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Electricity Regulation in 28 jurisdictions worldwide Contributing editor: Earle H O’Donnell

2014 Published by Getting the Deal Through in association with: Allen & Overy LLP Anzola Robles & Associates Arfidea Kadri Sahetapy-Engel Tisnadisastra Arthur Cox Barger Prekop s.r.o. Boden Law Cruz Marcelo & Tenefrancia Erdinast, Ben Nathan & Co Advocates Gowling Lafleur Henderson LLP Grandall Law Firm Herbert Smith Freehills CIS LLP Khaitan & Co Larraín Rencoret & Urzúa Abogados Lener Lo´pez Velarde, Heftye y Soria Macesic & Partners Mattos Filho, Veiga Filho, Marrey Junior e Quiroga Advogados Nishimura & Asahi Norton Rose Fulbright Greece Osborne Clarke Schönherr Rechtsanwälte GmbH Siegler Law Office / Weil, Gotshal & Manges LLP SimmonsCooper Partners Staiger, Schwald & Partner Ltd White & Case LLP Wiercin´ski Kwiecin´ski Baehr Spk

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Ireland Arthur Cox

Ireland Alex McLean, Patrick McGovern and Claire Madden Arthur Cox

1

Policy and law What is the government policy and legislative framework for the electricity sector?

Overall policy responsibility for the sector lies with the minister for communications, energy and natural resources and his Department (DCENR). In this capacity, the minister is advised by a range of other statutory bodies including the Commission for Energy Regulation (CER) and Sustainable Energy Authority of Ireland (SEAI). The principal legislation governing the electricity industry in the Republic of Ireland is the Electricity Regulation Act 1999, as amended (1999 Act), which provides for the establishment of a regulatory framework for the introduction of competition in the generation and supply of electricity in the Republic of Ireland and established the CER as the national regulatory authority responsible for overseeing the liberalisation of Ireland’s energy sector including granting licences for the generation, transmission, distribution and supply of electricity. Government policy in the Irish electricity sector is driven principally by the relevant EU directives. The European Communities (Internal Market in Electricity) Regulations 2000 (the 2000 Regulations) completed the transposition of Directive 96/92/EC of the European Parliament and of the Council of 19 December 1996 concerning common rules for the internal market in electricity (Directive 96/92/EC). The European Communities (Internal Market in Electricity) Regulations 2005 (the 2005 Regulations) were promulgated to transpose the requirements of Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in electricity and repealing Directive 96/92/EC (Directive 2003/54/EC). The European Communities (Internal Market in Electricity) Regulations 2010 (the 2010 Regulations) represent the first step taken in Ireland towards the transposition of Directive 2009/72/ EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity. The 2010 Regulations provide, inter alia, for the strengthening of independent regulation, better levels of consumer protection, the licensing of a public electricity supplier, the designation of a supplier of last resort and the enhancement of security of supply provisions. The European Communities (Renewable Energy) Regulations 2011 (as supplemented by the Sustainable Energy Act 2002 (section 8(2)) (Conferral of Additional Functions – Renewable Energy) Order 2011) have transposed Directive 2009/28/EC on the promotion of use of energy from renewable sources. The Irish electricity sector underwent fundamental reform with the establishment on 1 November 2007 of a single electricity market (SEM) encompassing the Republic of Ireland and Northern Ireland. Key characteristics of the SEM include a gross mandatory pool with central commitment, a single system marginal price, transmissionconstraint payments and the introduction of capacity payments. The Energy (Miscellaneous Provisions) Act 2006 and the

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Electricity Regulation (Amendment) (Single Electricity Market) Act 2007 provide the legal basis for the SEM in Ireland, including establishment of a SEM Committee of the CER. A March 2007 government White Paper, ‘Delivering a Sustainable Energy Future for Ireland’, set out the government vision for the future development of the energy sector for 2007 to 2020 around the central pillars of increasing security, sustainability and competitiveness of energy supply. 2

Organisation of the market What is the organisational structure for the generation, transmission, distribution and sale of power?

Ireland has been increasingly liberalising its energy sector for more than a decade and significant steps have been taken at a regulatory level to facilitate competition in generation and supply. In practice, however, the number of new market entrants has been relatively low, reflecting the relatively small size of the Irish market. The current state of the market is described below. Generation

The generation market is fully liberalised and there has been increased competition in recent years The most significant growth in generation investment has been seen in renewables. It is intended that 40 per cent of electricity consumed in Ireland in 2020 will be produced from renewable sources, and the development of renewables has been heavily promoted by successive price-support regimes for wholesale purchases of renewable energy (the REFIT schemes). Although ownership of renewable assets has traditionally been diverse, recent years have seen some consolidation in ownership by larger traditional utilities such as Bord Gais Eireann, Viridian and Scottish and Southern Energy (SSE) owned Airtricity. While representing a significant proportion of Ireland’s generation portfolio, renewables are generally traded outside the market with prices set by reference to government support schemes. With respect to price-setting generation, the government White Paper of 2007 included the aim of reducing the ESB’s market share to 40 per cent of generation in an all-island (Republic of Ireland and Northern Ireland) context by 2010. To this end January 2009 saw the finalisation of a deal under the ESB-CER Asset Strategy Programme in which Spanish utility Endesa SA purchased from the ESB the 216MW Great Island and 589MW Tarbert plants, four 50MW peaking plants and two brownfield sites. Endesa’s participation in the Irish market was to be short lived however, and it sold the former ESB plant to SSE in 2012 in a deal worth €230 million. The only other large-scale independent power plants not contracted to the ESB and supported by public service obligation levies are the Viridian-owned 343MW CCGT Huntstown Power Plant and the 401MW CCGT Huntstown Phase II Power Plant (commissioned in 2002 and 2007 respectively).

