How will Participants in Electricity Markets be Affected by EU Market Supervision Legislation?

Developing the 3rd IEP, a provision on detailed daily reporting to regulators and even some publication of physical transactions data was put forward. This provision was eventually replaced with an internal record-keeping requirement, because of the risk of being too burdensome for the market participants, among whom Eurelectric, Eurogas, EFET and FOA opposed it strenuously, and of a very fragmented implementation.

In 2005 the Commission launched an inquiry in the energy sector, gas and electricity, to assess the degree of development of the market101. The study, published in 2007, identified eight problematic areas: market concentration, vertical foreclosure, lack of market integration, lack of transparency, price formation, downstream markets, balancing markets and LNG market.

The inquiry proposed to address major shortcomings through a sector specific regulation for:
- Achieving effective unbundling;
- Removing regulatory gaps;
- Addressing market concentration and barriers to entry;
- Increasing transparency.

Although this initiative was related to the IEP, it had a key role in DG TREN considering addressing the energy markets issues with a tailor-made regulation. On 9th December 2009 the Commission published a draft discussion paper on energy market integrity and transparency, introducing sector specific definitions, the transparency requirements previously proposed for the 3rd IEP and addressing all cases where MAD and MiFID do not apply, namely physical transactions.

The Commission held a preventive public consultation on measures to ensure transparency and integrity of wholesale markets in electricity and gas from 31st May to 23rd July 2010. Stakeholder responses were largely positive, showing a preference for a tailor-made regulation rather than an extension of financial legislation, but specifically asked for a clear definition of roles, responsibilities and key terms, and expressed concerns on a number of undesirable side effects: undue costs related to new provisions, handling of trade information and possibility of regulatory arbitrage. A joint review of pending EU financial proposals and the Dodd-Frank Act would ensure harmonisation.