The Third Energy Package is a set of EU directives and regulations from 2009 that aims to further liberalize the gas and electricity markets in Europe and foster the creation of fully integrated internal energy markets. It establishes several fundamental pillars including stricter unbundling rules to separate transmission from generation and supply, strengthened roles for the Agency for Cooperation of Energy Regulators and European Network of Transmission System Operators, and a framework for developing network codes to standardize rules across borders. The ultimate goal is to complete the internal energy market through non-discriminatory access, competition, and cooperation between national regulators and grid operators.

1. Third Energy Package
Fulvio Fontini
Department of Economics and Management
University of Padua, Italy
and
Co-chair ESS TF, ACER/CEER
Ljubljana and Bruxelles

2. The third energy package (t.e.p.). Content of
the presentation:
1. What is that we are talking about?
2. The status quo of electricity and gas market before the
t.e.p. and the need to provide a comprehensive
regulatory framework.
3. The fundamental pillars of the t.e.p.
4. The Target Models for electricity and gas.
5. What’s next? the way beyond the t.e.p.

3. The third energy package is a verbal shortcut
that refers to a package of a coherent set of
directives and regulations issued by the
European Commission and the Parliament,
aiming at fostering the completion of the
internal energy markets (of the EU).
1) What is the Third Energy Package

4. It is composed of the following (1/2):
1) What is the Third Energy Package
• Directive 2009/73/EC concerning common rules for the
internal market in natural gas and repealing Directive
2003/55.
• Directive 2009/72/EC concerning common rules for the
internal market in electricity and repealing Directive
2003/54.
• Regulation (EC) No 713/2009 of the European
Parliament and of the Council of 13 July 2009
establishing an Agency for the Cooperation of Energy
Regulators (ACER).

5. It is composed of the following (2/2):
1) What is the Third Energy Package
• Regulation (EC) No 714/2009 on conditions for access
to the network for cross-border exchanges in electricity
and repealing Regulation (EC) No 1228/2003.
• Regulation (EC) No 715/2009 on conditions for access
to the natural gas transmission networks and repealing
Regulation (EC) No 1775/2005.

6. • The t.e.p. has generated a (vast) secondary
legislation and official documents, act,
opinions and so on, by several bodies
(ACER, CEER, NRAs, etc.)
1) What is the Third Energy Package
• It has been approved in 2009, entered in
force in 2011 (18 month after approval).

7. • Why do a “third” package? There existed
several pieces of legislation: a first
electricity Directive and a first gas Directive
(1996 and 1998) allowed the opening of
the electricity and gas market and a
gradual introduction of competition. Focus
was on non discrimination.
2) The status quo before the Third Energy
Package

8. • A second electricity directive and a gas
Directive (2003), whose main aspects were
unbundling and third party access, the
need for independent National Regulatory
Authorities (NRAs), two deadlines for the
liberalisation of electricity and gas retail
markets (2004 for large consumers and
2007 for small ones).
2) The status quo before the Third Energy
Package

9. • The aim was (and still is) setting the proper
framework in order to make the electricity
and natural gas markets fully effective and
create a single EU gas and electricity
market.
2) The status quo before the Third Energy
Package

10. • The economic rationale is that full
liberalization and opening to competition
enhance efficiency and allow for a full
integration of the market. Benefits are
keeping prices as low as possible and
increasing standards of service and
security of supply.
2) The status quo before the Third Energy
Package

11. The (by then) existing legislation and the
Internal Energy Market acquis
communautaire:
• set up the milestone for liberalization of
energy sector.
• Allowed recurring to EU competition law
to reach the Single European Market in
electricity and gas.
2) The status quo before the Third Energy
Package

12. However, several aspects where left out:
2) The status quo before the Third Energy
Package
 No common technical regulation;
 Not possible to tackle cross border
transportation/transmission issues (and
affect contract clauses);
 No clear possibility to splitting vertical
integrated industries;
 No full empowerment of NRAs.

