Unbundling

If compared with the unbundling rules for TSOs, which were thoroughly revised under the 3rd Package, resulting in new, more far reaching unbundling requirements, the unbundling requirements for DSOs have only been slightly reinforced in the 3rd Package. Another difference between DSO unbundling and TSO unbundling lies in the new requirement for TSOs, which now have to be certified by the competent National Regulatory Authorities (NRAs) as being compliant with the unbundling requirements and to be designated by the Member States. Such a certification and designation requirement does not exist for DSOs.

Status Review on the Implementation of Distribution System Operators' Unbundling Provisions of the 3rd Energy Package, CEER Status Review, Ref: C15-LTF-43-03, 1 April 2016

Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market in electricity (recast), Recitals 67 - 79, Article 56

(67) Without the effective separation of networks from activities of generation and supply (effective unbundling), there is an inherent risk of discrimination not only in the operation of the network but also in the incentives for vertically integrated undertakings to invest adequately in their networks.

(68) Only the removal of the incentive for vertically integrated undertakings to discriminate against competitors as regards network access and investment can ensure effective unbundling. Ownership unbundling, which implies the appointment of the network owner as the system operator and its independence from any supply and production interests, is clearly an effective and stable way to solve the inherent conflict of interests and to ensure security of supply. For that reason, the European Parliament, in its resolution of 10 July 2007 on prospects for the internal gas and electricity market, referred to ownership unbundling at transmission level as the most effective tool for promoting investments in infrastructure in a non-discriminatory way, fair access to the network for new entrants and transparency in the market. Under ownership unbundling, Member States should therefore be required to ensure that the same person or persons are not entitled to exercise control over a producer or supplier and, at the same time, exercise control or any right over a transmission system operator or transmission system. Conversely, control over a transmission system operator or transmission system should preclude the possibility of exercising control or any right over a producer or supplier. Within those limits, a producer or supplier should be able to have a minority shareholding in a transmission system operator or transmission system.

(69) Any system for unbundling should be effective in removing any conflict of interests between producers, suppliers and transmission system operators, in order to create incentives for the necessary investments and to guarantee the access of new market entrants under a transparent and efficient regulatory regime and should not create an overly onerous regulatory regime for regulatory authorities.

(70) Since ownership unbundling requires the restructuring of undertakings in some instances, Member States that decide to implement ownership unbundling should be granted additional time to apply the relevant provisions. In view of the vertical links between the electricity and gas sectors, the unbundling provisions should apply across the two sectors.

(71) Under ownership unbundling, to ensure full independence of network operation from supply and generation interests, and to prevent exchanges of any confidential information, the same person should not be a member of the managing board of both a transmission system operator or a transmission system and an undertaking performing any of the functions of generation or supply. For the same reason, the same person should not be entitled to appoint members of the managing boards of a transmission system operator or a transmission system and to exercise control or any right over a producer or supplier.

(72) The setting up of a system operator or transmission operator that is independent from supply and generation interests should enable a vertically integrated undertaking to maintain its ownership of network assets while ensuring the effective separation of interests, provided that such independent system operator or independent transmission operator performs all of the functions of a system operator, and provided that detailed regulation and extensive regulatory control mechanisms are put in place.

(73) Where, on 3 September 2009, an undertaking owning a transmission system was part of a vertically integrated undertaking, Member States should be given a choice between ownership unbundling and setting up a system operator or transmission operator which is independent from supply and generation interests.

(74) To preserve fully the interests of the shareholders of vertically integrated undertakings, Member States should have the choice of implementing ownership unbundling either by direct divestments or by splitting the shares of the integrated undertaking into shares of a network undertaking and shares of a remaining supply and generation undertaking, provided that the requirements resulting from ownership unbundling are complied with.

(75) The full effectiveness of the independent system operator or independent transmission operator solutions should be ensured by way of specific additional rules. The rules on independent transmission operators provide an appropriate regulatory framework to guarantee fair competition, sufficient investment, access for new market entrants and integration of electricity markets. Effective unbundling through provisions on independent transmission operators should be based on a pillar of organisational measures and measures relating to the governance of transmission system operators and on a pillar of measures relating to investment, to connecting new production capacities to the network and to market integration through regional cooperation. The independence of transmission operators should also be ensured, inter alia, through certain ‘cooling-off’ periods during which no management or other relevant activity giving access to the same information that could have been obtained in a managerial position is exercised in the vertically integrated undertaking.

(76) Member States have the right to opt for full ownership unbundling in their territory. Where a Member State has exercised that right, an undertaking does not have the right to set up an independent system operator or an independent transmission operator. Furthermore, an undertaking performing any of the functions of generation or supply cannot directly or indirectly exercise control or any right over a transmission system operator from a Member State that has opted for full ownership unbundling.

(77) The implementation of effective unbundling should respect the principle of non-discrimination between the public and private sectors. To that end, the same person should not be able to exercise control or any right, in violation of the rules of ownership unbundling or the independent system operator option, solely or jointly, over the composition, voting or decisions of both the bodies of the transmission system operators or the transmission systems and the bodies of the producer or supplier. With regard to ownership unbundling and the independent system operator solution, provided that the relevant Member State is able to demonstrate that the relevant requirements have been complied with, two separate public bodies should be able to control generation and supply activities, on the one hand, and transmission activities, on the other.