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Getting the Deal Through – Electricity Regulation 2014

Arthur Cox

Ireland

Bord Gais Eireann also constructed a 445MW CCGT generation station at Whitegate, County Cork, which was commissioned in 2011. At least a further 6,000MW of conventional projects are at present in a queue for connection to the electricity network.

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Authorisation to construct and operate generation facilities What authorisations are required to construct and operate generation facilities?

Transmission

The transmission system is owned by the ESB. On 1 July 2006, a newly established independent state-owned company, EirGrid, took over the role of transmission system operator (TSO). Pursuant to section 14(2A) of the 1999 Act, only EirGrid may be granted a licence to act as TSO, and pursuant to section 14(2B) of the 1999 Act, only the ESB may be granted a licence to act as transmission asset owner. In July 2011, having undertaken an extensive independent analysis of the issue, the Irish Government decided that the ownership of the electricity transmission network assets would remain with the ESB while the operation and development of the transmission system would continue to be the responsibility of EirGrid. In a decision published on 21 May 2013, the European Commission determined that the effective implementation of the transmission system arrangements in place in Ireland met the requirements of the EU Third Energy Package (Directive 2009/72/EC). Accordingly, EirGrid would be certified as the transmission system operator (TSO) for Ireland. The ESB will remain as owner of the transmission assets in Ireland and is responsible for the funding of, and carrying out construction and maintenance on, the transmission network. Market operation

Since the establishment of the SEM on 1 November 2007, the role of market operator for the island of Ireland has been discharged by a contractual joint venture between EirGrid and its Northern Ireland counterpart, System Operator Northern Ireland (SONI), known as the single electricity market operator (SEMO). EirGrid holds a SEMO licence under section 14(j) of the 1999 Act and is exempted from the need to hold a licence in Northern Ireland. SONI holds a corresponding licence in Northern Ireland and an exemption under section 14(2F) of the 1999 Act. SONI was acquired by EirGrid in March 2009. Distribution

The distribution system is owned and operated by the ESB. Pursuant to section 14(2C) of the 1999 Act, only the ESB or a subsidiary of the ESB may be granted a licence as distribution system operator (DSO). The European Communities (Internal Market In Electricity) (Electricity Supply Board) Regulations 2008 provide for the establishment of a subsidiary company of the ESB to operate the distribution system. Pursuant to these regulations, the subsidiary company and the ESB must enter into agreements in respect of how the subsidiary company will fulfil its duties as DSO. ESB Networks Limited, a new ring-fenced subsidiary within the ESB group charged with the operation and management of the electricity distribution system, was established in December 2008. Supply

Full retail contestability was introduced on 19 February 2005, but the electricity market was not fully deregulated until 4 April 2011. Newly rebranded Electric Ireland (formerly the ESB), Energia (a Viridian Group subsidiary), Airtricity and state-owned incumbent gas supplier Bord Gais Eireann are now active in the retail market. Bord Gais Eireann successfully entered the domestic electricity supply market in February 2009 and recorded unprecedented levels of customer switching. Airtricity (which was acquired by SSE in 2008) has also re-entered the domestic market, launching a significant switching campaign in July 2009. Following earlier losses of market share before full liberalisation, Electric Ireland has recently been permitted to compete for customers. At the end of Q4 2012, Electric Ireland had a 59.6 per cent share of the domestic market (MWh), up from 56.87 per cent at the end of Q4 2011. www.gettingthedealthrough.com

Regulation of electricity utilities – power generation

The key administrative authorisation required to construct a generation facility is an authorisation to construct or reconstruct a generating station issued by the CER pursuant to section 16 of the 1999 Act. The criteria to which the CER may have regard in determining an application for such an authorisation are prescribed under the Electricity Regulation Act 1999 (Criteria for Determination of Authorisations) Order 1999 (SI No. 309 of 1999) and the 2005 Regulations (the latter amending section 18 of the 1999 Act). Other authorisations such as planning permission are also required. The key administrative authorisation required to operate a generation facility is a licence to generate electricity issued by the CER pursuant to section 14(1)(a) of the 1999 Act. Other operational permits such as an integrated pollution prevention and control licence may also be required. The CER may modify licences or authorisations with or without the consent of the holder. Standard form licences and authorisations have been published by the CER. On 30 August 2007, the CER published simplified authorisation and licensing procedures for generators with capacities less than 1MW and less than 10MW. The relevant procedures are set out in the Electricity Regulation Act 1999 (section 16(3a)) Order 2008 and the Electricity Regulation Act 1999 (section 14(1a)) Order respectively. 4

Interconnection policies What are the policies with respect to interconnection of generation to the transmission grid?

The 1999 Act requires the TSO to offer transparent and non-discriminatory terms for connection to and use of the transmission system. The CER may issue directions to the TSO specifying connection terms from time to time, including in relation to matters to be specified in a connection agreement or use of system agreement, the terms and conditions of a connection offer, the manner in which costs will be shared between the TSO and connection applicants and the time for making or refusing to make a connection offer. Ireland and Northern Ireland operate a shallow connection charging policy. A Grid Code was submitted by the ESB and approved by the CER pursuant to the 2000 Regulations in 2001. The Grid Code is now developed and maintained by EirGrid and was most recently modified on 26 February 2013. The establishment of the SEM in 2007 saw the harmonisation of the Grid Codes in Ireland and Northern Ireland, and the introduction of certain sections under common governance. The Joint Grid Code Review Panel is a standing body established and maintained by SONI and EirGrid pursuant to the SONI Grid Code and the EirGrid Grid Code respectively. The functions of the panel are to keep the sections that fall under common governance between both the SONI and EirGrid Grid Codes under review, consider what changes are necessary and to issue recommendations to all suggestions for amendments to any of these common governance sections. A distribution code was submitted by the ESB and approved by the CER in 2000. This too has been modified on a number of occasions, including in preparation for SEM. ESB Networks Limited as the licensed distribution system operator is responsible for developing and maintaining the distribution code. In 2004, the CER also approved a separate operating code within the Grid Code, which is only applicable to wind generators, with a view to addressing technical difficulties in connecting wind to the grid. Such technical difficulties have led to the development of a group processing procedure for wind generation.


