Legislative programme STROOM

On 30 November 2012, the first in a series of bills deriving from the legislative programme known as STROOM (which in Dutch means "electricity") was sent to Parliament. This newsletter discusses the most important amendments to the Electricity Act 1998, the Gas Act and the Heating Supply Act which are set out in that bill (parliamentary document 33 493 no. 2, in Dutch).

This bill largely consists of measures which were announced in the 2011 Energy Report and are together intended to remove certain concrete bottlenecks identified in the Report. Not all of the action points set out in the Report and requiring a legislative amendment are covered in the bill: for example, the bill does not contain provisions facilitating the privatisation of minority interests in the national (gas and electricity) transmission system operators or requiring electricity suppliers to include a certain percentage of sustainable energy in the energy they supply to their customers. If it is decided to implement these two action points, that will be done through separate bills within the framework of STROOM. Other action points will be implemented through additional amendments to the Gas Act and the Electricity Act 1998, also as part of STROOM.

The bill addresses the following subjects:

a. Gas quality

Responsibility for the composition of gas has, to date, been provided for in legislation and other rules only in an implicit manner. The bill contains provisions explicitly setting out and allocating the relevant duties along the gas supply chain.

There are three important actors in relation to the transmission of gas: gas infeeders, network managers and end users. Responsibility for the composition of gas will be divided between these actors by means of two types of specifications: (a) specifications for the gas that infeeders inject and provide to network managers for transmission and distribution purposes, and (b) specifications for the gas that network managers supply to end users. Clarification of these specifications is intended to result in clarification of the responsibility for the composition of gas. Based on the new section 11 of the Gas Act, both of the above types of specifications will be laid down in a ministerial regulation: different specifications may be laid down for different cases. The regulation will be drawn up in line with what has been stated in earlier letters to Parliament regarding the permissible composition of gas.

If gas meeting the applicable injection specifications is injected into the national gas transmission network, the national transmission system operator must supply that gas in compliance with the applicable supply specifications. If there is a difference between the two sets of specifications, the national transmission system operator will be required to process, treat or mix the injected gas in such a manner that it complies with the supply specifications. Pursuant to a new provision in section 10a(1) of the Gas Act, the national transmission system operator will also be required to monitor not only the Wobbe index, but also certain other parameters. Furthermore, if the infeeder so requests, the national transmission system operator must make it possible for gas that does not meet the injection specifications to be accepted on the network, at the infeeder's expense (section 10a(1)(p)). Separate rules for the injection and transmission of gas from small gas fields are already laid down in the Gas Act; these rules will remain unchanged.

Under section 12a(a) of the Gas Act, the costs incurred by the national transmission system operator in connection with the composition of gas may be taken into account in the transmission tariff.

Regional network managers will not have a duty to process or mix gas (e.g. green gas). They must refuse gas that fails to meet the applicable specifications (section 10(3)(d)).

b. Energy self-supply

Section 31c of the Electricity Act 1998 provides that, where a small-scale user (i.e. a user with a connection of no more than 3*80 A) injects electricity into the grid, the supplier must set off the amount of electricity injected against the amount of electricity taken from the grid by that user using the same connection. The maximum limit for set-off is 5000 kWh per invoicing period. For small-scale users, set-off is financially more advantageous than paying for electricity taken from the grid and receiving reasonable compensation for electricity injected.

Under the bill, the maximum limit of 5000 kWh will no longer apply to users who produce sustainable energy. Such users will therefore be able to better benefit from the set-off system. In contrast, the 5000 kWh limit will continue to apply to users producing non-sustainable energy. The set-off system will continue to be restricted to small-scale users. A new section 31c(3) will be added to the Electricity Act 1998, under which suppliers are required to pay small-scale users reasonable compensation if the amount of electricity they inject into the grid is larger than the amount that is deducted in accordance with sections 31c(1) and 31c(2) from the amount they take from it.

c. Tariff regulation

One of the bill's objectives is to clarify the assessment framework for tariff setting with regard to gas and electricity. The bill makes explicit that, when setting the transmission tariffs, the Dutch Competition Authority ("NMa") must take into consideration not only efficiency in business operations and transmission but also the importance of (i) security of supply (ii) sustainability and (iii) in line with EU rules, grid managers being able to realise reasonable returns on the relevant investments.

