Examination of Witnesses (Questions 895-899)
MR HEINZ
HILBRECHT, MR
PHILIPPE CHAUVE,
MR RICARDO
CARDOSO AND
MR JAN
GERRIT WESTERHOF
26 JUNE 2008
Q895 Chairman: Good morning, gentlemen,
and thank you very much indeed for giving up your time to talk
to the Committee. I think I would like to introduce my colleagues
to you, first of all, so that you understand who we are in the
room, and I will ask you to do the same thing. My colleague here
is Brian Binley and he will be asking you questions towards the
end, over there is Tony Wright who will be asking you the first
questions after mine, and Adrian Bailey is over here. My two colleagues
here are Clerks to the Committee, who are responsible for the
working of the Committee and writing our Report, and you will
not, I expect, be hearing from them. Gentlemen, can I ask you
to introduce yourselves.
Mr Hilbrecht: Thank
you very much for having us. My name is Heinz Hilbrecht and I
am the Director for Energy Markets and Security of Supply in the
Directorate General for Transport and Energy of the European Commission.
I have to apologise for Eric Van Ginderachter, who was scheduled
to be here from DG Competition, but he had a tragedy, his mother
died yesterday, so he apologises that he cannot be here today.
In his place, I am happy that Philippe Chauve, to my right, is
here and also Ricardo Cardoso from DG Competition, and I have
with me from my Directorate, on my left, Matti Supponen, working
on electricity and Jan Gerrit Westerhof, who is also working on
electricity and gas, in particular.
Q896 Chairman: Thank you very much
indeed. I think you understand what we are doing as a committee;
we are looking at fuel prices, in particular, in the UK, though
obviously that has a relationship to every other issue affecting
fuel, including security of supply and investment, but I thought
you would probably want to begin by explaining to us progress
on the third package, where you think things are at and, in particular,
what the prospect of getting that package is before the end of
the Parliament.
Mr Hilbrecht: Yes, we are quite
happy that both the Council and the Parliament have taken up the
discussion on the third package on energy with the view of achieving
a final decision still within this mandate of the European Parliament,
in other words, before the Parliament will go into recess next
summer for the elections. We had, particularly under the Slovenian
Presidency, very intense discussions in the Council and the Parliament
and the rapporteurs have been very active. We have now come to
some propositions in Council on which the Energy Council has found
broad agreement. In the last meeting earlier this month, there
was a lot of discussion, as you know, about ownership unbundling
where, from the Commission side of course, we always underlined
that our strong preference would be full ownership unbundling.
But our proposal also included a second-best option, the independent
System Operator, because we knew from the beginning that it would
be very difficult to find complete agreement with all Member States
on ownership unbundling. In the end, we managed to have consensus
in the Council which includes a third option, the Independent
Transmission Operator (ITO), where the mother company can still
be the owner of the transmission, but will have to fulfil our
strict requirements with regard to the independence of the management
and very strict control by the regulator involved. This of course
is not the ideal solution, we have to accept that, but at a certain
point in time, I think, in the busy discussions, we were faced
with the question whether we cut off there, so to speak, or have
an agreement now. Because, if we did not have agreement, (the
countries opposing it had a blocking minority) before the Parliament
goes into recess and it would have taken the discussion probably
to 2010 and 2011 and we would have easily lost four or five years.
Therefore, we preferred to have a second-best solution, but which,
nevertheless, is, I think, an enormous step forward. It makes
the independent operation of the transmission system operator,
even under the ITO solution or the third option, much clearer
than it is now and it will add also another important element,
in particular, with regard to the co-operation across the board
of the transmission system operators and also with regard to the
better co-operation of the regulators. Many regulators today are
not strong enough, so we have asked that there will be strict
minimum requirements with regard to the powers and the independence
of the national regulators. The package will create also a mechanism
where the national regulators can better co-operate at the European
level to close the regulatory gap which exists today and for which
all the regulators, in particular, deplore. The Parliament has
achieved already a vote on the electricity part 10 days ago and
they will vote on the gas part next week. On the electricity side,
the Parliament has opted for full ownership unbundling. This is,
in some aspects, different from the Counter-compromise, also as
regards to the powers of the Agency, that is the new mechanisms
for the national regulators to co-operate at the European level.