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Ireland Arthur Cox 5

Alternative energy sources Does government policy or legislation encourage power generation based on alternative energy sources such as renewable energies or combined heat and power?

The 1999 Act requires the minister and the CER, when carrying out their duties, to have regard to the need to promote the use of and support research and development in relation to renewable, sustainable or alternative forms of energy. The SEM provides for special trading rules for renewable, sustainable and alternative energy sources. Examples of support for generation based on alternative energy sources such as renewable energies or combined heat and power include:

significant effect on the area of more than one planning authority. In addition, new wind energy development guidelines for planning authorities (2006) and a circular in relation to planning permission expiring before grid connections are secured (2008) were issued by the minister for the environment, heritage and local government (as he was then known). The Department of the Environment, Community and Local Government, in conjunction with DCENR and SEAI, is currently undertaking a targeted review of certain aspects of the Wind Energy Planning Guidelines. This review will examine the manner in which the Guidelines address key issues such as noise (including separation distance) and shadow flicker. It is expected that the new Guidelines will be published in 2014. Priority dispatch

Renewable energy feed-in tariff (REFIT)

In 2006 the Department of Communications, Marine and Natural Resources (DCMNR) (now Department of Communications, Energy and Natural Resources (DCENR)) published terms and conditions for participation in REFIT 2006 (now called the REFIT 1 scheme), a Ä119 million programme to support construction of in excess of 400MW of renewable generation from 2006 to 2010. The programme supports electricity generation powered by biomass, hydropower or wind and follows on from the six alternative energy requirement (AER) programmes, which began in 1993. REFIT involves a fixed ‘feed-in’ support for each technology. The purchase price of the electricity is negotiated between generators and suppliers, and suppliers other than the ESB are entitled to financial support to purchase electricity generated. The REFIT 1 scheme was the subject of a quantitative limit, which has now been reached. No further applications are being considered for REFIT 1. On 12 January 2012 the European Commission signalled its intention not to raise objections to a successor REFIT 2 scheme covering small and large scale onshore wind, biomass landfill gas and small hydro (5MW). The REFIT 2 scheme was approved by the government in February 2012 and the scheme was opened in March 2012. A REFIT 3 scheme for biomass technologies, including high efficiency CHP, received state aid clearance from the European Commission in October 2011 and government approval in December 2011. The scheme opened for applications in February 2012. Group processing

To facilitate processing of applications for connection of wind generation to the grid, the CER has directed the system operators to operate a group processing procedure. Under group processing, connection applications from prospective renewable generators are processed by the system operators under defined criteria simultaneously in batches or gates, with the eligible applications broken into geographical groups depending on their level of interaction. Applications equating to 1,300MW were processed in gate 2. On 16 December 2008, the CER published its direction on gate 3, directing EirGrid and ESB Networks to issue connection offers to a further 3,900MW of renewable generation projects. A ‘grid development strategy’ will apply under which each applicant will be granted firm connection to the network in order of the anticipated speed with which the required deep transmission reinforcement works can be built will apply. Planning

The Planning and Development (Strategic Infrastructure) Act 2006 amends the Planning and Development Act 2000 so that planning applications for wind farms with more than 50 turbines or an output of greater than 100MW may be made directly to the Planning Board (which otherwise hears appeals, rather than local authorities) if the board considers that the project is of strategic, economic or social importance; contributes substantially to fulfilling the National Spatial Strategy or regional planning guidelines; or would have a

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The 1999 Act requires the TSO to give priority to generating stations using renewable, sustainable or alternative energy sources. Given Ireland’s renewables target of 40 per cent by 2020 (and an equivalent target in Northern Ireland), the SEM Committee consulted in 2009 on what priority dispatch might consist of in a market where over 40 per cent of generation qualified for ‘priority’. A decision paper published in August 2011 provided that generation with so-called ‘mandatory’ priority dispatch (being generators for whom priority was a mandatory requirement under European law – namely, renewable and high efficiency CHP generators) would be afforded the greatest degree of priority. It also proposed an emissions-based test for part-renewable or ‘hybrid’ plant in order to qualify for priority dispatch. 6

Climate change What impact will government policy on climate change have on the types of resources that are used to meet electricity demand and on the cost and amount of power that is consumed?

In order to achieve its targets under the Climate Change and Energy Package, the Irish government has set a target of 40 per cent electricity production from renewable sources by 2020. This target will be met predominantly by wind generation, which has a (close to) zero marginal cost of production. It is anticipated that this will depress the wholesale energy price in the SEM. However, increased market costs are anticipated in terms of constraint and capacity costs. The increasing penetration of intermittent wind generation has placed a premium on flexibility for conventional plant, and plant offering, system support. This is reflected in new ancillary services tariffs for ‘flexibility services’ provided to the TSO. As noted above, achievement of climate change targets has been incentivised by successive REFIT renewable support mechanisms. These support mechanisms are backed by a public service obligation levy order (made pursuant to the Electricity Regulation Act 1999 (Public Service Obligations) Order 2002, as amended), which provides for the recovery of the costs of the scheme from consumers. It is anticipated that the cost of the PSO payments (represented as a per MW charge on consumer bills) will increase as the system marginal price in the SEM falls. In an effort to disincentivise the production of greenhouse gas emissions and encourage renewables, a new carbon excise tax on the supply of fossil fuels was introduced in 2010 that applies to holders of greenhouse gas emission permits, albeit with substantial reliefs available. In May 2009 the government launched an Energy Efficiency Action Plan that targets 20 per cent energy efficiency savings by 2020. A 33 per cent energy efficiency target applies to the public sector. The Action Plan builds upon the Energy Efficiency Action Plan submitted to the European Commission in 2007 in compliance with Directive 2006/32/EC of the European Parliament and of the Council of 5 April 2006 on energy end-use efficiency and energy services and repealing Council Directive 93/76/EEC. The Energy



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(Miscellaneous Provisions) Act 2012 allows the minister for communications, energy and natural resources to establish an Energy Efficiency Fund to support the delivery of energy efficiency improvement programmes. 7

Government policy Does government policy encourage or discourage development of new nuclear power plants? How?

