1. 21 September 2006
Page 1 of 6
Centrica Position on the European Commission’s Green Paper
“A European Strategy for Sustainable, Competitive and Secure Energy”
1 Introduction
1.1 Centrica welcomes the Commission’s new Green Paper on Energy as a catalyst for
debate on how the EU can develop a more effective and coherent common policy for
energy. We support the principle that the policy should meet the three core
objectives of: security of supply, competitiveness and sustainable development.
These objectives should have equal priority on the basis that achieving one is not
possible without the others.
1.2 In particular, we welcome the Commission’s assertion that a sustainable, competitive
and secure energy supply will not be achieved without open and competitive energy
markets. Failure to liberalise EU energy markets will both compromise security of
supply and contribute to higher prices for UK and European consumers. The UK
Treasury recently said failure to open up the gas market to competition meant that
Europe's energy consumers will pay an estimated £40 billion pounds of extra costs
this year, with the cost to UK consumers and businesses estimated at £10bn.1
1.3 We agree that recent moves towards protectionism and support for dominant
national players will not strengthen Europe’s global competitiveness. Current
proposed mergers will reinforce strong monopoly positions that are already excluding
competitors from local markets. Furthermore, the consolidation of existing dominant
positions in gas access to Belgium and thus to the UK gas interconnector (IUK) could
disadvantage UK consumers.
1.4 The Green Paper identifies a wide range of issues for Europe’s future energy policy.
We agree that the key issues for debate have been identified within the paper. From
these some of the main issues of importance for the UK and wider EU gas and
electricity markets include:
• enhancing security of supply in the internal market;
• completing the internal market;
• increasing information transparency;
• achieving effective third party access to and interoperability of Europe’s energy
networks;
• securing constructive relations with producing countries and
• creating an integrated policy approach to climate change that supports EU
competitiveness.
1
UK Treasury The case for open markets: how increased competition can equip Europe for global change, 10 April 2006

2. 21 September 2006
Page 2 of 6
2 Division of competence between the EU and Member States
2.1 The EU should be responsible for ensuring delivery of a fully effective internal energy
market and bringing forward new proposals if existing measures are not effective.
The EU also continues to have a role to play in setting a common framework for the
contribution of Member States to meet the region’s climate change commitments.
We agree that the EU should also take the lead in a common external policy on
energy, for example, by promoting relations with the main energy producing nations
and neighbouring countries through which gas is transported.
2.2 Member States should retain responsibility for decisions on fuel mix (including
primary production and the contribution of nuclear energy), energy taxation and
national security measures covering energy installations. Member States also have
a responsibility for implementing the internal market to meet both the letter and spirit
of the Gas and Electricity Directives.
2.3 Together, the EU and Member States have a role to play in providing an environment
that supports commercial investment in energy infrastructure and new gas sources.
3 Completion of the internal market
3.1 Full implementation of the 2003 Gas and Electricity Directives and Electricity
Regulation2
and 2005 Gas Transmission Regulation3
must be a priority. We agree
that further measures on unbundling will probably be needed.
3.2 More needs to be done to improve information transparency in Continental
Europe. Suppliers are still not getting the information they need from system
operators. Clearer short and medium-term information is needed, for example on
system capacity availability and usage, aggregate system status, gas balancing
actions taken and maintenance.
3.3 It is not fully clear what the Commission intends by a European grid code.
Certainly implementation of more harmonised gas and electricity network conditions
would facilitate both competitive energy trade and security of supply. Some
harmonisation is already being pursued via the European Regulators Group
Electricity and Gas (ERGEG) and the Madrid and Florence regulatory forums.
Problems arise from a lack political will by Member States to support these existing
processes and proper implementation of the legislation mentioned in 3.1.
3.3 Equally a European Centre for Energy Networks is suggested as a formal body
bringing together network operators, but existing structures exist in the form of the
European associations for gas and electricity transmission system operators (GTE
and ETSO respectively) and the Madrid and Florence forums.
3.4 We do not see an immediate need for a European energy regulator, even if its
responsibility is limited to cross-border issues. The priority should be to set
mandatory minimum levels for the powers and independence of national regulators.
In particular, national regulators should be given the power and resources to oversee
the implementation of network unbundling. Enhanced coordination and collaboration
2
2003/55/EC Gas Directive, 2003/54/EC Electricity Directive and 1228/2003 Regulation on conditions for access to the
network for cross-border exchange in electricity
3
1775/2005 Regulation on conditions for access to the natural gas transmission networks