13. • As a consequence, the integration process
was delayed or seriously hampered: there
were still large vertically integrated
industries (Politt, 2007), energy markets
were still National (limited and inefficient
use of cross border capacity in electricity
[Jamasb and Politt, 2005] and
transmission facilities in gas [Holz, 2009],
difficult to deal with cross-border issues.
2) The status quo before the Third Energy
Package

14.  Unbundling and the establishment of independent
transmission companies (ISO and ITO).
3) The fundamental pillars of the Third
Energy Package
 Role and functioning of National Regulatory
Authorities (NRAs).
 The definition of power and competences for new
and re-shaped existing European bodies (ENTSO
E/G, ACER).
 The definition of non-discriminatory rules and
procedures to foster market integration, based on
Framework Guidelines and Network Codes.
 Market Monitoring.

15. Unbundling and the establishment of independent
transmission companies (ISO and ITO):
3) The fundamental pillars of the Third
Energy Package
• Transmission system operators (TSOs) are the
companies who operate the networks through
which gas and electricity are transported.
• The t.e.p. specifies that TSO must be independent,
i.e., not have (potential) conflict of interest with
other companies in the electricity or gas supply
chain.

16. There are three different admissible setup:
3) The fundamental pillars of the Third
Energy Package
 Independent System Operator (ISO);
 Independent Transmission System Operator (ITO);
 Unbundled Operator (UO).

17. 3) The fundamental pillars of the Third
Energy Package
 Independent System Operator (ISO):
supply company can own the physical network, but it
has to leave O&M and investment decision to an
independent company. Investments are decided by
the Grid Owner (but regulated under the Directive).

18.  Independent Transmission System Operator (ITO):
supply company can own and operate the network.
The management of the network must be done by a
subsidiary company, which makes all financial,
technical and other decisions independently from
the parent company.
3) The fundamental pillars of the Third
Energy Package

19.  Ownership Unbundling (OU):
transmission and transportation grid is owned and
managed by a fully independent company: no supply
and production company is allowed to hold a
majority share in the company, nor exercise voting
rights or appoint board members.
Exceptions (to Unbundling and to TPA) possible, when risk is too high
and if it favours competition.
3) The fundamental pillars of the Third
Energy Package

20. At present, the
three types
coexist in
Europe in both
electricty and
gas sector:

21. Role and functioning of National Regulatory
Authorities (NRAs).
Independent regulators already established by the
second directive, however “experience shows that
the effectiveness of regulation is frequently
hampered through a lack of independence
of regulators from government, and insufficient
powers and discretion.” (Dir. 2009/72/EC, c.33).
3) The fundamental pillars of the Third
Energy Package

22. The t.e.p. strengths National Regulatory Authorities,
fostering their independence from Government or
any other public or private body: members State
must guarantee the (effective) independence of
NRAs (independent staff, board or top management,
budget) making sure they exercise their power
impartially and adopt transparent and participative
procedures.
3) The fundamental pillars of the Third
Energy Package

23. The t.e.p. spells out a long list of competences and
duties of NRAs (c.37, Dir 2009/72/EC):
3) The fundamental pillars of the Third
Energy Package
• Fixing tariffs (or methodologies);
• Monitoring markets, consumers rights and quality,
compliance with prescriptions;
• Cooperating with other NRAs and ACER;
• Several reporting obligations (on its activity, on
investment plans).

24. The definition of power and competences for new
and re-shaped existing European bodies:
3) The fundamental pillars of the Third
Energy Package
 ACER: Agency for the Cooperation of Energy Regulators.
 ENTSO: European Network of Transmission System
Operator (one for Electricity and one for Gas).

25. The Agency for the Cooperation of Energy
Regulators.
3) The fundamental pillars of the Third
Energy Package
• Before the t.e.p. there existed a European
Regulator Group for Energy and Gas (ERGEG). It
was an advisory group set up by NRAs on a
voluntary basis, lacked clear power and legal
mandate. Its competence have been absorbed by
the newly established Agency for the Cooperation
of Energy Regulators (ACER).

26. • The purpose of ACER is to assist National
Regulatory Authorities in exercising, at
Community level, the regulatory tasks that they
performed in the Member States and, where
necessary, to coordinate their action.
• ACER has its own staff and office in Ljubljana
(Slovenia), but works together with NRAs and
meets regularly with other stakeholders. It is not
an NRA, but is complimentary to them.
3) The fundamental pillars of the Third
Energy Package

27. ACER is composed of a Director, an Administrative
Board, a Board of Regulators (and a Board of
Appeal). Its mandate:
3) The fundamental pillars of the Third
Energy Package
 Drafting Framework Guidelines and issue opinions
on Network Codes;
 Issue opinions on other ENTSO E/G
document/plans (the EU wide T.Y.N.D.P. and
National D.P.); Issue opinions and recommendations whenever
asked (or if needed) to European Parliament and
the Commission.

