article by Vlad Cordea, Senior Associate MRP Partners

At the end of September, the Ministry of Energy launched for public debates a draft emergency ordinance for the amendment and supplement of the Electricity and Natural Gas Law no. 123/2012 (″Energy Law″), with the main purpose of transposing into the domestic legislation the provisions of the Directive (EU) 2019/944 on common rules for the internal market for electricity and amending Directive 2012/27/EU (″Directive 2019/944″).

The Directive 2019/944 is part of the legislative package “Clean energy for all citizens”, composed of a series of legal enactments adopted at EU level in 2018 and 2019, which amended and supplemented the European regulatory framework applicable in the energy sector, aimed at advancing the process of implementation of the Energy Union and pushing forward the transition towards the production of electricity from clean energy sources. 

The deadline for transposing the Directive 2019/944 into the domestic legislation expired on December 31, 2020, Romania being formally notified by the European Commission to this end, reason for which it prepared the aforesaid draft emergency ordinance (″Draft GEO″).

Most of the amendments proposed by the Draft GEO are welcomed, introducing principles and concepts which are not regulated or are inconsistently regulated currently in the domestic legislation. To name just a few of the main amendments and supplements proposed to the Energy Law, we note the following:

1. repealing the obligation for trading energy exclusively on the centralized power exchanges¹;

2. enabling the licensing of several operators of the electricity markets;

3. defining certain concepts, such as: active customer, citizen energy community, dispatchable consumption, dynamic electricity price contract, priority dispatch, imbalance settlement period, electricity derivatives, prosumers, etc.;

4. regulating the aggregation activities, in the sense of defining the aggregator, of its rights and obligations, of the balancing responsibility, of the rights of the end customer to participate and withdraw from the aggregation activity of its self-consumption;

5. repealing the obligations applied to producers to sell all their available energy.

Setting aside these amendments, which are necessary for ensuring the transposition of the European legislation, the Draft GEO also contains a proposed amendment which infringes both European and domestic norms and which, should it be enacted in the published form, triggers the risk of infringement actions being initiated by the European Commission.

The proposed amendment consists in supplementing Article 6, letter d¹) regarding the attributions of the Ministry of Energy to „issue set-up permits for new power generation capacities″ with a new provision, pursuant to which, once the Ministry will issue the set-up permit, ″the transmission and system operator and the distribution operators are obliged to issue the technical connection permit, as per the law.”

At the same time, the Draft GEO proposes the amendment of Article 10(1), first thesis, as follows: „(1) The competent Ministry issues set-up permits for the development of new energy capacities for the production of electricity, including capacities for the production of cogenerated electricity and thermal energy, or their refurbishment. (…).” We note that the attribution to issue set-up permits belongs currently to the National Regulatory Authority in the Energy Sector (″ANRE″).

In sum, pursuant to the proposed amendments, the Ministry of Energy take over from ANRE the attribution to issue set-up permits for the development of energy capacities for the production of electricity, including capacities for the production of cogenerated electricity and thermal energy, or their refurbishment.

These amendments were promptly challenged by associations active in the renewable energy sector, which requested to remove these new provisions and to preserve the current procedure whereby ANRE issues the set-up permits, otherwise risking to block the development of the renewable energy industry in Romania².

Leaving aside any opportunity arguments, such amendments, whereby the attributions of the regulatory authority, an entity independent of political interests, as per the European and domestic legislation, is transferred to the Ministry of Energy, a pure political body, manifestly infringes the applicable regulatory framework, both from the perspective of the member states’ obligations to ensure that regulatory authorities are fully independent from any other public or private interests and have available sufficient resources to accomplish their tasks, as well as from the perspective of the obligations to ensure the effective separation of the activities of the transmission and system operator from the activities of generation and supply of energy.

1. Infringing the obligation to ensure the independence of regulatory authorities

Firstly, we note that letter d¹), based on which the Ministry of Energy received the attribution to issue set-up permits for new power generation capacities was inserted to Article 6 in December 2020, in lack of any coherent justification sustaining such an amendment. According to the amendments in the Supplementary Report submitted by the Industry and Services Committee in the Chamber of Deputies³ concerning the draft law which amended the Energy Law in December 2020⁴, the addition of letter d¹) is justified by the fact that ″the generation of electricity is not a regulated activity and must be an attribute of the competent ministry which manages the energetic policies for new capacities, (…)”.

