Project law to amend Law 123/2012 - on electricity and natural gas /Energy

On 4 July 2016, the Romanian Parliament’s Chamber of Deputies sent to the Romanian President for promulgation a project law to modify and amend Law 123/2012 – regarding electricity and natural gas (“Law 123/2012”).

Among the intended modifications to be implemented, it appears that one stands out from the crowd. We refer here to the addition intended on Article 29, whereby the producers of electricity shall have the right to conclude contracts with other producers, to offer such electricity to the internal and external electricity market, in accordance with Article 28 and other legal provisions in force.

At this point, looking at the intended additional right to be included at Article 29 of Law 123/2012, the electricity producers shall be entitled to conclude contracts with other electricity producers in order to create a mix of energy. Such mix of energy may then be sold on internal and external electricity markets.

Same intended addition to Article 29 includes an obligation as well in view of how such electricity mix shall be sold. The selling of the electricity mix must be done in accordance with Article 28 of Law 123/2012, which lists the main obligations of the electricity producers.

A challenging way forward in drafting the secondary legislation by NRAE (Regulatory Authority for Energy in Romania) will be to find ways to avoid conflict with the obligation listed at Article 28 c) – (electricity producers shall have) to offer publicly and non-discriminatory on the competitive electricity market the entire available electricity.

To understand better why it is such a difficult task for NRAE to go around this obligation listed in Article 28 c), such provisions should be read and interpreted in conjunction with Article 23 (1) of same Law 123/2012 – electricity transactions must be carried on the competitive market, transparently, publicly, centralized and non-discriminatory.

Thus, although the electricity producers are granted a right to conclude contracts in order to create electricity mixes, it appears somehow that such right will be inoperative as long as such agreements will not be concluded on the competitive market, transparently, publicly, centralized and non-discriminatory.

Another concern, in what regards the competitive aspect of any electricity transaction, has to do with this creation of electricity mixes by the electricity producers. One may reasonably ask – what is the economic sense in doing so for the electricity producers (those who enter in the electricity mix with the lowest priced electricity)?

In a mix of electricity, it is expected to blend high priced electricity and low priced electricity with the outcome to create a vehicle to sell the non-competitive high priced electricity through higher margins applied to the low priced electricity. To put it otherwise, the high priced electricity will receive a masked subsidy, financed by the higher margin applied to the lower priced electricity. The foreseeable result would most probably be an increase of the electricity price to the end consumer.

Apart from the economic foreseeable results of such electricity mixes done by the electricity producers, the fact that the obligations incumbent to the electricity producers pursuant to Articles 23 and 28 of Law 123/2012 appear to conflict with the new intended right given to same electricity producers is still something that should be looked at with caution, especially, by NRAE.

If adopted in the form currently sent to the Romanian President, NRAE shall have to find ways to develop the secondary legislation, albeit the law project does not set out a deadline to NRAE to do so. Taking into account that NRAE has already expressed publicly their concern regarding the applicability of the new right, it is expected that NRAE experts will avoid taking soon on a task which appears to be a dead-end as it stands.

Due to the fact that the latest amendments have already received strong criticism from those who actively participate to the electricity market, it might be that the Romanian President will use his prerogatives and return the project law to the Romanian Parliament for revision. This would be the most reasonable way forward at this stage.

You may find and download the entire contemplated modifications and amendments included in project law sent to the Romanian President here – Romanian language.

Publishing date: 09.07.2016

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