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DE RUEHBS #1684/01 3051534
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R 311534Z OCT 08
FM USEU BRUSSELS
TO RUEHC/SECSTATE WASHDC
INFO RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 01 OF 02 BRUSSELS 001684 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EPET EUN
SUBJECT: OUTLOOK FOR THE EU'S THIRD ENERGY PACKAGE 
 
¶1.  (SBU) Summary.  EU Commission officials tell Econ 
Officers that the French Presidency plans to defer action on 
the Third Energy Package this year, with the package to be 
acted on by the Czech Presidency after the first of the year. 
 There are large differences between the current Council and 
Parliament versions of the package, but Commission, Council, 
and Parliament officials are optimistic that a political 
agreement can be reachd next Spring before the Parliament 
begins its election cycle.  End Summary. 
 
¶2.  (SBU)  Econ Officers met October 30 with Ana Arana 
Anelo, Head of Unit for Electricity and Gas in DG-TREN to 
discuss the status of the EU's Third Energy Package.  Arana 
confirmed that the French Presidency has decided not to 
schedule this package for this year and instead will pass it 
to the Czech Presidency next Spring.  Arana indicated that, 
while the Commission does not necessarily agree with all the 
changes approved by the October European Council, the 
essential elements of the package are still intact.  She 
believes that, even though the Council has watered down the 
requirements for ownership unbundling, the version proposed 
by the Council will still accomplish the goal of bringing 
greater competition to the internal market for gas and 
electricity and encouraging interconnection of the grids 
between member states.  Arana was confident that the package 
could be presented to the Parliament early next year with 
adequate time for consideration and approval before the 
Parliament recesses for elections. 
 
The Council Version 
--------------------- 
¶3.  (SBU) On October 10 the Energy Council reached formal 
agreement on the third Internal Energy Market Package. 
Although the previous Energy Council in June had agreed to 
the Internal Energy Market package in principle, there 
remained some issues to discuss in detail, and the text to 
finalize, in particular the "third country clause" and "level 
playing field" clause. The October 10 Energy Council resolved 
these issues as follows: 
 
-- The third country clause requires Member States, through 
national regulators, to undertake a specific procedure to 
determine whether a potential acquisition of an electricity 
or gas network in the EU by a company from a third country 
fully complies with the EU's rules on unbundling and whether 
it potentially provides a threat to that countries' and the 
EUs' security of energy supply. In the event that it 
concludes that it does, it may prohibit that acquisition. 
The decision of the Member State must be referred to the 
Commission, which gives an opinion whether the acquisition 
meets the unbundling requirements of the Directive and/or 
represents a threat to the EU's security of energy supplies. 
The Member State must take the "utmost account" of the 
Commission's view, which is not however binding. 
 
-- The level playing field clause imposes restrictions on 
vertically integrated companies from one Member State from 
buying unbundled energy companies in another. The Council 
agreed to a clause that makes it clear that member states can 
legally prevent vertically integrated companies (i.e. 
companies owning generation, supply and transmission) from 
purchasing their ownership unbundled transmission grids. 
Furthermore Member States can also prevent such companies 
from purchasing their generation/supply companies on grounds 
of overriding public interest. 
 
¶4.  (SBU) The other elements of the package were approved as 
per the agreement of the Council of June 6th. In particular 
it permits Member States to choose between ownership 
unbundling and the Independent Transmission Operator (ITO) 
model.  The ITO model accepts that a company may remain 
vertically integrated, and in many respects seems to be based 
on, but then expands on, a proposal tabled earlier by the 
eight Member States opposed to ownership unbundling.  In 
addition, the idea of having an independent trustee that 
would be responsible for appointing the supervisory board was 
dropped.  An agreement has also been reached on the 
establishment of a new Agency for European Energy Regulators, 
a new transmission system operator (TSO) body with a more 
formal role, a new procedure for adopting common network 
rules, and common minimum powers and levels of independence 
for national regulators. 
 
Where the Differences Lie 
--------------------------- 
¶5.  (SBU) The next step will be negotiations between the 
Council and Parliament. 
 