(78) Fully effective separation of network activities from supply and generation activities should apply throughout the Union to both Union and non-Union undertakings. To ensure that network activities and supply and generation activities throughout the Union remain independent from each other, regulatory authorities should be empowered to refuse to certify transmission system operators that do not comply with the unbundling rules. To ensure the consistent application of those rules across the Union, the regulatory authorities should take the utmost account of Commission opinions when they take decisions on certification. In addition, to ensure respect for the international obligations of the Union, and to ensure solidarity and energy security within the Union, the Commission should have the right to give an opinion on certification in relation to a transmission system owner or a transmission system operator which is controlled by a person or persons from a third country or third countries.

(79) Authorisation procedures should not lead to administrative burdens that are disproportionate to the size and potential impact of the producers. Unduly lengthy authorisation procedures may constitute a barrier to access for new market entrants.

Article 56

Unbundling of accounts

1.Member States shall take the necessary steps to ensure that the accounts of electricity undertakings are kept in accordance with paragraphs 2 and 3.

2.Electricity undertakings, whatever their system of ownership or legal form, shall draw up, submit to audit and publish their annual accounts in accordance with the rules of national law concerning the annual accounts of limited liability companies adopted pursuant to Directive 2013/34/EU.

Undertakings which are not legally obliged to publish their annual accounts shall keep a copy of these at the disposal of the public in their head office.

3.Electricity undertakings shall, in their internal accounting, keep separate accounts for each of their transmission and distribution activities as they would be required to do if the activities in question were carried out by separate undertakings, with a view to avoiding discrimination, cross-subsidisation and distortion of competition. They shall also keep accounts, which may be consolidated, for other electricity activities not relating to transmission or distribution. Revenue from ownership of the transmission or distribution system shall be specified in the accounts. Where appropriate, they shall keep consolidated accounts for other, non-electricity activities. The internal accounts shall include a balance sheet and a profit and loss account for each activity.

4.The audit referred to in paragraph 2 shall, in particular, verify that the obligation to avoid discrimination and cross-subsidisation referred to in paragraph 3 is respected.

Regulatory Challenges for a Sustainable Gas Sector, CEER Public Consultation Paper, 22 March 2019, Ref: C18-RGS-03-03, p. 13

Unbundling, i.e. the effective separation of networks from activities of production and supply is a fundamental pillar for achieving the objective of a well-functioning internal gas market. It shall guarantee that network operators act as neutral market facilitators in undertaking their 8 core functions. The Clean Energy Package, i.e. the revision of the Electricity Directive , reinforces the fundamental concept that network operators principally should not own, develop, manage or operate energy storage facilities and recharging points for electric vehicles. These activities should be subject to competition as the best means of meeting customer demands in the most cost-efficient way. Member States, however, may grant derogations if a number of conditions are fulfilled, e.g. in case of lack of market interest and the regulatory authority has granted its approval. Regarding energy storage facilities, Member States may also grant derogations if these facilities are fully integrated network (Article 2 (39a) of the revised Electricity Directive: ‘fully integrated network components’ means network components that are integrated in the transmission or distribution system, including storage facility, and are used for the only purpose of ensuring a secure and reliable operation of the transmission or distribution system but not for balancing nor congestion management”) components.

The current EU legislation for gas network operators indeed leaves some room for interpretation (“grey areas”) when it comes to the involvement of TSOs and DSOs in the provision of e.g. CNG/LNG refueling infrastructure and power-to-gas infrastructure. Regarding the involvement of TSOs and DSOs in natural gas filling stations (i.e. CNG refueling infrastructure), the existing European gas legislation does not explicitly prohibit such activity. According to Article 26 of the Gas Directive DSOs (this principle equally applies to TSOs according to Article 9 of the Gas Directive) must be independent from other fields of energy supply activity as regards their legal form. This legal requirement would be infringed if the DSO or TSO sells natural gas at filling stations to customers. Whether this is the case depends on whether the natural gas is piped to the filling station and how the "operation" of the filling station is organised. If the network operator only takes over the technical operation of the natural gas filling stations as a form of technical service, it must nevertheless be further examined whether this does not de facto amount to a management operation relevant to unbundling rules. This must then be examined on a case-by-case basis. For example, in the case of the German TSO ONTRAS, the business model is designed in such a way that neither gas is supplied to customers nor are the filling stations part of the regulated asset base of the TSO and thus financed by network charges. Therefore, the activity was not prohibited under the given legal framework.

Regarding the involvement of TSOs in power-to-gas plants, the room for interpretation is smaller than in the case of CNG refueling infrastructure due to the fact that power-to-gas plants are usually classified as gas production plants. In principle, network operators are not allowed to operate any gas production plants based on the current legal provision in Article 9 (1) of Directive 2009/73/EC (Gas Directive). This prohibition is addressed not only to gas TSOs but also to electricity TSOs. This follows from Article 9 (3) of the Gas Directive, according to which a competitive activity of the other sector is also relevant to unbundling.