Interview with John Mogg

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As a former director-general of the European Commission’s DG Markt, John Mogg, current chair of the European Regulators’ Group for Electricity and Gas (ERGEG), is well placed to consider the effects on the market of the third liberalisation package for energy. Despite contrary European Parliament and Council positions, Mogg, also chair of UK energy regulator Ofgem, continues to see no justification for less unbundling in gas than electricity. Appointed a life peer in the UK in April 2008, the former civil servant further admits that legal constraints have made it difficult to give the proposed Agency for the Cooperation of Energy Regulators (ACER) real powers to take binding decisions.

Do you think EU energy ministers were right to propose three options for both gas and electricity?

In a number of key elements of the third package, real progress has been made. It is very important that the powers and independence of national energy regulators are strengthened, harmonised and levelled up. The issue of regulatory gap at EU level must be addressed, with the establishment of a strong and independent agency. An efficient and transparent process to develop binding network codes on cross-border issues has to be in place. This will help secure completion of the internal energy market.

Ownership unbundling is the most effective means of avoiding discrimination, and of ensuring fair and equal access to the networks. There is no justification for less unbundling in gas than in electricity. The potential for discrimination does not differ. If Council and Parliament do not reach political agreement, we will have no package at all. On a number of occasions, we have highlighted the shortfalls of the present situation.

How do you see the European Parliament’s call for an independent and stronger ACER?

We welcome the EP’s vision. A strong and independent agency will play a key role in integrating Europe’s energy markets. Parliament has seen fit to endow energy regulators with the tools necessary for achieving this goal.

In an ideal world, we would like to see some sort of symmetry between the powers and independence of regulators at national level and the ACER. The EU legal order, however, presents certain constraints. When the Commission presented its proposals, there were some questions on the proposed form for this EU regulatory function – an EU agency – and on the issue of delegation of powers [the 1958 Meroni ruling by the EU Court of Justice sets conditions for the delegation of powers by the Commission]. I understand that the interpretation by the Commission’s legal services is now accepted by the other institutions.

Should the future agency only be brought in on crossborder disputes as a last resort, as agreed by the EU energy ministers on 6 June?

The March 2007 European Council agreed to “the establishment of an independent mechanism for national regulators to cooperate and take decisions on important cross-border issues”. The Parliament took a similar line. Due to the legal constraints indicated in the Meroni ruling, it has proven difficult at this stage to give the ACER real powers to take binding decisions.

The ACER’s role during the process of adopting network codes on cross-border issues is advisory. But it is still very important as we set the objectives of the network codes. European network operators may not derogate from our guidelines. Such network codes must be legally binding to provide market players with regulatory certainty. We will see how these arrangements work in practice.

There is also the issue of split roles and responsibilities between national regulatory authorities (NRAs) and the ACER concerning, for instance, decisions on requests for exemption [to third-party access rules – Ed]. The idea of a one-stop shop, put forward by the Commission, is a good one. But, in practice, the agency would probably consult the relevant NRAs in the first place. We will have to see what the final outcome of the negotiations is, but there may be a way to accommodate these concerns.

Some member states, having already adopted ownership unbundling, want to protect their markets from vertically integrated companies from other EU countries. Is this a good idea?

This does not sit well with the objective of completion of the internal energy market.

With EU ministers still favouring other options than ownership unbundling, do you see the danger of market distortion?

There is certainly the possibility of market distortion. This is why the June 2008 Energy Council agreed to a review clause on unbundling after two years. Having the right provisions in EU law is very important. But we should not forget about subsequent regulation by the competition authority. DG Comp, for instance, has opened a number of cases with some transmission system operators deciding to divest their transmission assets as did E.ON.