The above is a false premise, the generation of electricity being in fact a regulated activity at the date of the aforesaid report, as well as currently, as it results from the provisions of Article 10(1) and (2) of the Energy Law in force today, according to which both (1) the issuance of set-up permits for the development of new energy capacities for the production of electricity, including capacities for the production of cogenerated electricity and thermal energy, or their refurbishment, as well as (2) the issuance of licenses for the commercial operation of the aforesaid capacities fall within ANRE’s attributions, as single regulatory authority.

Consequently, both the insertion of letter d¹) at Article 6 and the proposed amendment of Article 10(1) of the Energy Law, according to which ANRE is definitely deprived of the attribution to issue set-up permits for the development of new power generation capacities (such attribution being transferred to the Ministry of Energy), lack a valid justification and create the premises for political interferences in the energy regulatory activity, which is an exclusive attribute of ANRE.

In fact, these amendments of the Energy Law would infringe the provisions of the European law, notably those relating to (1) the necessity to ensure the full independence of the regulatory authorities of any other public or private interests, as well as (2) the necessity to ensure that regulatory authorities may take decisions in relation with all relevant regulatory issues if the internal market of electricity is to function properly. These concepts were introduced initially by Directive 2009/72/EC of the European Parliament and of the Council concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC (″Directive 2009/72″), being taken over subsequently also in the Directive 2019/944.

Following the transposition of the Directive 2009/72 into the domestic legislation⁵, especially for ensuring ANRE’s independence of any public or private interventions, starting with 2012, ANRE was transferred from the subordination of the prime-minister’s cabinet under the parliament’s control, becoming fully financed from its own resources, independent from a decision-making, organizational and operational perspective and having for purpose the drafting, enactment and monitoring the application of all regulations necessary for the operation of the electricity, thermal energy and natural gas sectors and markets.

Following a process of monitoring the European electricity market, the Agency for the Cooperation of Regulatory Authorities (″ACER″) issued in 2016 a recommendation⁶ via which it requested the member states to fully implement the provisions of the European legislation on the independence of regulatory authorities, their powers, and tasks, recommending in the process to the European Commission to continue monitoring the degree of implementation of these guidelines. At the same time, ACER recommends enacting clear rules and procedures on the appointment, designation and dismissal of the key personnel of regulatory authorities, on the adequate financing of the regulatory authorities and on ensuring sufficient staffing for the accomplishment of the authorities’ tasks.

Based on ACER’s recommendations, the Directive 2019/944 introduces supplementary obligations at the charge of member states, with a view to safeguard the independence of the regulatory authorities, among which, pursuant to Article 57, we name the following: 

1. designation of a single regulatory authority at national level;

2. ensuring that each regulatory authority: 

• is legally distinct and functionally independent from other public or private entities; 

• ensures that its staff and the persons responsible for its management: (1) act independently from any market interest; and (2) do not seek or take direct instructions from any government or other public or private entity when carrying out the regulatory tasks;

3. in order to protect the independence of the regulatory authority, Member States shall ensure, among others, that the regulatory authority can take autonomous decisions, independently from any political body.

According to Article 57(7) of the directive, the Commission will present to the European Parliament and to the Council, by 5 July 2022 and, subsequently, every four years, a report on the compliance of national authorities with the principle of independence of the regulatory authorities.

In light of the above, taking also into consideration that the Draft GEO’s purpose if notably the transposition of the Directive 2019/944 into the domestic legislation, we may conclude that the amendment of Article 10(1) in the sense of transferring the attributions on the issuance of set-up permits for power generation capacities from ANRE to the Ministry of Energy blatantly contravenes to the directive’s provisions relating to: (1) the compliance by the national authorities with the principle of independence of regulatory authorities from any political body; and (2) the obligation to appoint a single regulatory authority at national level.

At the same time, such a transfer of ANRE’s attributions towards the Ministry of Energy would also infringe the obligations assumed by Romania for ensuring the independence of the transmission and system operator from the activities of generation and supply of electricity, as further detailed below.