Generation of electricity in Ireland from nuclear energy is prohibited by law. Section 18(1) of the 1999 Act obliges the minister to specify the criteria according to which an application to the CER for an authorisation to construct a generation station is determined. Section 18(6) prohibits such an order from providing for the use of nuclear fission in the generation of electricity. The government White Paper of 2007 stated the government’s commitment to maintain the statutory ban on nuclear energy in Ireland. The government further committed to articulate its strong position in relation to nuclear generation and transboundary safety concerns in Europe in the context of the EU Energy Strategy. Regulation of electricity utilities – transmission 8

Authorisations to construct and operate transmission networks What authorisations are required to construct and operate transmission networks?

The key administrative authorisation required to operate a transmission network is a licence to discharge the functions of the TSO in accordance with the 2000 Regulations, issued by the CER pursuant to section 14(1)(e) of the 1999 Act. Pursuant to section 14(2A) of the 1999 Act only EirGrid may be granted a licence as TSO. The key administrative authorisation required to construct a transmission network is a licence to discharge the functions of the transmission asset owner in accordance with the 2000 Regulations, issued by the CER pursuant to section 14(1)(f) of the 1999 Act. Pursuant to section 14(2B) of the 1999 Act only the ESB may be granted a licence as transmission asset owner. The 1999 Act also provides for the construction of direct lines. 9

Eligibility to obtain transmission services Who is eligible to obtain transmission services and what requirements must be met to obtain access?

Any person is entitled to apply to the TSO for connection to the transmission system, provided that if the person is not an eligible customer or does not hold a licence under section 14 of the 1999 Act or an authorisation to construct or reconstruct a generating station under section 16 of the 1999 Act, any offer from the TSO must be subject to the person becoming an eligible customer or obtaining a licence or authorisation. The only circumstances in which the TSO can refuse to make a connection offer to an applicant are set out in section 34(4) of the 1999 Act and include: where the CER is satisfied that it is not in the public interest; where it would result in a breach of the 1999 Act, the Regulations made under the 1999 Act, the Grid Code or any condition of any licence or authorisation; or where the applicant does not undertake to be bound by the terms of the Grid Code. Following consultation with the TSO and DSO, the CER issued a decision on 6 October 2004 in relation to the terms for connection to and use of the transmission and distribution systems. These terms have evolved over the intervening years, and the CER now approves standard connection documents for access to the transmission system. www.gettingthedealthrough.com

Some elements of transmission connection policy have been harmonised in Ireland and Northern Ireland under the SEM arrangements, including the introduction of a harmonised transmission charging policy and a harmonised treatment of losses. In 2009 the CER approved a number of changes to its Electricity Network Connection Policy. These changes relaxed a number of requirements, including in relation to capacity bonds, for renewable and distribution-connected generators in particular. In May 2011 the CER approved a joint Connection Offer Policy and Process Paper of EirGrid and ESB Networks Limited setting out some policy and process issues applying to applications for connection to the transmission and distribution networks respectively. 10 Government incentives Are there any government incentives to encourage expansion of the transmission grid?

Given that the ownership and operation of the transmission grid in Ireland is not open to competition, no such government incentives exist. The transmission asset owner receives a regulated rate of return on transmission assets. An all-island grid study focusing on development of the grid for optimal fuel diversity was published in January 2008. This contributed to the development of a Grid Development Strategy (Grid 25) by the TSO. 11 Rates and terms for transmission services Who determines the rates and terms for the provision of transmission services and what legal standard does that entity apply?

The CER may give directions from time to time in respect of the basis for charges for the use of and connection to the transmission system. Section 35 of the 1999 Act provides that the ESB shall (within such time as the CER may direct) prepare a statement setting out the basis upon which charges are imposed for use of and connection to its transmission system. Section 35(4) provides that charges for connection to or for the use of the transmission system shall be calculated so as to enable the ESB to recover the appropriate proportion of the costs directly or indirectly incurred in carrying out all necessary work; and a reasonable rate of return on the capital represented by such costs. The CER conducts a revenue review every five years to determine the revenues that the ESB may earn in order to cover the cost of providing the network. The current review covers the period 2011 to 2015 and sets out the total allowed revenues over that period. Tariffs for the use of the transmission system are set annually by the CER. Section 34 of the 1999 Act provides that the CER may give directions providing for the matters to be specified in an agreement for connection to and use of the transmission system; the matters to be specified in an agreement for use of the transmission system; the terms and conditions upon which an offer for connection to the transmission system is made; and the methods for determining the proportion of the connection costs (direct or indirect) to be borne by each of the applicants for connection and the ESB. Section 34(8) of the 1999 Act provides that the ESB shall not discriminate unfairly between persons or classes of persons when providing for use of the transmission system or where offering terms for the carrying out of works for the purpose of connection to the transmission system. 12 Entities responsible for assuring reliability Which entities are responsible for assuring reliability of the transmission grid and what are their powers and responsibilities?

