1 SECURITY
OF GAS SUPPLY
(30809)
11892/09
+ ADDs 1-4
COM(09) 363
| Draft Regulation concerning measures to safeguard security of gas supply and repealing Directive 2004/67/EC
|
| Legal base | Article 95EC; co-decision; QMV
|
| Document originated | 16 July 2009
|
| Deposited in Parliament |
22 July 2009 |
| Department | Energy and Climate Change
|
| Basis of consideration |
EM of 30 July 2009 |
| Previous Committee Report |
None, but see footnotes 1-3 |
| To be discussed in Council
| See para 1.14 below |
| Committee's assessment | Politically important
|
| Committee's decision | For debate in European Committee A
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Background
1.1 According to the Commission,
natural gas is currently the second most important fuel in the
Community's
energy mix, and its internal market has been regulated by Community
legislation, notably Directive 2003/55/EC (which lays down common
rules for the internal market), Regulation (EC) No. 1775/2005
(which sets out conditions for access to natural gas transmission
networks), and Directive 2004/67/EC (which establishes a common
framework within which Member States may take steps to safeguard
the security of supply).
1.2 This last measure requires Member States to define
the roles of the various market players, and to establish the
minimum supply standards which must be met, subject to these not
imposing a disproportionate burden or being incompatible with
the internal gas market. In particular, it requires them to ensure
supplies for households in the event of a partial disruption of
supplies or extremely cold temperatures: and it enables them to
extend this provision to small and medium sized enterprises and
others who cannot switch their sources of supply, to ensure that
their gas storage facilities contribute to achieving security
of supply, and to enter into agreements to use such facilities
in other Member States. Member States are also required to draw
up national emergency plans, and to indicate to a newly formed
Gas Coordination Group if a situation arises which cannot be dealt
with by national measures. That Group may also be invited by the
Commission to consider situations where a major supply disruption
(in which the Community risks losing more than 20% of its gas
supply from third countries) is likely to occur for a significant
period, and the measures taken by industry or nationally are not
sufficient; and the Commission may then provide guidance to Member
States (or, if this proves to be insufficient, propose further
measures to the Council).
1.3 The Commission proposed in
September 2007[1] that
Directive 2003/55/EC should be replaced, and, as we noted in our
Report[2] of 14 January
2009, it subsequently put forward in November 2008 a Communication
on the implementation of Directive 2004/67/EC, which examined
how the Community could achieve security of supply more effectively.
That document highlighted the different positions of the various
Member States (in terms of the availability of indigenous production,
geographic position, geological potential for storage, historical
development of the gas market, degree of existing interconnection,
and different uses of gas), and the way in which the Directive
had taken these into account by leaving them scope to adapt its
provisions to their own situation. It
also noted that the way in which Member States had implemented
the Directive had been heterogeneous and uneven, with potentially
negative impacts on other Member States, and it concluded that,
in the light of these findings and the significant changes in
the gas market in the intervening period (including the accession
of 10 Member States with very different market characteristics
and requirements, and the Community's increased import vulnerability),
a revision of the Directive was necessary.
1.4 In clearing the Communication,
we concluded that, since it dealt with a subject of some importance,
particularly in the light of the dispute which had subsequently
arisen between Russia and Ukraine, it was relevant to the debate
which we had recommended on the Second Strategic Energy Review[3]
(and which took place in European Committee A on 3 March 2009).
