Current barriers on the Romanian energy market

Current barriers on the Romanian energy market

The Romanian Energy regulatory Authority has refused the granting of a license for operating a centralized electricity market to the Romanian Commodities Exchange in direct contradiction of EU Regulation. 943/2019. The correspondence attached details the refusal process. In support of The Romanian commodities exchange, the Oil and Gas Employers’ Federation of Romania, has addressed a letter of concern to the Competition Council of Romania. Part of this letter can be found below, in this article.

To the attention of: Bogdan M. CHIRIȚOIU – PRESIDENT
With reference to: Current barriers on the Romanian energy market

  1. Trading rejection of futures contracts
    Futures contracts are instruments used on absolutely all natural gas markets. These tools are very useful in
    managing the risk of price volatility, ensuring the hedging function of players on the natural gas markets. This
    function is necessary especially in the context of cross-border transactions, being useful for insuring price risk
    on markets with different profits.
    We also mention the fact that the RCE requested the RERA to approve futures contracts as standard products,
    according to the Order no. 105/2018, that the RCE should offer on its platforms. Futures contracts are included
    in the category of standard contracts, according to the Commission Implementing Regulation (EU) No.
    1348/2014 on data reporting, for the implementation of Article 8 paragraphs (2) and (6) of the Regulation (EU)
    no. 1227/2011 of the European Parliament and of the Council on the integrity and transparency of the wholesale
    energy market (hereinafter referred to as the ”REMIT Implementing Regulation”) and the rules imposed by this
    Regulation require these contracts to be reported as standard contracts through the specific forms imposed by
    REMIT. The RERA’s refusal to approve futures contracts as standard contracts is in violation of the provisions of
    the REMIT Implementing Regulation, which is a directly applicable legal texts, misleads the ACER and distorts
    the market monitoring function because the data on standard contracts serve, inter alia, as reference prices for
    energy products.
    Thus, for example, it is notorious that the Romanian Government considered the price of transactions on the
    centralized markets in Romania as reference price when establishing the current regulated price of 68
    RON/MWh. To the extent that standard contracts would be traded outside the centralized markets that give price
    references, any kind of price indicators would become erroneous and misleading. As such, we consider it
    absolutely necessary for the RERA to allow the trading on centralized markets of all standard products
    recognized by REMIT, in order to allow a commercial uniformity of the natural gas markets in Europe.
  2. Use of flexible products
    The Order no. 105/2018 recognizes the flexible products as standard products tradable on centralized markets,
    respectively a category of products whose price, quantity and delivery profile are variable, depending on various
    determination mechanisms agreed by the parties. Flexible products do not fall de plano into the category of
    usual standard contracts, which are reported to the ACER as non-standard products. These products were
    introduced in the Order no. 105/2018 as a category of contracts similar to long-term over-the-counter contracts,
    upon the request of market participants whose business model is not compatible with the obligation provided by
    art. 177 of the Law on electricity and natural gas no. 123/2012 to trade on centralized markets. In fact, neither
    does the Order no. 105/2018 require the reporting of the prices of flexible products as it is for the standard
    products, which do not constitute a price reference.

We consider that the inclusion of these products into the category of standard contracts is not possible, as they
contain a price formula applicable at the time of delivery (there is no transaction price) and the formula can be
related even to the price of another commodity (e.g. the oil). As a result, these provisions of the Order no.
105/2018 blatantly contravene the principles and reporting method provided by REMIT, a European regulation
directly applicable to standard contracts. Consequently, it is proposed to eliminate the medium and long-term
flexible products, which are, in fact, only bilateral contracts, OTC, disguised in stock exchange products so as to
be compatible with trading obligations on centralized markets provided by art. 177 of Law 123/2012.

  1. The electricity market
    Following the entry into force of Regulation (EU) 943/2019 of the European Parliament and of the Council of
    June 5, 2019 on the internal electricity market (”Regulation 943”), the term electricity market is defined by art. 2
    point 40 of Regulation 2019/943, by reference to art. 2 point 9 of the Directive 2019/94, as including unregulated
    markets and electricity exchanges, markets for trading energy, capacities, balancing services and system
    services in all time intervals, including futures markets, the day-ahead markets and the intraday markets.
    A similar definition was provided by art. 4 of the rules approved by the Order 236/201 9 of the RERA.
    However, the subsequent proposals for secondary legislation of the RERA only allow the trading of electricity on
    the existing markets of the OPCOM, respectively the bilateral trading of electricity sales-purchase contracts with
    a duration of more than one year.
    We consider that there is no legal justification for maintaining OPCOM’s monopoly on the electricity market,
    contrary to the provisions of Regulation 943. The RERA must directly apply the Regulation 2019/943, in order to
    allow the organization of electricity markets to any market operator, in a transparent manner. The application of
    Regulation 2019/943 with the limitations provided by the Law on electricity and natural gas no. 123/2012 are not
    only anachronistic (the Regulation 2019/943 and the Directive 2019/944 have entered into force after the
    adoption of Law 123/2012), but also contrary to Community law that requires the direct application of
    Regulations issued by the European Parliament and the Council.
    At the same time, art. 3 letter o) of the Regulation (EU) 943/2019 of the European Parliament and the Council of
    June 5, 2019 on the internal electricity market requires the Member States to allow the bilateral negotiation of
    long-term supply contracts, without indicating a deadline defining the delivery period of these contracts. We
    consider that the additional specification of the Project exceeds the provisions of Regulation 943/2019. We draw
    the RERA’s attention to the fact that the Regulation is a legal norm of direct application, which, unlike a
    Directive, does not allow freedom of transposition to the Member States. However, like any directly applicable
    normative act, the Regulation is subject to the interpretation rule ubi lex non distinguit, nec nos distinguere
    debemus, which does not allow the addition of additional conditions, not even by way of interpretation of the
    enforcement authority.
    At the same time, we mention the definition given to long-term contracts by the European Commission in the
    Case AT.39984 – the Romanian Electricity Exchange / OPCOM, par. 39: “Electricity transactions can be divided
    into short-term and longer-term transactions. Short-term transactions refer to contracts that provide for the
    delivery of electricity on the same day or the next day, and the longer-term contracts provide for the delivery to
    take place sometime after the next day and have a longer duration, usually between one month and one year”.

Moreover, currently on OPCOM, on the centralized bilateral markets, electricity is traded in the short term (on
the day-ahead market and the intraday market) and in the long term, with delivery in at least one week and,
generally, for periods up to one year.

We support the continuation of the dialogue between the relevant authorities and the industry, with the FPPG
remaining open to participate constructively in such a dialogue.

RCE request for License granting 08.01.2020

RERA License grant refusal 16.01.2020

RCE response 29.01.2020

RERA response 13.02.2020