Under regulation 8 of the 2000 Regulations, the TSO has the exclusive function of operating and ensuring the maintenance of and, if


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Ireland Arthur Cox necessary, developing a safe, secure, reliable, economical and efficient electricity transmission system. This includes the TSO planning for the long-term ability of the transmission system to meet reasonable demands for the transmission of electricity and contributing to the security of supply through adequate planning and operation of transmission capacity and system reliability. In practice, with the advent of SEM, this is done in consultation with SONI. Under regulation 18 of the 2000 Regulations, the TSO and transmission system owner shall enter into an infrastructure agreement that shall, among other things, provide for the maintenance and development of the transmission system. The infrastructure agreement between EirGrid and the ESB was approved by the CER and came into effect in 2006. There are conditions in the respective licences granted by the CER to the TSO and transmission system owner relating to the reliability of the transmission grid and these conditions can be enforced by the CER. Under condition 15 of section C of the TSO licence, the TSO shall, following consultation with the distribution system operator, the transmission system owner and the Northern Ireland system operator, establish transmission system security and planning standards that are subject to the approval of the CER. The TSO shall be responsible for operating, ensuring the maintenance of and, if necessary, developing the transmission system in accordance with such standards. Under condition 8 of section C of the TSO licence, the TSO shall, in consultation with the Northern Ireland system operator, prepare a development plan for the development of the transmission system in order to guarantee security of supply for the following five calendar years, such plan being revised annually and subject to CER approval. Under regulation 28 of the 2005 Regulations, the CER is under a duty to monitor security of supply of electricity, which includes the monitoring of the quality and level of maintenance of the transmission networks and taking such measures as it considers necessary to protect security of supply. Regulation of electricity utilities – distribution 13 Authorisation to construct and operate distribution networks What authorisations are required to construct and operate distribution networks?

The key administrative authorisation required to construct or operate a distribution network is a licence to discharge the functions of the distribution system operator issued by the CER pursuant to section 14(1)(g) of the 1999 Act. Pursuant to section 14(2C) of the 1999 Act, only the ESB or a subsidiary of the ESB may be granted a licence to act as distribution system operator. As mentioned above, the European Communities (Internal Market In Electricity) (Electricity Supply Board) Regulations 2008 provide for the establishment of an independent subsidiary of the ESB, ESB Networks Limited, to operate the distribution system. The key administrative authorisation required to construct a distribution network is a licence to discharge the functions of the distribution system owner, issued by the CER pursuant to section 14(1) (k) of the 1999 Act. Pursuant to section 14(2DA) of the 1999 Act only the ESB may be granted a licence as distribution system owner.

15 Rates and terms for distribution services Who determines the rates or terms for the provision of distribution services and what legal standard does that entity apply?

Section 35 of the 1999 Act provides that the ESB shall (within such time as the CER may direct) prepare a statement setting out the basis upon which charges are imposed for use of and connection to its distribution system. The CER may give directions from time to time in respect of the basis for charges for the use of and connection to the distribution system. Section 35(4) provides that charges for connection to or for the use of the distribution system shall be calculated so as to enable the ESB to recover the appropriate proportion of the costs directly or indirectly incurred in carrying out all necessary work; and a reasonable rate of return on the capital represented by such costs. The CER conducts a periodic revenue review every five years to determine the revenues that the ESB may earn in order to cover the cost of providing the network. The current review covers the period 2011 to 2015 and sets out the total allowed revenues over that period. Tariffs for the use of the distribution system are set annually by the CER. Section 34 of the 1999 Act provides that the CER may give directions providing for: the matters to be specified in an agreement for connection to and use of the distribution system; the matters to be specified in an agreement for use of the distribution system; the terms and conditions upon which an offer for connection to the distribution system is made; and the methods for determining the proportion of the connection costs (direct or indirect) to be borne by each of the applicants for connection and the ESB. Section 34(8) of the 1999 Act provides that the ESB shall not discriminate unfairly between persons or classes of persons when providing for use of the distribution system or where offering terms for the carrying out of works for the purpose of connection to the distribution system. Regulation of electricity utilities – sales of power 16 Approval to sell power What authorisations are required for the sale of power to customers and which authorities grant such approvals?

The CER has the authority under section 14(1)(b) of the 1999 Act to grant a licence to supply electricity to eligible customers. 17 Power sales tariffs Is there any tariff or other regulation regarding power sales?

14 Access to the distribution grid Who is eligible to obtain access to the distribution grid and what requirements must be met to obtain access?

Any person is entitled to apply to the DSO for connection to the distribution system, provided that if the person is not an eligible customer, does not hold a licence under section 14 of the 1999 Act or an authorisation to construct or reconstruct a generating station

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under section 16 of the 1999 Act, any offer from the DSO must be subject to the person becoming an eligible customer or obtaining a licence or authorisation. The only circumstances in which the DSO may refuse to make a connection offer to an applicant are set out in section 34(4) of the 1999 Act and include: where the CER is satisfied that it is not in the public interest; where it would result in a breach of the 1999 Act, the Regulations made under the 1999 Act, the distribution code or any condition of any licence or authorisation; or where the applicant does not undertake to be bound by the terms of the distribution code.

No. The market is no longer subject to any price regulation since its full deregulation on 4 April 2011. Licensed suppliers are, however, subject to regulatory oversight, in particular with respect to their interactions with customers. The CER on 15 June 2012 published revised guidelines for suppliers regarding their terms and conditions of supply to household customers, codes of practice and customer charters. These guidelines require suppliers to put in place measures to ensure that customers are protected in the areas of marketing,



Arthur Cox

Ireland

billing, disconnection, complaints handling and pay-as-you-go metering. The guidelines also set out minimum requirements for terms and conditions of supply to household customers and put in place requirements around the supply of electricity to vulnerable customers. 18 Rates for wholesale of power Who determines the rates for sales of wholesale power and what standard does that entity apply?

The spot price of wholesale electricity in Ireland is a single marginal (pool) price determined by reference to an unconstrained unit commitment and production schedule, the objective of which is to set prices to minimise the cost of production. The single electricity market operator calculates half-hourly market prices, in accordance with the market trading rules, which were developed by the CER in conjunction with its Northern Irish counterpart under section 9BA(1) of the 1999 Act. Since the implementation of the SEM, reserve prices for auctions of Directed Contracts (contracts for differences, which hedge the system marginal price) have been used as benchmark forward prices for electricity. The quantity and pricing of directed contracts are set by the regulators. 19 Public service obligations To what extent are electricity utilities that sell power subject to public service obligations?