The current document
1.5 In the light of the responses to its earlier
Communication, the Commission has now proposed that Directive
2004/67/EC should be replaced by a Regulation, which would have
direct effect within Member States, and which would:
- define more clearly the roles
of the gas industry, Member States and Community Institutions,
with each Member State being required to designate a "competent
authority" with overall responsibility for its security of
gas supply;
- ensure that each Member State has the necessary
infrastructure in place to cope with the failure of its largest
gas infrastructure or supply source (the "N-1 principle")
in any period of sixty days of exceptionally high gas demand during
the coldest weather periods occurring once in twenty winters,
including, where appropriate, the provision of permanent bi-directional
interconnection capability;
- ensure that emergency and preventive action plans
are in place at the national level, and that these are co-ordinated
with those of other competent authorities for consistency of approach
in such matters as interconnections, cross border supplies, storage
capacity across borders and the capacity to transport gas in both
directions, and to avoid a disproportionate negative impact on
other Member States;
- ensure that gas supply to protected customers[4]
can be maintained in the case of extremely cold temperatures during
a seven day peak period, or in any period of sixty days of exceptionally
high gas demand, during the coldest weather periods occurring
once in twenty winters;
- require a Member State to carry out a risk assessment
every two years of its security of supply in terms of critical
infrastructure and the position of protected customers, by running
various scenarios of exceptionally high demand and supply disruption,
including that from third countries;
- define three main crisis levels which a Member
State may declare — Early Warning, Alert and Emergency —
and the action to be taken, including that involving the Commission
and other Member States;
- ensure that the market is permitted to function
for as long as possible in the event of supply disruptions (by
requiring unrestricted gas flows and access to cross-border storage
at all times) with a requirement that non-market measures —
such as strategic storage, forced fuel switches, and compulsory
demand reduction — are introduced when the market is no
longer able to deal adequately with the supply disruption;
- reconstitute and broaden the scope of the Gas
Co-ordination Group;
- establish a permanent reserve list of industry
experts for a standby monitoring Task Force (such as was set up
during the Russia-Ukraine gas dispute in January 2009);
1.6 In particular, the proposal would give potentially
wide-ranging powers to the Commission. Thus, it would be able
to declare a Community Emergency at the request of a competent
authority; when more than 10% of gas supply from third countries
is disrupted; or where more than one competent authority has declared
an Emergency and the Commission has verified that such a declaration
is justified. It would also be able to co-ordinate the actions
of competent authorities during such an Emergency, require the
amendment of a Member State's emergency plan or preventive action
plan, verify declarations of emergency by a Member State, and
request the lifting of such a declaration, or the amendment of
actions taken by a competent authority or natural gas undertaking,
during an emergency.
1.7 In putting forward its proposal, the Commission
points out that the gas dispute between Russia and Ukraine in
January 2009 (with 30% of the Community's import supplies being
cut off for two weeks) highlighted the urgent need for it to improve
its overall resilience and emergency planning procedures, and
to consider what additional measures and standards might be needed.
In particular, it points out that, had the disruption been for
an extended period, at a different point in the winter when demand
levels had been unaffected by the recession, the effects could
have been far worse. It also observes that actions by some Member
States during the dispute in restricting flows of gas and limiting
access to storage had not been helpful.
The Government's view
1.8 In his Explanatory Memorandum of 30 July 2009,
the Secretary of State for Energy and Climate Change (Ed Miliband)
notes that the Council had earlier agreed that the proposed revision
of the Directive should be brought forward from 2010 to this year,
and says that the UK welcomes the emphasis on the market being
allowed to function as long as possible in a supply disruption
and the importance of maintaining unrestricted flows of gas and
access to cross-border storage. He adds that the third internal
market package, agreed in June, should improve the way EU energy
markets work, and that greater market integration will help Member
States share risk and thereby better manage scarce gas resources.
He also supports the emphasis on a more co-ordinated approach
to emergency planning with other competent authorities to ensure
enhanced resilience.
1.9 However, he points out that, although several
elements in the proposed Regulation, such as the requirement to
have national emergency and preventive action plans, exist to
some extent in the current Directive, there are concerns about
the potentially wide powers which the proposal would give to the
Commission, and on how far these would impact on the UK's domestic
arrangements, especially as some of these have a safety rather
than a supply focus. In particular, he is concerned that the current
draft would give the Commission new powers which have implications
for subsidiarity, and says that the UK will wish to evaluate these
carefully, seeking clarification from the Commission as to the
meaning and intent of some of the provisions — for example,
the requirement to maintain open access to storage even in the
event of an emergency could result in the UK not being able to
access gas from elsewhere whilst being required to maintain open
access to our storage at all times, even in a national emergency
situation. In addition, it has real concerns over the low trigger
points for the declaration of a Community Emergency.
1.10 In the meantime, the Minister has commented
on various aspects of the proposal as follows:
- The Treaty base proposed is
Article 95, which the Commission says is more appropriate than
Article 100(1), used for the current Directive, since the main
emphasis of new Regulation is on the functioning of the internal
market in achieving enhanced security of supply, rather than on
the measures appropriate to the economic situation, in the event
of supply difficulties for certain products.
- The National Grid indicates that meeting the
N-1 criteria and ensuring supplies for 60 days to households would
not be problematic, since there are measures in place to protect
vulnerable customers and contingency plans for extreme weather
conditions (though some modifications of the UK's arrangements
and licence conditions may be required, depending on the final
text).
- The information requirements, including the notification
of the main content of international agreements, are not particularly
onerous with much of the information already published, but a
requirement for information on contracts will need careful thought.
