Regulatory Observer, Issue 45, 13December 2012
Contents
Wholesale Price Convergencein EU Energy Markets1International Regulatory Round-up2
Australian Regulatory Round-up8
WHOLESALE PRICE CONVERGENCE IN EU ENERGY MARKETS
The Agency for the Cooperation of Energy Regulators (ACER) and the Council of European Energy Regulators (CEER) have released aReportfinding increasing price convergence in wholesale electricity and gas markets in Europe.
The issues addressed in the Annual Report on the Results of Monitoring the Internal Electricity and Natural Gas Markets (the Report) include: how changes in energy policy are impacting consumers; whether prices are regulated or subject to market pressures; and how consumer rights are implemented in practice. The Report also analyses: retail regulatory frameworks in EU Member States; developments in gas and electricity wholesale market integration; and network access issues which impact on competition in retail markets and on the prices that consumers pay for energy.
The Report states that, in ‘a liberalised energy market, competition should bring benefits to consumers at least in terms of better services and cost-reflective prices.’
The Report assesses progress towards the implementation of the Third Energy Legislative Package (the Package) that envisages an EU dimension to the planning of energy networks and the development of detailed EU-wide rules on network and market operation. According to ACER’s Director, Alberto Pototschnig, ‘Increasing price convergence is a clear sign of progress towards market integration and greater competition.’
The Report found that electricity price convergence was increasing due to market coupling. However, unplanned electricity flows in parts of Europe are a barrier to the further integration of the internal market. In natural gas markets, liquidity in some gas hubs in the EU was found to be unsatisfactory. Contractual congestion remained a significant feature at some interconnection points, even without physical congestion.
While there is evidence of increasing price convergence throughout Europe, the Report still found large differences in prices between EU Member States. In 2011, average retail prices were between 8.5 (Bulgaria) and 29.4 (Denmark) Euro cents per kWh for electricity. The average retail price in Greece was 12.4cents, United Kingdom 15.1 and 25.3 in Germany. The average retail price for gas in Romania was 2.8 cents per kW, France 6.1, Italy 7.85and 11.7in Sweden.
The majority of EU Member States have regulated prices for electricity and gas. The Report suggests that ‘Regulated prices should be set at levels which avoid stifling the development of a competitive retail market… [They] should be removed where a sufficient level of retail competition is achieved. Indeed, regulated prices can suppress competition if they are set at a level which does not allow costs to be recovered.’ The Report also suggests that regulatory frameworks that allow regulated prices to be set at a level which exceeds underlying costs (assuming efficient costs are known to the regulator), could prevent competition. This is because, ‘in an immature retail market, high regulated prices could be viewed as a focal point which competing suppliers can cluster around and – at least in markets featuring consumer inertia – slow the switching process down.’
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INTERNATIONAL REGULATORY ROUND-UP
Communications
Americas
US: Video Relay Service Provider CSDVRS to Pay Nearly $1.4 Million toSettle Investigations into Alleged Improper Use of FCC’sTRS Fund
A provider of Video Relay Services (VRS) has agreed to pay nearly $1.4 million to settle two federal investigations. VRS is used by people with hearing and speech disabilities to place telephone calls. The settlementresolves allegations of improper payments from the federal Fund that supports VRS. Investigations by the FCC included examining whether the provider, CSDVRS LLC, improperly billed the TRS Fund for VRS calls that were actually generated by its own employees.
US: Post-Superstorm Sandy Hearings to Examine Resiliency of US Communications Networks during Natural Disasters
The FCC has announcedplans to convene hearings to examine the nation’s communications networks in the wake of Superstorm Sandy. The objective is to provide recommendations to improve network resiliency of wired and wireless networks during large-scale national emergencies. The field hearings will focus on the challenges faced by communications service providers, state and local officials and emergency personnel as a result of Superstorm Sandy and other natural disasters. Other issues that will be addressed include power and fuel dependencies, resource sharing protocols and 9-1-1 accessibility.