3. 21 September 2006
Page 3 of 6
between national regulators can be achieved via existing mechanisms such as
ERGEG.
3.5 The Commission should not be given the power to direct investments in gas and
electricity interconnectors between Member States. The focus should be on
ensuring that unbundled transmission system operators (TSOs) are incentivised to
develop their networks and that the market can signal the need for new investment in
interconnection. Any priority interconnection plan should focus on accelerating
authorisation processes, in particular planning.
4 Diversification of the energy mix
4.1 We agree that each Member State and energy company should be free to choose its
own energy mix.
4.2 The Green Paper does not set a clear framework or objective for the proposed
Strategic EU Energy Review. It could create substantial investment uncertainty if
common EU energy policy is routinely open to renegotiation each year. We suggest
that a Strategic EU Energy Review be limited to a statistical review of the status of
EU energy markets and implementation of agreed policy objectives. This could be
produced by the proposed European Energy Supply Observatory.
5 Solidarity & security of supply
5.1 The EU has already adopted a legislative framework for security of supply in two
directives – in 2004 for gas4
and in 2006 for electricity5
, with implementation dates of
May 2006 and February 2008 respectively. These include provisions for
Commission monitoring, national emergencies and (for gas) community coordination
in the case of a major supply disruption. We believe that these measures provide a
largely sufficient common framework and substantial revision is not required.
5.2 The creation of a European Energy Supply Observatory focusing on the
monitoring and publication of supply and demand information could enhance market
transparency and support investment decisions, especially in gas and electricity
where public data is limited on the Continent. The “observatory” should consist of a
small team within DG Tren using the large amount of information that Member States
are already providing to the Commission. A new EU body is not needed.
5.3 No new legislative proposal setting national gas stocks targets is in our view
required. We do not see any immediate need for strategic storage in the sense of a
“stand by” reserve for release in exceptional circumstances set by the government or
the EU. The UK market is focused on the immediate priority of developing more
commercial storage and is delivering in this regard. In total, the market is bringing
forward investments that will double existing storage levels by 2008. New
commercial storage investments have also been announced in mainland Europe.6
A
requirement to build strategic storage would deliver the opposite of what is intended,
as players in the competitive market reduce investment in their own storage facilities,
including much needed commercial storage.
4
2004/67/EC Directive concerning measures to safeguard security of natural gas supply
5
2005/89/EC Directive concerning measures to safeguard security of electricity supply and infrastructure investment
6
For example Gasunie Trade & Supply recently announced that it is considering investing up to one billion Euros in gas
storage on the Dutch side of the Balgzand-Bacton Line (BBL).