The Parliament wants to give more decision-making powers to the
Agency, in particular, the Agency would be empowered to take binding
decisions on the establishment of a European Grid Code, something
on which the legal services of the Commission and the Council
are much more hesitant. Under the present institutional arrangements,
we cannot delegate such powers to an Agency, but such decisions
must be taken by the Commission under the so-called "comitology
procedures". The Parliament is also opting for more stringent
consumer protection. They want to have better rules, in particular,
with regard to a customer charter in order to make it binding,
whereas we, for the time being, think that this sort of charter
should be a recommendation to Member States, and should be left
more to the subsidiarity level. I think these are the major areas
for the second reading. It remains to be seen how the Parliament
will vote next week on ownership unbundling for gas. It is too
early to say exactly whether they will also go for full ownership
unbundling, but the chances are that they will accept, or that
they can accept, possibly a third option for gas, which will not
be as demanding for gas as for electricity. We will then go into
second reading and we hope that we will have a final package adopted,
if everything goes well, if not fully by the end of the year,
perhaps in the first quarter of next year.
Q897 Chairman: Thank you for that
comprehensive answer, and that is clearly very encouraging. What
further liberalisation would you ideally like to see in a properly
liberalised European energy market?
Mr Hilbrecht: I think we will
have made quite an important step forward with the third package
which will cover the ground to a large extent, and it remains
to be seen then later whether that package is sufficient as a
framework for the European market. I am sure that we will have
to look into the functioning of the ITO-model/third option and
to have an analysis done in four or five years' time of the package,
in particular, as those countries who are pro unbundling want
the Commission to analyse whether the third option really is sufficient
or not. We will also see whether the co-operation of the regulators
is working sufficiently well and whether the co-operation of the
transmission system operators is really efficient. But, for the
time being, I think we would rather have quite a sound package
and we will be looking forward to seek advice from all the stakeholders
over the next years. It is however too early to say whether we
need to go in some years time for a fourth package, I would not
say this today, that remains to be seen.
Q898 Chairman: So this is going to
be the most significant development and we are likely to see further
changes in the next four or five years?
Mr Hilbrecht: Yes, possibly.
Q899 Chairman: You would probably
say this is a question for British ministers rather than the Commission,
but what benefits, do you think, will flow to the United Kingdom
from the third package?
Mr Hilbrecht: I think, and hope,
that we will come back to this a little bit later today, but we
are now in a situation where, from a point of energy security,
we realise that individual Member States are in a situation where
they have difficulties in reacting in an appropriate and fast
manner if the markets are separated along national lines. To have
a common energy market provides an additional level of security
for all Member States, including the United Kingdom. If you have
problems with the supply of gas or electricity, all Member States
benefit and have an additional security level if they can rely
also on a quick reaction by the delivery of gas and electricity
from other Member States. If we want to increase energy security,
I think we all have an interest in having a common market which
is functioning across the 27 member countries. Of course I think
the United Kingdom has always been an advocate of ownership unbundling
and of having a functioning market. The United Kingdom and also
other Member States should therefore welcome that we go in this
direction. Ownership unbundling is not a panacea, but it is a
necessary condition, not the only condition, but a necessary condition
for a functioning common market, and the UK should therefore welcome
the third package even though this step is perhaps not as fast
and as big as one would have wanted from the beginning.
Chairman: Well, that is a very helpful
opening, for which I am grateful, thank you. I am now going to
hand over to my colleague, Tony Wright, who will ask you questions
on the oil-gas price link and gas trading.
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