US: FCC Grants Spectrum Licence to Firstnet
The First Responder Network Authority (FirstNet) has been granteda spectrum licence by the FCC. It will be used to build and operate a nationwide, interoperable public safety broadband network. The Middle Class Tax Relief and Job Creation Act of 2012 required the FCC to reallocate and grant to FirstNet a single licence for the 700 MHz D block of spectrum and the existing public safety broadband spectrum. The licence was granted for an initial term of ten years, subject to renewal.
US: Eliminates Outdated Regulation of International Calling Charges
The FCC has adopteda Report and Order to amend its international telephony rules; eliminating outdated regulations governing agreements between US and foreign carriers for delivering international phone traffic. It also strengthens the FCC’s ability to protect US consumers from the effects of anticompetitive conduct by foreign carriers. The International Settlements Policy (ISP) was designed to enable US international carriers to negotiate agreements with foreign carriers with market power. It required foreign providers to offer all US carriers the same settlement rate. But as global competition has increased, traffic routing possibilities have increased, and the ISP has impeded competition, and it has gradually been removed from most international routes.
US: Department of Commerce Approves Verisign-ICANN .com Registry Renewal Agreement
The US Department of Commerce has approvedthe renewal of the ‘.com’ Registry Agreement between Verisign Inc, and the Internet Corporation for Assigned Names and Numbers. Through this agreement, Verisign will manage the registry for the ‘.com’ top-level domain for six more years.
US: NARUC President Appoints Task Force to Examine State Role in Telecommunications
The National Association of Regulatory Utility Commissioners (NARUC) has announcedthe creation of a new task force to review and provide new policies on telecommunications regulation. The NARUC Task Force on Federalism and Telecommunications will aim to develop: a revised framework for the role of States and how States interact and react to decisions by the FCC and other federal agencies; an updated negotiating framework for revisions to federal telecommunications law; and principles to evaluate State-level telecommunications legislation.
Europe
EU: Revised BEREC Common Positions on Wholesale Local Access, Wholesale Broadband Access and Wholesale Leased Lines
The BEREC has adoptedrevised Common Positions (CPs) on wholesale local access (WLA), wholesale broadband access (WBA) and wholesale leased lines (WLL). The CPs are intended to assist National Regulatory Authorities (NRAs) in designing remedies to address competition problems in national markets. The BEREC has also been working with the European Commission, and aims to provide CPs that ensure the market has clear, coherent and predictable regulatory signals.
EU: BEREC Statement on the Importance of National Regulatory Authorities' (NRA’s) Independence
The BEREC has released a statementhighlighting the importance of proper resourcing and independence of NRAs. The BEREC is concerned with the impact that some national legislative initiatives may have on the effectiveness of regulatory authorities’ performance of their regulatory functions, and, in turn, on their independence. The BEREC has noted that initiatives in some Member States will transfer responsibility for some regulatory tasks away from NRAs to become direct government functions.
EU: BEREC opposes ETNO’s Proposals for the Review of the International Telecommunications Regulations
TheBEREC has released a statementopposing the European Telecommunications Network Operators' Association’s (ETNO’s) proposals for the review of the International Telecommunications Regulations (ITRs). The ETNO has proposed to include: a reference in the ITRs to an interconnection charging mechanism; and to the concept of end-to-end Quality of Service delivery. The BEREC has stated that this may result in some businesses having market power that would increase the need for regulatory oversight and potentially require regulatory intervention, in accordance with the EU regulatory framework.
EU: BEREC Positions on Net Neutrality
The BEREC has adopted an Overview and a Summaryof its approach to net neutrality. The Overview summarises how the Internet works and presents findings related to retail and wholesale relationships and observations in the context of net neutrality. Further, the paper presents what regulators can do in order to promote net neutrality.