In a judgment rendered on 16 December 2011, the Trade and Industry Appeals Tribunal (College van Beroep voor het Bedrijfsleven) ruled that, based on the Electricity Act 1998, two types of transmission services must be distinguished: transmission for the purpose of injecting electricity and transmission for the purpose of receiving electricity. The costs attached to the one service (injection) may not be charged to customers to whom the other service is being provided (customers receiving electricity). As a result of this judgment there is a risk that, as long as there is no producer's tariff, grid managers will be unable to recover the costs arising from electricity injection services (including decentralised injection) through the tariffs they charge. The possibility of introducing a producer's tariff is currently being investigated. Meanwhile, the bill provides for the amendment of section 29 of the Electricity Act 1998 so as to enable grid managers to recover the electricity transmission costs via their tariffs, also in situations where there is no producer's tariff. As amended, section 29(1) will make it clear that there is just one transmission service, the tariff for which relates to both the receipt of electricity and the injection of electricity, irrespective of where the injection or receipt takes place and irrespective of where the connection through which the injection or receipt occurs is located. Section 29(2) will provide that the tariff for this transmission service will be charged to the recipients of electricity.

d. Protection against external influences

The Electricity Act 1998 and the Gas Act will be amended to explicitly provide that the manager of a grid/network is responsible for its protection. Any costs incurred in this regard by the manager are to be included in the tariffs. The NMa will supervise compliance with this obligation.

e. Definition of "connection"

As a result of a judgment rendered by the Trade and Industry Appeals Tribunal on 30 December 2010, it is possible for the Electricity Act 1998 – as it currently reads – to be interpreted as providing that where a grid is connected to another grid that has the same voltage and is managed by a grid manager, the connection between the two grids does not constitute a "connection" within the meaning of the Act. Based on such an interpretation, it can be concluded that the owner of the first grid does not have to pay any tariffs to the grid manager of the other grid, even though that owner is benefitting from the connection between the two grids. The bill aims to address this loophole by amending the definition of "connection" under the Act such that every grid-to-grid connection constitutes a "connection", thus enabling the grid manager to charge the applicable tariffs to the manager or owner of the grid that is connected to the grid managed by that grid manager. In the interests of streamlining, the definition of "connection" under the Gas Act is to be brought in line with the definition under the Electricity Act 1998.

f. Issuance and cancellation of guarantees of origin

There is currently a lack of uniformity in the rules and procedures for guaranteeing the origin of the various forms of sustainable energy. This situation is considered undesirable, among other things because it is inefficient. Under the bill, the Electricity Act 1998, the Gas Act and the Heating Supply Act will be amended to make the Minister of Economic Affairs responsible for the issuance and cancellation of guarantees of origin for the three types of sustainable energy. In addition, the rules governing these guarantees will, with one exception, be made identical. The only difference will be that in the case of electricity and gas, the grid or network manager will be authorised to determine whether a production installation is suitable for producing the relevant type of energy; for heating this will be the metering company.

g. Definition of "direct line"

Investigation has shown that it is necessary to amend the definitions of "direct line" and "grid/network" set out in the Electricity Act 1998 and the Gas Act in order to make a clear distinction between these terms. The amendments make explicit that a direct line is either not connected to a grid/network at all or is connected only indirectly via the installation of a connected party.

The amendments also replace the term "producer" with "production installation". The reason for this is that the term "producer" is defined in the Electricity Act 1998 and the Gas Act as an organisational unit which produces electricity or gas, respectively. According to the explanatory memorandum to the amendments, this definition does not make clear that in the case of a specific direct line, the producer is actually producing electricity or gas. By making explicit that a direct line connects a user of electricity or gas with a production facility and not merely an organisational unit, the definition will more clearly express the necessity of actual production.

Although a user of electricity that is connected to a direct line is not a customer within the meaning of the Electricity Act 1998, such user will nevertheless be charged for system services if that line is indirectly connected to the national high-voltage grid via the installation of a connected party.