1. The Agency for Cooperation of Energy Regulators (ACER) – UK Government views Sue Harrison Head of European Energy Markets 13 February 2008 EPP-ED Public Hearing

2. Why is an Agency needed? Strong regulators needed at national level to oversee activities of TSOs (accepted by all Member States) Beneficial in the energy sector to have similar approach at EU level Agreed at the 2007 Spring Council that an independent mechanism should be established for national energy regulators to cooperate and take decisions on important cross-border issues

3. Why should the Agency do? To create the institutional basis for a regulatory framework reaching across national borders which is needed to establish an integrated European grid in electricity and gas within a framework agreed at political level To give market players the regulatory certainty they need to make investment decisions To establish a consistent set of rules to increase market integration through more efficient cross-border trading

4. The Commission proposal does not deliver Very few areas in which ACER is authorised to take decisions Most of the codes are likely to remain voluntary and therefore not enforceable – no regulatory certainty Codes are left to the ENTSOs to develop – companies with commercial objectives cannot be charged with delivering on public interest objectives Not appropriate for the ENTSOs to develop trading codes Role of ACER, in respect of codes, is purely advisory Therefore Commission proposal needs to be improved

5. Legal constraints UKs preferred model is constrained by ECJ rulings, notably Meroni, which are reflected in the Commissions 2005 proposal for a Draft Interinstitutional Agreement concerning regulatory agencies These restrict agencies scope for action, in particular prevents them arbitrating on conflicting public interests, making political choices or conducting complex economic assessments

6. Adequate controls are needed High level policy objectives involving political choices and trade-offs could be set out in the primary legal instrument, ie Electricity and Gas Regulations, to remove the scope for the Agency to exercise discretion on political issues Or these high level objectives could be elaborated in strategic guidelines agreed by comitology Or perhaps both?

7. Development of codes ENTSOs then develop the technical codes under close supervision of ACER, including consultation of all market players ACER considers whether the codes are consistent with the high level policy objectives and/or strategic guidelines, and conducts a consultation of market players If the ENTSOs cannot agree on the codes, ACER drafts the codes in consultation with stakeholders ACER drafts trading codes following consultation with market players Commission has a power of veto over decisions on codes within a set period of time Must be a process for modifying the codes

8. Advantages of UK model Fulfils the mandate given by the European Council Puts responsibility for agreeing technical and market codes with those with the requisite expertise and resources, ie ACER in close cooperation with the ENTSOs and other market players Aims to establish binding technical and trading codes which will be enforceable at MS level, ie provides regulatory certainty Aims to enable codes to be updated and amended as EU energy markets develop