there are some countries that pay a lot and some countries that do not pay, under the legislation we have to come forward with a solution as to what it should be.
We had the most difficult debate of any debate that I have ever had as chair of the energy regulators. We were completely split. When it comes to money and serious changes, and this would involve serious differences in revenue between different companies, you have major problems.
I mean, in the nicest possible way, I think the Czech Republic’s ideas are appropriately ambitious for a presidency and I wish it every success.