Context
Last month, DECC published a consultation on introducing a requirement upon licence exempt distribution network owners to implement a system of Third Party Access (TPA). This is intended to bring the GB market into line with the provisions of the second Electricity and Gas Directives, as clarified by the ECJ in its 2008 ruling in the Citiworks AG case. That decision confirmed that private distribution networks are required to comply with the TPA provisions in the Electricity Directive, even where they have been established to serve only customers in a small area (e.g. in the Citiworks case it was Leipzig airport). Though the Citiworks AG case concerned only the Electricity Directive, it is recognised that the rationale of the case would also apply in relation to gas.
Owners of private distribution networks should also be aware of new provisions in the third package of EU energy legislation. The third Electricity and Gas Directives are due to be implemented by 3 March 2011.
DECC Consultation
DECC notes that the current GB legislative provisions regarding exempt gas and electricity networks are not compliant with the Citiworks AG judgement. DECC proposes to amend the Electricity Act 1989 and Gas Act 1986 to provide that exempt undertakings will still have to comply with the requirement to provide for TPA insofar as they are distribution systems within the meaning of the second Electricity and Gas Directives.
In practice, providing for TPA will involve providing access to the network on a non-discriminatory basis in accordance with approved tariff or methodology. Access can only be refused where there is insufficient capacity in the network. As well as producing a tariff or methodology for approval by Ofgem, network owners will have to make provision for connection (including reinforcement work) and appropriate metering capabilities. The costs of preparing the network for connection will be borne by the customer or supplier requesting access.
These requirements will only apply where a third party has requested access - DECC will not require a network owner to install new meters or carry out other work related to TPA until there is a realistic prospect that it is required in practice.
Where TPA is required, Ofgem sets out a list of requirements as follows:
- Prepare separate accounts for the operation of the distribution network to calculate use of system charges. Accounts may be requested by Ofgem to support tariffs or methodologies sent for approval.
- Obtain Ofgem approval for tariffs/methodologies.
- Once approval has been gained, provide the prospective third party supplier with details of the use of system charge. Such charges may only be recovered when they have been approved by Ofgem.
- Provide to a prospective third party supplier (or suppliers, if a customer wishes to consider offers from multiple suppliers) all relevant technical and commercial information reasonably required by the supplier to make an offer of supply to the customer.
- Agree with the supplier any arrangements regarding physical connection such as the installation of a meter.
- Act, at all times, in a way so as not to obstruct or unreasonably delay third party access.
Third Package Requirements
In addition to the requirements relating to TPA, the new Electricity and Gas Directives require that, where a distribution system is owned by a company providing both network services and supply of generation/shipper services, the distribution system operator part of the business should be legally unbundled from the supply/generation/shipper businesses. In practice, this would require the network to be operated by a subsidiary company, which is independent in terms of organisation and decision making from the parent undertaking.
When looking at the issue of legal unbundling in its consultation on the implementation of the Third Package, DECC noted that this requirement would be included in the licence provisions. It is unclear how this issue will be dealt with in relation to exempt networks. On the face of it, when applying the same reasoning from the Citiworks AG case to unbundling, there would appear to be no exception for private distribution networks in relation to the unbundling provisions.
For more information please contact Lesley Gray.