Germany: New Fixed Interconnection Rates Published
The Bundesnetzagentur has informedTelekom Deutschland GmbH (Telekom) of new interconnection rates applicable from 1 December 2012. The rates are about 20 per cent lower than the previous rates and apply for two years. Telekom may now charge its interconnecting competitors 0.36 cents per minute from 09.00 to 18.00 on weekdays (peak rate) for routing calls through its network in the key price zone I (call transfer at the lowest network level). At other times, Telekom may charge 0.25 cents per minute. The rates apply both for terminating calls in its own network (call termination) and for routing calls, made using carrier call-by-call or pre-selection, from its network to competitors’ networks (call origination).
UK: The Ofcom Unveils Plans to Avoid Mobile ‘Capacity Crunch’
The Ofcom has published plansto release new frequencies in response to the growing demand for wireless data. The plans involve the 700 MHz frequency band, which is currently used for digital terrestrial television. Releasing the new frequencies can be achieved without the need for a TV ‘switchover’. Twenty million Gigabytes of data is currently used per month over the UK’s mobile networks. This is more than twice as much data used per month compared with last year. It is the equivalent of downloading 5 billion music tracks every month.
UK: The Ofcom Consults on TV White-Space Device Requirements
The Ofcom has issued a consultationon a proposed framework for the overall operation of white-space devices in the UK. The proposed framework is designed to manage the risks of harmful interference to existing users of the UHF TV band. The term ‘white space spectrum’ refers to frequencies that are not used by existing licensees at all times or at all locations. A white-space device can make use of these frequencies provided the risk of harmful interference to the licensed users of the spectrum can be managed. The Ofcom has been investigating the prospects of access to white spaces in the UHF TV band since 2007. The consultation closes on 10 January 2013.
Oceania
New Zealand: Commerce Commission Announces Proposed Wholesale Price for Broadband Bitstream Service
The New Zealand Commerce Commission (NZCC) has released a draft decisionon a new cost-based price for Chorus’s unbundled bitstream access (UBA) service. The proposed full UBA price of $32.45 per month per line will come into effect on 1 December 2014. Until then, the cost of UBA will remain at the current price of $44.98 for most lines. The full UBA service enables retail telecommunications companies to supply broadband services to households and businesses without the need to replicate Chorus's local copper lines, electronics and software.
New Zealand: Commerce Commission Announces Small Reduction in Wholesale Price for Chorus’s Local Copper
The NZCC has released a final decisionon the wholesale price for access to Chorus’s unbundled copper local loop (UCLL). The new geographically averaged price is $23.52 per month per line and comes into effect on 1 December 2014. This change is a 3.85 per cent reduction on the prices set in 2007. The change in the UCLL price affects the prices of the unbundled bitstream access (UBA) service (for broadband services), the unbundled copper low frequency (UCLF) service (for voice services), and the sub-loop service (SLU).
Energy
Americas
US: FERC and Hawaii PUC Sign Agreement on Information Sharing
The Federal Energy Regulatory Commission (FERC) and the Hawaii Public Utilities Commission (HPUC) have agreedto share information regarding energy issues and regulatory practices. Initial topics for discussion include: Hawaii’s integration of renewable energy resources; regulatory issues associated with the development and deployment of demand response; the use of microgrids in Hawaii’s Department of Defence facilities; regulatory policy related to inter-island cable systems to interconnect remotely sited generation and island electrical grids; the establishment and enforcement of mandatory reliability standards for the grid; and regulatory issues associated with the import and use of natural gas.
US: FERC Provides Guidance on Electricity Transmission Rate Incentives
The FERC has issued a Policy Statementthat provides additional guidance on how it will evaluate applications for electricity transmission incentives. It is intended to encourage infrastructure investment, while maintaining ‘just and reasonable’ rates for customers. The FERC will no longer rely on analysis in relation to whether a project is routine or non-routine as a proxy for the ‘nexus test’. Instead, it will require applicants to demonstrate how the total package of incentives requested is tailored to address the risks and challenges of a project.