The minister may direct the CER to impose public service obligations in relation to the security of supply, regularity, quality and price of supplies, environmental protection (including energy efficiency and climate protection) and use of indigenous energy sources on the ESB or holders of licences to generate or to supply electricity. Extensive use has been made of this power with public service obligations imposed in relation to renewable support, indigenous fuel sources and for security of supply. Until recently, only the ESB had been subject to public service obligations. However, the Electricity Regulation Act 1999 (Public Service Obligations) (Amendment) Order 2008 as amended now imposes a requirement on each supplier specified in schedule 3 of that order to have available to it and purchase an amount of electricity contracted under the REFIT 2006 scheme. It is expected that this requirement will be expanded in 2012 to include both the REFIT 2 and REFIT 3 schemes. Regulatory authorities 20 Policy setting Which authorities determine regulatory policy with respect to the electricity sector?

Overall policy responsibility for the electricity sector lies with the minister. However, responsibility for day-to-day regulation of the sector rests with the CER. In the context of the SEM, the CER is required to liaise closely with its counterpart in Northern Ireland, the Northern Ireland Authority for Utility Regulation. All decisions concerning SEM matters must be made by the SEM Committee, a committee of the CER, made up of three CER representatives, three NIAUR representatives, an independent member and a deputy independent member.

authorisations; approving terms of access to the distribution and transmission systems and resolving disputes in respect of the same; advising the minister on the effect of electricity generation in relation to sustainability and international agreements and the development of the electricity industry; promotion of competition and renewable energy generation; ensuring security of supply; and protecting the interests of final customers. Recent amendments to the 1999 Act give the CER power to take all actions it considers necessary to participate in the SEM and provide for the CER’s objectives and functions as they relate to the SEM. The CER is also the national regulatory authority for purposes of Directive 2009 / 72 / EC (concerning common rules for the internal market in electricity). 22 Establishment of regulators How is each regulator established and to what extent is it considered to be independent of the regulated business and of governmental officials?

The CER is the independent national regulatory authority and is entirely independent of the electricity market participants, including the ESB. However, the minister retains certain reserve powers to give directions to the CER. These include directions in respect of the criteria in accordance with which an application for an authorisation may be determined by the CER, public service obligations that the CER is required to impose on licence- and authorisation-holders, and the definitions of combined heat and power, and renewable, sustainable or alternative sources of energy. The minister may not give policy directions in relation to SEM matters. 23 Challenge and appeal of decisions To what extent can decisions of the regulator be challenged or appealed, and to whom? What are the grounds and procedures for appeal?

Decisions of the CER on the granting of an electricity supply or generation licence under section 14 or an authorisation to construct a generating station under section 16 of the 1999 Act, and decisions of the CER on modification of the terms of such licences or authorisations already granted can be appealed to the minister within 28 days of the making of the decision. The minister must then set up an independent appeal panel that will have all the powers and duties of the CER that are necessary to carry out its function. The panel will have certain powers of the High Court in relation to production of documents and attendance of witnesses and may confirm the refusal to grant a licence or authorisation or direct the CER to grant a licence or authorisation with or without conditions. In the case of modification of a licence or authorisation the appeal panel may either confirm the modification or direct the CER not to make it. Provision is also made for application for judicial review through order 84 of the Rules of the Superior Courts. Such an application must be made promptly or in any event within two months of the decision in question. The application for leave to apply for judicial review will only be granted if the High Court is satisfied that there are substantial grounds for contending that the decision is invalid or ought to be quashed. An application for judicial review may be made in respect of decisions of either the minister or the CER. Acquisition and merger control – competition 24 Responsible bodies Which bodies have the authority to approve or block mergers or other changes in control over businesses in the sector or acquisition of utility assets?

21 Scope of authority What is the scope of each regulator’s authority?

The CER’s roles include establishing arrangements for trading in electricity; determining electricity tariffs; issuing licences and www.gettingthedealthrough.com

From 1 January 2003, mergers and acquisitions involving companies that conduct business on the island of Ireland and that fall within


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Ireland Arthur Cox the terms of the merger provisions contained in the Competition Act 2002 as amended must be notified to the Irish Competition Authority and may only be implemented following clearance from the Competition Authority. 25 Review of transfers of control What criteria and procedures apply with respect to the review of mergers, acquisitions and other transfers of control? How long does it typically take to obtain a decision approving or blocking the transaction?

The merger control provisions are set out In Part 3 of the Competition Act and are modelled on the EU Merger Regulation. The Competition Act provides that a merger or acquisition occurs if two or more undertakings, previously independent of one another, merge or one or more undertakings acquire control of the whole or part of one or more undertakings. The Competition Act also applies to certain asset acquisitions. In addition, full-function joint ventures, namely, a joint venture that will perform on an indefinite basis all the functions of an autonomous economic entity, constitute a merger under the Competition Act. A merger or acquisition is notifiable where, in the most recent financial year, the worldwide turnover of each of two or more of the undertakings involved is not less than €40 million; each of two or more of the undertakings involved in the merger or acquisition carries on business in any part of the island of Ireland; and the turnover in Ireland of any one of the undertakings involved is not less than €40 million. Previously, the concept of ‘carrying on business in the island of Ireland’ caught many foreign to foreign transactions, but from 12 December 2006, the Competition Authority has operated a de minimis test so that only undertakings that have a physical presence on the island of Ireland (including a registered office, subsidiary, branch, representative office or agency) coupled with any sales to customers on the island of Ireland; or undertakings that have made sales of at least €2 million into the island of Ireland in the most recent financial year now satisfy the test. Mergers involving media businesses are subject to further notification requirements. The Competition Act also provides that mergers or acquisitions that do not satisfy the financial thresholds may nonetheless be notified to the Competition Authority voluntarily by any of the parties involved. If the transaction is notifiable, each of the undertakings involved must notify the Competition Authority within one month of the conclusion of the agreement or the making of the public bid. In general, a notification is made jointly by the undertakings involved. The Competition Authority will either examine the transaction in one or two ‘phases’. In Phase I, it must issue a determination within one month after receipt of the notification either clearing the transaction or stating that it intends to open a Phase II investigation. Where the Competition Authority requests information within the first month, the clock is stopped and only starts again once the Authority receives all the information which it has requested. In addition, the time limit of one month is extended to 45 days where the parties submit proposals. If the Competition Authority cannot conclude at the end of Phase I that the transaction will not substantially restrict competition in goods or services in the state, the Competition Authority will carry out a full Phase II investigation. This decision must be taken within four months of the date the Authority received a complete notification. An appeal on a point of fact or law may be taken to the High Court in relation to a Phase II determination prohibiting a merger or allowing it subject to conditions. An appeal may be taken from a decision of the High Court to the Supreme Court on a point of law only.