2. Infringing the independence of the transmission and system operator

Being a part of the Third Energy Package, the Directive 2009/72 provided the obligation to ensure an effective separation of supply and generation activities from network operations („effective separation”), with a view to mitigate the 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.

To ensure compliance with the requirement of legal and functional independence of the transmission and system operator, both the Directive 2009/72 (currently repealed) and the Directive 2019/944 propose three alternative models, respectively: (1) full ownership unbundling between the generation and supply entities and the energy transmission entities (OU); (2) Independent System Operator (ISO); or (3) Independent Transmission Operator (ITO).

Therefore, to ensure the independence of its transmission and system operator, Romania opted in a first phase for certifying Transelectrica as an independent system operator (ISO)⁷. Subsequently, ANRE took note of the opinion issued by the European Commission at the occasion of the first certification, according to which the ISO model was not the most appropriate model for Transelectrica, the full ownership unbundling model being deemed a more adequate option to ensure the effective separation of the transmission activities from the state’s interests in the power generation and supply sector. As a result, ANRE approved subsequently the certification of Transelectrica as transmission and system operator based on the ownership unbundling model⁸.

On this background, following the certification of Transelectrica as TSO based on the full ownership unbundling model, the Romanian authorities must observe the obligations provided in:

1. Article 43(1), letter (b), point (i) of the Directive 2019/944⁹, respectively to ensure that ″the same person or persons are not entitled either directly or indirectly to exercise control over an undertaking performing any of the functions of generation or supply, and directly or indirectly to exercise control or exercise any right over a transmission system operator or over a transmission system; ″ and

2. Article 34(2), letter (a), point (i) of the Energy Law, respectively to ensure that ″the same person or persons are not entitled either directly or indirectly to exercise control over an undertaking performing any of the functions of generation or supply, and, at the same time, directly or indirectly to exercise control or exercise any right over a transmission system operator or over a transmission system.″

At the same time, in its observations regarding the notification of the decision for certification of Transelectrica as transmission and system operator based on the ownership unbundling model, the European Commission retains that ″for the purpose of the rules on ownership unbundling, two separate public bodies should therefore be seen as two distinct persons and should be able to control generation and supply activities on the one hand and transmission activities on the other, provided that it can be demonstrated that they are not under the common influence of another public entity in violation of the rules on ownership unbundling.″.¹⁰

Considering the above, we note that the Ministry of Energy is a majority shareholder, respectively exercises a direct control over certain undertakings operating in the power generation sector, such as Electrocentrale Grup SA (100% of share capital), Electrocentrale București SA (97.51% of share capital), Electrocentrale Constanța SA (100% of share capital), Hidroelectrica SA (80.05% of share capital), SN Nuclearelectrica SA (82.49% of share capital).

In this context, according to the amendments proposed by the Draft GEO, namely:

• supplementing Article 6, letter d¹) on the attributions of the Ministry of Energy to „issue set-up permits for new power generation capacities″ with a new phrase, pursuant to which, once the Ministry of Energy issues the set-up permit ″the transmission and system operator and the distribution operators are obliged to issue the technical connection permit, in accordance with law”; and 

• amending Article 10(1) of the Energy Law so that the Ministry of Energy would replace ANRE in the procedure for issuance of set-up permits for the development of new power generation capacities,

would entail a scenario where the same person/entity, namely the Ministry of Energy, will exercise a direct control over certain undertakings operating in the power generation sector and will also exercise indirectly certain rights over Transelectrica, the transmission and system operator. This in the context where, as a direct effect of the aforesaid proposed amendments, Transelectrica would be obliged to issue the technical connection permits for any power generation capacities which will obtain a set-up permit from the Ministry of Energy.

Also, according to the provisions of the Directive 2019/944, taken over almost identically from the Directive 2009/72 (currently repealed), ″only the removal of the incentive for vertically integrated undertakings to discriminate against competitors as regards network access and investment can ensure effective unbundling.″

Also, the Ministry of Energy controls several producers of electricity, some of which (e.g., Hidroelectrica) have stated their intention to purchase or develop power generation capacities using renewable energy sources. Considering this situation, the enactment of the amendments proposed by the Draft GEO would create the conditions for a certain bias of the Ministry of Energy when issuing set-up permits and, implicitly, ensuring the access to the transmission network, with the implicit risk of applying a discriminatory treatment to the competitors of the undertakings controlled by the ministry.

