EXCLUSIVE Government warned by The National Authority for Energy Regulations ANRE that the new energy bill capping ordinance will lead to the disappearance of some energy suppliers / State-owned companies will have to be created / The billing ordinance blatantly violates European rules

The National Energy Regulatory Authority (ANRE), the arbiter of the energy market in Romania, has warned the government in a note that the emergency ordinance adopted on Thursday to cap bills blatantly violates European rules because it limits EU energy trade, according to the document consulted by G4Media.

Moreover, ANRE has warned the government that the emergency ordinance risks bringing infringement proceedings against Romania because of the price cap on producers.

ANRE’s starkest warning, however, comes in terms of the impact of the ordinance on energy suppliers. The authority says the ordinance could lead to the exit of some suppliers from the market because of the mechanisms imposed and calls on the government to set up trading and supply companies to compensate for the possible exit of some of these market participants.

ANRE made these observations and recommendations in an opinion on the emergency ordinance approved by the government on Thursday. The ordinance, which the government claims is designed to protect the population from rising prices, introduces a number of mechanisms that seek to de facto cap energy prices and ban electricity exports.

The main points of the note sent by ANRE to the government:

The Romanian Constitution in Art. 148 para. (2) states the principle of supremacy of European law, according to which „the provisions of the founding treaties of the European Union, as well as other binding Community regulations, shall take precedence over contrary provisions of domestic law, subject to the provisions of the Act of Accession”.

According to this principle, as enshrined in European case law, EU law takes precedence over the national laws of the Member States, which are under an obligation not to apply a national rule contrary to EU law. The precedence of EU law operates in relation to all national rules and imposes on all Member State authorities, including constitutional courts, the obligation to disapply any national rule, even of a constitutional nature, in the event of a conflict with a rule of EU law.

In addition, we draw attention to the fact that there has been an infrigement procedure on the issue of price capping of producers, namely Case No. 2012/2114 – action for failure to fulfil obligations concerning the failure to comply with EU law by imposing a de facto restriction on the export of natural gas, where the Commission found that by doing so Romania had failed to fulfil its obligations under Articles 35 and 36 of the Treaty on the Functioning of the European Union (TFEU) and under Article 40(c) of Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC.

Thus, the Commission considered that the version amended by GEO No 114/2018 and GEO No 19/2019 of Article 124 of the Electricity and Natural Gas Law No 123/2012, by which a producer price limit had been established, and the order issued by ANRE on the basis thereof (Order No 52/2019), established a legal framework acting as a de facto restriction on natural gas exports from Romania and therefore constituted a measure having equivalent effect to a quantitative export restriction within the meaning of Article 35 TFEU.

With regard to the proposal in Article VI, according to which „The maximum value of the weighted average price of electricity at which ANRE calculates the amounts to be settled from the State Budget for electricity suppliers is 1300 lei/MWh”, we would like to point out that setting an electricity price on other principles than on the basis of the transactions concluded may create financial difficulties for electricity suppliers and further along the production-consumption chain, making it impossible for operators in the sector to carry out their activities and for customers to switch to suppliers of last resort (FUI). In this context, the FUI would face both financial difficulties as electricity is purchased for the customers taken over from the Day-Ahead Market (PZU) and an imbalance (the entry of customers into the portfolio cannot be foreseen as it is not a voluntary action of the FUI). Thus the price of the electricity purchased for the customers taken over reflects the conditions at the time of the takeover and setting a price a priori can create both disadvantages for suppliers and advantages if the price set is at a high level.

In addition it should be noted that:

⦁ there are no legal provisions imposing on suppliers the obligation to purchase through forward contracts all the consumption needs (the Law on Electricity and Natural Gas no. 123/2012 provides in art. 6^1 „The supplier has the obligation to ensure at least 40% of the electricity necessary to cover the consumption of final customers in the portfolio from its own production or through purchase by forward contracts on the electricity markets, on markets other than PZU, PI and PE” and this objective cannot be achieved given that the consumption of customers differs according to time intervals and the products traded on centralized markets are generally products with band delivery,

⦁ consumption may vary significantly as customer consumption in the portfolio decreases/increases or customers enter/exit the portfolio.

Such a measure may also be considered a public service obligation with the fulfilment of all conditions and full recovery of all costs associated with this obligation.

Regarding the proposal in Article VII. according to which „Through bilateral contracts negotiated directly from 1 September 2022, electricity producers shall be obliged to sell directly available electricity with delivery until 31 December 2022, only to electricity suppliers with final customers in their portfolio, intended exclusively for their consumption, to electricity distributors, to the national system operator Compania Nacionala de Transport Energie Electrica Transelectrica S.A., as well as consumers who have benefited from the provisions of GEO 81/2019 for amending and supplementing Government Emergency Ordinance No. 115/2011 on establishing the institutional framework and authorising the Government, through the Ministry of Finance, to auction greenhouse gas emission certificates allocated to Romania at European Union level, and for establishing a state aid scheme to support companies in sectors and subsectors exposed to a significant risk of relocation as a result of the transfer of the cost of greenhouse gas emissions in the price of electricity.” we would like to point out that on the one hand this provision violates the provisions of EU Regulation No 943/2019 and on the other hand no longer allows direct contracts between producers to cover contracted needs (sales obligations) in conditions of unavailability of generation units/groups.

With regard to the draft ordinance amending Emergency Ordinance No 27/2022 on measures applicable to final customers in the electricity and natural gas market for the period from 1 April 2022 to 31 March 2023, as well as amending and supplementing certain regulatory acts in the field of energy, we also provide the following recommendations:

⦁ Notify the European Commission of the public service obligations imposed by the draft ordinance mentioned;
⦁ Given the impact of the current situation in the energy market on suppliers/traders, we consider it necessary for the Romanian State to set up trading and supply companies to compensate for the possible exit from the market of some of these market participants.

Background: the Ministry of Energy has published the draft emergency ordinance making changes to the bill support scheme and extended the period of application of the measures until August 2023 (from March 2023), according to Economedia.

The business community, including the employers’ confederation Concordia, criticised the way the new emergency ordinance was adopted.

According to the document, prices for the population remain capped for gas and electricity. Instead, SMEs, food industry firms and public institutions will pay a capped price for only 85% of their electricity consumption.

Some electricity consumption thresholds are lowered instead. Thus, those with an average monthly consumption in 2021 between 0 – 100 kWh inclusive will continue to pay a tariff of 0.68 lei/kWh. However, those with an average monthly consumption in 2021 of between 100.01 and 300 kWh inclusive will continue to pay a tariff of up to 0.80 lei/kWh, including VAT, but only for a monthly consumption of up to 255 kWh. Electricity consumption exceeding 255 kWh/month will be billed at full price.

Until now, the price was capped at 0.68 lei/kWh for monthly consumption below 100 kWh and 0.8 lei/kWh for monthly consumption between 100 and 300 kWh. Now the price will still be capped at 0.68 lei for monthly consumption below 100 kWh, but the 0.8 lei/kWh cap will only apply to those with a monthly consumption between 100 and 255 kWh.

The ordinance lowers the price at which gas producers are obliged to sell gas to suppliers of heat producers or directly to heat producers from 250 lei to 150 lei, but only for the quantity of natural gas used to produce heat in cogeneration plants and heat plants for domestic consumption.

The government obliges gas producers to sell gas used for electricity production at 100 lei/MWh from 1 September 2022 to 31 October 2023.

Traducere: Ovidiu Harfas