Europe
France: CRE Decides on Rules for the Sale of Transmission Capacity
The French Regulatory Commission of Energy (CRE) haspublishedrules in relation to the sale of transmission capacity at the natural gas link between the GRTgaz North and South zones. Capacity available from 1 April 2013 to 31 March 2014 will be sold during the next sale window. About 30 GWh/d of annual interruptible capacity will be reserved for allocation to market coupling for 1 April 2013 to 31 March 2014. An auction mechanism will be implemented from 1 April 2014.
Germany: First Joint Energy Monitoring Released by the Bundesnetzagentur and Bundeskartellamt
The Bundesnetzagentur and the Bundeskartellamt have released a Monitoring Report(the Report)that analyses developments in the German electricity and gas markets. The report suggests that competition in retail markets has increased. The expansion of renewable energy sources has led to increased investment in networks. The Report notes that this trend needs to continue in order to transport the energy generated from these sources to consumer hubs. In the electricity and gas sector, a large volume of trading on the supply markets is necessary for competition in the remaining markets.
Germany: Bundesnetzagentur Releases Draft Federal Requirements Plan
The Bundesnetzagentur has released an Electricity Network Development Plan 2012(the Plan) and the accompanying environmental report. A key part of the Plan is the use of high-voltage direct current (HVDC) transmission lines (‘electricity highways’) which transport electricity generated from wind turbines located in the north, to consumer centres in the west and the south. The Bundesnetzagentur assessed the draft Plan submitted by the four German transmission system operators in August. The assessment included an eight-week public consultation process.
The Netherlands: Highest Court in Antitrust Matters rules in NMa’s Favour in Gas Transmission Case
The Dutch Trade and Industry Appeals Tribunal (CBb), the nation’s highest court in antitrust matters, has issued a final rulingon the ‘method decisions’ for Dutch gas transmission operator Gas Transport Services (GTS). The Netherlands Competition Authority (NMa)had set tariffs for GTS from 2005 to 2013. Key questions in the ruling were the value of GTS and the level of the tariffs. The NMa had assessed the value of GTS’s network in 2005 at €4.8 billion. The CBb ruled in the NMa’s favour on all counts.
The Netherlands: NMa Average Increase of Tariffs of Regional Network Operators 7.1 per cent
The Netherlands Competition Authority (NMa) has announcedthat tariffs of the regional network operators for natural gas and electricity will increase by 7.1 per cent on average in 2013. Transmission costs of gas and electricity by the regional network operators is a component of energy bills. The tariff increase means that an average household’s energy bill will increase by approximately €20 (excluding VAT) in 2013. One of the reasons for the increase in tariffs is the inflation rate. Other reasons include planned investment in the networks for projects including decentralised injection such as windmills and cogeneration plants.
UK: Consultation on a Proposed Framework to Enable Coordination of Offshore Transmission
The Ofgem has published a consultationon a proposed framework to promote investment for the coordination of offshore transmission development. The offshore transmission regulatory regime was developed by the Department of Energy and Climate Change (DECC) and the Ofgem for the construction and operation of offshore transmission assets. The regime provides that Offshore Transmission Owners are selected and licensed though a competitive tender process that is coordinated by the Ofgem. The consultation closes on 1 March 2013.
UK: Joint Regulators Group ConsidersImpact of Regulatory Frameworks on Infrastructure Work acrossSectors
The Ofgem has published a consultationin relation to the impact of regulatory frameworks on opportunities to coordinate infrastructure work across sectors. Coordination of new network infrastructure development by companies in different sectors may lead to benefits, including through the use of shared resources. The Ofgem, as part of the Joint Regulators Group (JRG), is considering if the regulatory frameworks collectively facilitate or hinder these opportunities. The consultation closes on 15 January 2013.
UK: Synergies and Conflicts of Interest arising from the Great Britain System Operator delivering Electricity Market Reform