-- The Parliament in its First Reading adopted an opinion 
which only allows ownership unbundling for electricity, and 
the choice between ownership unbundling or an Independent 
 
BRUSSELS 00001684  002 OF 002 
 
 
System Operator (ISO) for gas 
 
- a more structurally challenging option than the ITO option 
as agreed by the Council.  The ISO has to have all the assets 
necessary to carry out its activities without relying on the 
parent. 
 
-- The Parliament wants more powers for national regulators 
and the proposed EU regulatory cooperation agency  than the 
Council has agreed, more provisions on public service and in 
particular regarding "fuel poverty." 
 
-- The Parliament also wants a much reduced role for the 
accelerated decision-making procedure known as comitology in 
the adoption of new network rules. (Note: In comitology the 
European Parliament plays a less active role.  End note.) 
 
Outlook 
------- 
¶6.  (SBU) Andris Kesteris, Chef de Cabinet for Energy 
Commissioner Piebalgs, told Econ Officer on October 21 that 
the Commission is not concerned by the Energy Council's 
agreement on the third party (aka Gazprom) clause.  Under the 
Council version, the Commission must be consulted to 
determine whether the acquisition would "put at risk the 
security of energy supply to the Community," but its decision 
is only advisory.  Kesteris said the Commission's opinion 
would be public, making it difficult for Member States to 
contravene.  He denied rumors that Parliamentarians would 
seek to vest the decision-making authority with the 
Commission during upcoming negotiations.  He expects the 
Parliamentarians to be more focused on pricing and consumer 
issues in advance of next year's elections. 
 
¶7.  (SBU) On October 21 Econ LES spoke with the head if the 
Parliament's ITRE Committee secretariat Luis Martin Oar and 
with Walter Goetz.  Oar and Goetz indicated they expect 
negotiations with the Council on a second reading agreement 
to commence in early January under the Czech Presidency. 
They said the French had refused to commence informal 
negotiations, because they want to give priority to the 
Climate and Energy package. According to Oar and Goetz, ITRE 
chair Angelika Niebler discussed this again with the French 
Presidency on October 21, without any success.  Goetz also 
said that in practical terms, with negotiations on the energy 
and climate package going on, it would also be difficult to 
organize parallel negotiations on the 3rd energy package. 
 
¶8.  (SBU) To allow the Parliament the full four months of 
negotiating time it is entitled to under the Co-decision 
procedure, the Parliament will wait on the formal 
announcement of the Council common position in January.  Oar 
and Goetz are optimistic that the Parliament can negotiate a 
deal with Council within those four months.  Oar and Goetz 
expect Parliament's rapporteurs to be "sufficiently positive" 
about the Council version.  They also said the ITRE Committee 
had a track record of agreeing to 90 percent of the 
legislation presented for a second reading (preventing a 
conciliation procedure). Both staffers expect a Parliament 
plenary vote on the package to take place in April or May. 
 
¶9.  (SBU) On the content of the legislation, Oar and Goetz 
said the Parliament would not have the necessary qualified 
majority to insist on mandatory ownership unbundling for the 
electricity market (as it did at first reading).  What will 
probably happen is that the Parliament will concede to the 
council a more flexible "a la carte approach" for the 
electricity market (as it did for natural gas).  In return, 
the Parliament will push for a stronger European energy 
authority and stronger consumer protection. 
 
¶10.  (SBU) Arana told Econ Officers that she believes the 
political will exists in both the Council and the Parliament 
to reach a compromise agreement next Spring.  She believes 
the Parliament will be willing to accept the Council 
proposals on unbundling and the third country clause.  She 
Arana believes the final version will include three options 
for unbundling:  the full ownership unbundling proposed by 
the Commission, the ITO model proposed by the Council, and 
the ISO model proposed by the Parliament.  Member states 
would be able to choose one of these three models.  In 
exchange, the Parliament will likely expect concessions from 
the Council on a string of Parliamentary proposals for 
consumer protection. 
 
Silverberg. 
.