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26 Prevention and prosecution of anti-competitive practices Which authorities have the power to prevent or prosecute anticompetitive or manipulative practices in the electricity sector?

Competition law in Ireland is contained in the Competition Act and enforced through proceedings in the Irish courts. Proceedings may be taken by the Irish Competition Authority, the director of public prosecutions and private parties. The Competition Authority can undertake investigations of suspected infringements of the Competition Act either on its own initiative or on foot of a complaint. The Competition Authority cannot take a binding decision of its own establishing an infringement of the Competition Act; rather, the Competition Authority must take either civil or criminal proceedings in the courts to establish an infringement of the Competition Act. Under the 1999 Act, the CER must have regard to the need to promote competition in the supply of electricity. The CER must also monitor licensees to ensure that they conform to all conditions and requirements of their licences. Under the terms of the standard licence to supply electricity, a licensee that is in a dominant position in the market for supply of electricity and also has a generation business is prohibited from giving or receiving cross-subsidies between the licensee’s supply business and any other business of the licensee. A dominant supplier is also prohibited from predatory pricing or discrimination in supply. The standard licence to generate electricity also contains a prohibition on cross-subsidies and discriminatory pricing, which is applicable to licensees in a dominant position in the market for the generation of electricity. The Competition Authority has entered into a cooperation agreement with the CER. The stated purposes of the agreement are to facilitate cooperation between the Competition Authority and the CER in the performance of their respective functions in so far as they relate to issues of competition between undertakings; to avoid duplication of activity by the Competition Authority and the CER; and to ensure as far as practicable consistency between decisions made or other steps taken by the Competition Authority and the CER. As regards the SEM, any abuse of a dominant position in the market, or any arrangement with the object or effect of distorting competition, would, by definition, affect a market in more than one member state (at least Ireland and the UK). The applicable law is likely therefore to be Articles 101 and 102 TFEU under which the European Commission has jurisdiction. However, under Council Regulation (EC) No. 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 101 and 102 of the TFEU, full power to apply Articles 101 and 102, including investigations, is awarded to national competition authorities. Therefore, the Irish Competition Authority and the UK Office of Fair Trading (OFT) could take jurisdiction. In Northern Ireland, the Northern Ireland Authority for Utility Regulation and the OFT have the power to enforce these provisions of EU law. 27 Determination of anti-competitive conduct What substantive standards are applied to determine whether conduct is anti-competitive or manipulative?

Irish competition law is modelled on European Union competition law. In particular, the competition rules contained in sections 4 and 5 of the Competition Act are based on Articles 101 and 102 of the TFEU, respectively. Section 4(1) of the Competition Act prohibits and renders void all agreements between undertakings, decisions by associations of undertakings and concerted practices, which have as their object or effect the prevention, restriction or distortion of competition in Ireland. Section 6 of the Competition Act provides that an undertaking that enters into or implements an agreement or decision or engages in a concerted practice that is prohibited by section 4(1)



Arthur Cox

Ireland

Update and trends With deadlines moving ever closer, the implementation of the European Target Model in the Single Electricity Market (SEM) is very much a hot topic in Ireland and Northern Ireland. Having implemented a gross pool market with ex post pricing as recently as 2007, policy makers in Ireland will face a significant challenge in reconciling this market with the key features of the European Target Model. Such is the challenge faced that the SEM has already secured a derogation from the requirement to implement the network code on Capacity Allocation and Congestion Management until December 2016. Even so, there is a significant amount of work to be undertaken to ensure that Ireland achieves compliance with European requirements in the requisite timeframe. To this end, on 15th February 2013, the SEM Committee published its Next Steps Decision Paper on the Implementation of the European Target Model for the Single Electricity Market. This paper outlined key principles underpinning the proposed reform of the SEM, as well as the governance arrangements for the market (re-)design project. In particular it outlined the SEM Committee’s view that a ‘topdown’ approach is the most efficient means of re-designing the SEM to comply with the European Target Model.

or article 101(1) of the TFEU shall be guilty of a criminal offence. However, an agreement that falls within section 4(1) but that satisfies certain conditions set out in section 4(5), which are modelled on criteria set out in article 101(3) of the TFEU, may escape the prohibition. Section 5(1) of the Competition Act prohibits the abuse by one or more undertakings of a dominant position in trade for any goods or services in Ireland or any part of Ireland. Section 7(1) provides that an undertaking that acts in a manner prohibited by section 5(1) or by article 102 of the TFEU, shall be guilty of a criminal offence. A dominant position is not defined in the Competition Act, although it has been interpreted by the Irish High Court, which has applied the test of dominance developed by the Court of Justice of the European Union. 28 Preclusion and remedy of anti-competitive practices What authority does the regulator (or regulators) have to preclude or remedy anti-competitive or manipulative practices?