For all the above arguments, we deem that the amendments proposed by the Draft GEO relating to the transfer towards the Ministry of Energy of ANRE’s attributions concerning the issuance of set-up permits for the development of power generation capacities, infringe the obligation to ensure the unbundling of the power generation and supply activities from the activities of Transelectrica, certified as transmission and system operator based on the ownership unbundling model.

Given the objectives established by the European Commission for pursuing the energy transition towards clean energy sources, Romania faces the dawn of a new wave of renewable energy projects, following which we may assist to a significant change in the mix of power generation capacities in Romania. 

On such background, removing the provisions of the Draft GEO relating to the issuance by the Ministry of Energy of set-up permits for power generation capacities would allow avoiding various deadlocks in the permitting process, the risk of future disputes initiated by investors blocked in the permitting process and also the risk of infringement actions being initiated by the European Commission, justified by the infringement of the European energy regulatory framework.

1 The conclusion of medium- and long-term bilateral power purchase agreements (i.e., with delivery period of at least one month) became available in Romania as of 1 January 2020, pursuant to Article 3, letter (o) of the Regulation (EU) 2019/943 on the internal market for electricity. However, energy market participants remain hesitant to enter such bilateral transactions, given the provisions of the Energy Law relating to the obligation to trade all electricity on the centralized exchange, which are still in force.

2 According to information publicly available here: https://www.investenergy.ro/regenerabilii-cer-ca-anre-si-nu-ministerul-energiei-sa-emita-autorizatiile-de-infiintare-de-noi-capacitati-de-producere-a-energiei-o-modificare-a-procesului-de-racordare-ar-putea-duce-la-un-bloca/

3 Available here: http://www.cdep.ro/comisii/industrii/pdf/2020/rs464.pdf

4 The legislative proposal registered with the Chamber of Deputies under no. PL-x 464/2020, which became subsequently Law no. 290/2020 on the approval of Government Emergency Ordinance no. 106/2020 for the amendment and supplement of the Energy and Natural Gas Law no. 123/2012, as well as for the amendment of certain legal enactments.

5 According to Article 1(1) of Government Emergency Ordinance no. 33/2007 on the organization and operation of the National Regulatory Authority in the Energy Sector, ANRE is a ″autonomous administrative authority, having legal personality, under the parliament’s control, fully financed from own resources, independent from a decision-making, organizational and functional perspective, having as purpose the drafting, enactment and monitoring of the ensemble of mandatory regulations at national level, required for the operation of the electricity, thermal energy and natural gas sector and market, in conditions of efficiency, competition, transparency and protection of consumers.″.

6 Available on ACER’s website here: https://extranet.acer.europa.eu/Official_documents/ Acts_of_the_Agency/Recommendations/ACER%20Recommendation%2001-2016.pdf

7 See ANRE Order no. 90/2013 on the approval of the certification of the National Power Transmission Company ''Transelectrica'' - S.A. as transmission and system operator of the national electro-energetic system and ANRE Order no. 71/2014 on the approval of the certification of the National Power Transmission Company ''Transelectrica'' - S.A. as transmission and system operator of the national electro-energetic system.

8 See ANRE Order no. 164/2015 on the approval of the certification of the National Power Transmission Company ''Transelectrica'' - S.A. as transmission and system operator of the national electro-energetic system, based on the ownership unbundling model.

9 Identical obligations were provided at the date of certification of Transelectrica, in Article 9(1), letter (b), point (i) of the Directive 2009/72/CE of the European Parliament and of the Council concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC.

10 See point III, paragraph (2) of the European Commission Endorsement of October 12, 2015, annexed to ANRE Order no. 164/2015 on the approval of the certification of the National Power Transmission Company ''Transelectrica'' - S.A. as transmission and system operator of the national electro-energetic system, based on the ownership unbundling model.