- Since the security of gas supply is a devolved
matter in Northern Ireland, it will be necessary to consider how
far the arrangements proposed are consistent with the devolution
settlement.
1.11 The Minister says that the total costs of the
Regulation are likely to be well below the thresholds required
for an impact assessment, but that the Government has nevertheless
carried out an initial assessment of the likely costs and benefits.
Assessments by the National Grid show that the UK is expected
to meet the N-1 standard for 2009-10 by a comfortable margin,
and will continue to do so in the future, so no costs are expected
to be incurred due to this provision: likewise, it also suggests
that the UK can comfortably meet both the 1:20 winter 60 day and
seven day requirements, without any additional costs being incurred.
However, he points out that there is some ambiguity on the risk
assessment scenarios which need to be considered, and he suggests
that the benefits of investing to ensure each and every part of
the network in (unlikely) N-1 scenarios are highly likely to be
outweighed by the costs, since this could require insuring even
against events with a very low probability.
1.12 The Minister also suggests that the UK has a
good case not to be bound by the requirement for bi-directional
flow on interconnectors, pointing out that there is already reverse
flow on the interconnector with Belgium; that the UK's flexible
supply and demand side responses and large import diversity means
that this would not produce significant security of supply benefits;
that Northern Ireland has no indigenous gas supplies which it
could export to Great Britain, and Ireland is not currently in
a position to do so; and that the large costs of enforcing reverse
flow on the Balgzand-Bacton Line would be unjustified. He adds
that, if circumstances were to change radically in the future,
the Regulation makes provision for this to be re-evaluated: and
he says that operators of the pipelines might decide on commercial
or economic grounds that there is a business case for investing
in reverse flow capability at some stage in the future.
1.13 The Minister notes that there are other costs
arising from additional administrative burdens, but that these
are expected to be relatively small, with the possible exception
of the requirement for natural gas undertakings to share some
of the details of contracts concluded with suppliers from third
countries (though the total burden on business is still expected
to be well below £2 million per annum). On the other hand,
he points out that the costs to the Community of the Russia-Ukraine
crisis were significant, and that, although the UK is in a much
stronger position compared with some other Member States, improving
its security of supply is still important. In addition, the proposal
is intended to ensure that Member States manage supply incidents
in a way which minimises their impact across Europe, allows the
market to operate for as long as possible in an emergency, and
encourages a more coordinated and integrated approach, thereby
reducing the scope for individual Member States to 'hoard' gas
and prevent supply flowing to neighbours where prices are highest
and need is greatest. Overall, the UK believes that the proposal
will strengthen (as a whole) European security of supply, and
would on balance expect its own security of supply to improve
as a consequence (though it is difficult to be certain the extent
to which this may be so, given the complex developing nature of
the Community market and the interplay with global LNG markets
in the future).
1.14 The Minister says that the Commission is hoping
for political agreement on the Regulation by the end of the year,
but he suggests that this timetable is ambitious, since it depends,
not only on the speed at which negotiations proceed under the
Swedish Presidency, but on the uncertain situation regarding the
Lisbon Treaty and its consequential impact on European Parliament
arrangements.
Conclusion
1.15 As the Minister has pointed out, recent experience
has demonstrated the need for the Community, and its Member States,
to have in place arrangements to deal with the security of gas
supply, including those problems arising from disruption in supplies
from third countries, and we note the Government's broad welcome
for these proposals. We also note that their headline costs are
likely to be small in relation to the potential benefits from
avoiding the sort of disruptions which occurred earlier this year
following the dispute between Russia and Ukraine. On the other
hand, we are concerned at the extent to which what is now proposed
would greatly extend the powers of the Commission in this important
area, and at the implications this would have for subsidiarity,
and at the use of Article 95 instead of 100(1) as the legal base.
We think it right that the House should have opportunity to consider
these issues further, and we are therefore recommending the document
for debate in European Committee.
1.16 Both these issues will be relevant to the
debate, and we would be grateful if the Government could update
us before then on its views on whether this proposal complies
with the principle of subsidiarity and has the correct legal base.
1 (28933) 13045/07: see HC 16-iv (2007-08), chapter
1 (28 November 2007). Back
2
(30188) 15905/08: see HC 19-iii (2008-09), chapter 10 (14 January
2009). Back
3
(30198) 15944/08: see HC 19-iii (2008-09), chapter 2 (14 January
2009). Back
4
Household consumers, and, if the Member State concerned so decides,
schools and hospitals already connected to the distribution network. Back
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