The competition rules are enforced through proceedings in the Irish courts. The proceedings can be taken by the Competition Authority, the director of public prosecutions and private litigants. As noted above, the Competition Authority, unlike the European Commission for the purposes of the application of EU competition law, does not have the power to adopt its own binding decisions or to unilaterally impose fines. This inability to impose a decision does not preclude the Competition Authority from investigating alleged infringements

Alex McLean Patrick McGovern Claire Madden

In acknowledging the need for such a ‘top-down’ approach, the SEM Committee noted that the Target Model does not cover many issues related to market design (for example, capacity mechanisms, forward energy products and market power mitigation), which must also be considered when reviewing or designing an electricity wholesale market. The SEM Committee has therefore set itself the task not merely of compliance with a European Regulation but also of implementing the Target Model in line with the duties of the regulatory authorities and with government policy in Ireland and Northern Ireland. On 26 April 2013, the SEM Committee published a joint letter from the Department of Communications, Energy and Natural Resources in Ireland and the Department of Enterprise Trade and Investment in Northern Ireland, which formally confirms acceptance of the SEM Committee’s recommendations set out in the Next Steps Decision Paper. Since then the regulators have kicked off the market re-design process which will see a consultation process on the agreement on principles and objectives, followed by project scoping and set up, consultation and decisions on design changes required to SEM, and finally the development of detailed market rules and accompanying systems.

of competition law or from using their extensive powers of investigation, which include the ability to conduct unannounced visits to premises and private dwellings and the compelling of individuals to attend at the offices of the Competition Authority and to answer questions under oath. The Competition Act introduced a distinction between certain types of agreements that may be taken to infringe section 4(1). The Competition Act created what is known as a hard-core offence. The Competition Act provides that hard-core offences will be presumed to have as their object the restriction of competition unless the defendant can prove otherwise. Recently, the Competition (Amendment) Act 2012 introduced tougher sanctions for such offences. Hard-core offences can now attract the imposition of prison terms for a maximum of 10 years, thus making such an offence arrestable In addition to prison terms, on conviction on indictment of a hard-core offence, an undertaking may be liable to a penalty of up to €5 million or 10 per cent of its turnover in the previous financial year. In relation to all other criminal offences, an undertaking may be liable to a maximum fine of €3,000 on summary conviction. All types of infringements of section 4(1) and section 5(1) may also result in civil proceedings. The CER may direct the holder of a licence or authorisation to construct or reconstruct a generating station, or to take such measures as are necessary to cease the contravention of a condition or to prevent a future contravention.

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Ireland Arthur Cox International

Transactions between affiliates

29 Acquisitions by foreign companies

31 Restrictions

Are there any special requirements or limitations on acquisitions of

What restrictions exist on transactions between electricity utilities and

interests in the electricity sector by foreign companies?

their affiliates?

There are no special domestic requirements or limitations on acquisitions of interests in the electricity sector by foreign companies. However, it is noted that under the new Third Energy Package, the European Commission has retained a right to be involved in any proposed acquisition of a European transmission network business by a non-EU entity. 30 Cross-border electricity supply What rules apply to cross-border electricity supply, especially interconnection issues?

The only electricity interconnector between the island of Ireland (and therefore the SEM) and Great Britain is the 500MW HVDC Moyle Interconnector, which began operation in April 2002. Available capacity is offered in annual and monthly auctions. Construction of a new 500MW HVDC interconnector between Ireland and Wales (the East West Interconnector ‘EWIC’ Project) was completed in 2012 and is due to commence operation from the third quarter in 2012. As an interconnector connecting different member states, EWIC will be subject to Regulation 714/2009/EC, and will be required to comply with EU Congestion Management Guidelines for Cross Border Trade. As SEM is an ex-post market, a number of significant changes were required to secure compliance with the congestion management guidelines. This suite of changes, implemented in advance of the operation of EWIC, include the introduction of intra-day gate closures, which will affect ex-post pricing. The transmission systems between Ireland and Northern Ireland are connected by a twin circuit 275kV AC connection, almost 30 miles in length. With the advent of the SEM, this interconnection has been subsumed into the all-island transmission networks and so, by definition, capacity is allocated by means of an implicit auction. A second north–south circuit is, at present, under construction. Pursuant to recent amendments to the 1999 Act the CER may grant authorisations to construct an interconnector, with section 16(1) of the 1999 Act prohibiting construction of an interconnector unless an appropriate authorisation has been granted.

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Where the licensee is in a dominant position in the market for the supply of electricity and the licensee also owns a generation business, the standard electricity supply licence prohibits the giving or receiving of cross-subsidies between the licensee’s business of the supply of electricity, authorised by the licence and any other business of the licensee or of an affiliate or related undertaking of the licensee. Where the licensee is in a dominant position in the market for the generation of electricity, the standard electricity generation licence prohibits the giving or receiving of cross-subsidies between the licensee’s business of the generation of electricity, authorised by the licence and any other business of the licensee or of an affiliate or related undertaking of the licensee. General competition principles relating to transactions between dominant companies and affiliates are also relevant. 32 Enforcement and sanctions Who enforces the restrictions on utilities dealing with affiliates and what are the sanctions for non-compliance?

According to the 1999 Act, it is the responsibility of the CER to enforce the terms and conditions of a supply or generation licence. If the CER believes that the conditions of a licence are being contravened, it may in the first instance issue a direction to the licensee to refrain from specified practices and then apply to the High Court for an order requiring compliance with the direction. If the CER decides not to issue a direction it may issue a determination that a licensee has committed a specified breach. Both directions and determinations in relation to contravention of licence conditions are to be notified to the licensee and published in a national newspaper. Ultimately, the CER has the power to revoke a licence if the licensee fails to comply with a direction, a determination or an order.



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