28.  Deciding on cross-border issues if national
regulators cannot agree or ask ACER to intervene.
3) The fundamental pillars of the Third
Energy Package
 Monitor the functioning of internal electricity and
gas markets, including network access for
electricity produced from Renewable Energy
Sources, retail prices and respect of consumer
rights. Issue every year a report (ex ante
monitoring).
Subsequent legislation has empowered ACER also of ex-post monitoring
on energy market integrity and transparency (REMIT) as well as monitoring
the implementation of Project of Common Interests

29. The definition of non-discriminatory rules and
procedures to foster market integration, based on
Framework Guidelines and Network Codes.
• Technical rules that regulates several aspects of
electricity and gas supply chain (“who may use
infrastructures and how”, “under which
conditions”).
• Refer to cross-border aspects (but are relevant for
internal markets’ design as well)
3) The fundamental pillars of the Third
Energy Package

30. • ACER writes (or has written) the Framework
Guidelines, establishing general principles and
serve a basis for drafting the Network Codes;
3) The fundamental pillars of the Third
Energy Package
• ENTSO E/G drafts the Network Codes: “a set of
rights and obligations that apply to parties
operating in the European energy sector”.
The procedure to approve NCs:

31. • ACER review drafts of NC and issues opinions on
them (checking coherence with FG and the aim of
the IEM).
3) The fundamental pillars of the Third
Energy Package
• The Commission and Member States approves the
NC (Comitology procedure).
NC as regulations, apply directly to the EU Member
States without being transposed into national law

32. The ENTSO E/G:
3) The fundamental pillars of the Third
Energy Package
A compulsory network of TSO, one for Electricity and
one for Gas. The t.e.p. specifies duties and
responsibilities of ENTSOs:
• Drafting Network Codes (i.e., homogenising
technical regulation across Europe).
• Drafting (and consulting) the Ten Year Network
Development Plan (TYNDP) and the Regional
Investment Plans
• Providing Reviews and Outlooks

33. 3) The fundamental pillars of the Third
Energy Package
Network Codes in Electricity, three big areas:
2. NC related to system operation, i.e., the way
system is operated in order to provide SoS.
3. Market related NCs, covering all time-frame of
power exchange
1. NC related to connection to transmission grid:
both for load and generators.

34. 3) The fundamental pillars of the Third
Energy Package
Network Codes in Gas:
2. Harmonized Tariff Structures.
3. Interoperability and Data Exchange
1. Capacity Allocation Mechanisms and Balancing.

35. 3) The fundamental pillars of the Third
Energy Package
Source: ACER

36. • Network codes are major building blocks of the
single liberalized electricity and gas European
market.
5) The target models
• They set up the path towards an integrated market
(IEM).
However…
• Each code addresses a specific aspects of the
electricity and gas supply chain: risk of fragmented
or incoherent setup.

37. 5) The target models
• NRAs (an the EC) agrees to “explore... the
interaction and interdependence of all relevant
areas for network codes”, to reach a common
(both across stakeholders and across acts/codes)
vision of the liberalization process:
the “Target Models”.

38. • The actual stage of implementation of the third
package, and the need to go beyond it towards
the Energy Union.
• Open problem: some EU-wide competence
outside the scope of ACER (and of the t.e.p). E.g.,
security of supply in electricity. This generates a
new wave of uncoordinated new set of
rules/legislation set up at National level (e.g.,
introduction of Capacity Remuneration
Mechanism in electricity).
6) What’s next? Energy Union

39. • Decisions on new investments (and more in
general contractual power) in gas is still mostly a
National issue.
• Focus is slowly shifting to monitoring
implementation of NC and their adaptation-
evolution. Lack of proper mandate.
Recent proposal from the Commission: going beyond
the t.e.p. towards an Energy Union
6) What’s next? Energy Union

40. End of presentation.
Thank you.
For further contacts:
Fulvio.fontini@unipd.it
6) What’s next? Energy Union