4. 21 September 2006
Page 4 of 6
5.4 Furthermore, Member States have different national requirements for storage. For
example in the UK customers requiring a 100% guaranteed supply are only a
proportion of the overall market and substantial alternative sources of flexibility are
available to UK suppliers. These customer groups can be safeguarded through
other mechanisms including flexible procurement contracts, self interruption and fuel
switching Combined Cycle Gas Turbines (CCGTs) and large end-user customers,
and firm access to gas markets and transmission infrastructure on the European
mainland. A significant amount of flexibility will also continue to be available via
United Kingdom Continental Shelf (UKCS) production and increasingly from
Liquefied Natural Gas (LNG) coming into the new regasification terminals. Whilst,
gas imports to the UK will increase, the market is on its own initiative pursuing a
strategy of diversification of gas sources and routes – with new gas coming from
Norway, the Netherlands, Malaysia, Qatar and Africa.
5.5 The Commission should focus on ensuring more open, liberalised access to storage
on the Continent combined with a more flexible approach from countries such as
France, where there is a unduly conservative tendency to hold gas in their own
storage rather than release it in response to high market prices in neighbouring
markets. More generally, the Commission could also consider the effect that
differing national security of supply standards have on gas trade and work with
national regulators and governments to minimise undue market distortions.
6 Sustainable development
6.1 The Commission intends to propose an Action Plan on Energy Efficiency in 2006.
We believe that energy efficiency can play a substantial role in mitigating the
environmental effects of an increasing demand for energy whilst contributing to
security of supply. It can mitigate the effects of rising energy prices by reducing
household demand, and thus can play an important role in reducing fuel poverty.
6.2 Centrica believes that in general market-based practices and incentives are
preferable to regulation as a way of encouraging energy efficiency, although we
accept that regulation may be preferred by governments in certain circumstances.
Whatever the design of any future European incentive or regulatory scheme, it
should neither undermine current energy efficiency schemes at Member State or EU
level, nor adversely affect competition.
7 Innovation and technology
7.1 We generally support the proposal for joint technology initiatives to accelerate the
development of promising energy technologies and “leading markets” for innovation.
8 External policy
8.1 We would support a renewed emphasis on EU-led dialogues with producing
countries, to support security of supply and competitive markets. There are some
stakeholders who argue that the only way of securing future gas supplies from
producing countries is to create a small number of very large gas supply companies
in Europe. We believe that creating a supplier oligopoly to deal with a producer
oligopoly will not guarantee supply and will ultimately be detrimental to the
competitiveness of the European economy. EU-led dialogues with producing

5. 21 September 2006
Page 5 of 6
countries as proposed in the Green Paper are the preferred route for mitigating
producer power and negate the argument for further major consolidation.
8.2 We believe that the EU should maintain efforts to secure ratification of the Energy
Charter Treaty by Russia and continue with initiatives to promote the adoption of EU
internal market principles by neighbouring states such as the South East European
Energy Community Treaty signed under the UK Presidency.
9 Way forward
9.1 We believe that new internal market legislation is urgently needed to close regulatory
gaps that have emerged primarily as a result of a failure of political will to implement
the 2003 package and voluntary industry guidelines. These new measures are
needed to meet the intent of the 2003 legislation, for example to provide true non-
discriminatory access to networks and ensure consumers have a real choice of
supplier.
9.2 New legislation should provide, inter alia, for the following
o More prescriptive powers on how legal unbundling for transmission and distribution
is carried out and its implementation regulated and monitored.
o Greater powers for regulators and independence from government. This should
include the power to enforce unbundling. Regulators need to be given sufficient
resources to carry out their duties effectively. Regulators could be given a specific
duty to promote competition.
o An effective governance framework for cross-border regulation. A pan-European
regulator for cross-border infrastructure and activities is not needed, but we need
definition of principles for regulation of cross-border infrastructure using existing
mechanisms such as national regulator cooperation through ERGEG.
o Additional measures to improve transparency. We would support the removal of the
“less than 3 shipper” rule from the Gas Transmission Regulation and Storage
Guidelines, which currently permits the non-publication of aggregate capacity data
at points with only 1 or 2 capacity holders.
o Strengthening of use-it-or-lose-it (UIOLI) provisions.
o Clarification that gas transmission or transit contracts signed before 1 July 2004
must not lead to the resulting capacity holders having discriminatory access. New-
entrants must at be offered equivalent terms and conditions.
o A preference for larger (ideally one-country) balancing zones within entry-exit
transmission zones.
o Require regulatory authorities to set effective performance standards and related
incentives for Distribution System Operators (DSOs) and TSOs.
o Removal of artificially low regulated end-user prices, due to the barriers these
create for new entrants.

6. 21 September 2006
Page 6 of 6
o Legal force to be given to the Guidelines for Good Practice for Storage System
Operators (GGPSSO) and creation of a preference for regulated TPA to storage,
with common minimum rules on when exemptions from RTPA can be granted.
o Closure of the gap in current legislation concerning access to/provision of gas
quality conversion services.
9.3 To support timely investment in new electricity infrastructure, industry needs long-
term clarity on the EU Emissions Trading Scheme (ETS) post-2012. At the same time
the Commission needs to act to resolve distortions that have occurred during Phases
1 and 2 of the scheme. We would like to see:
o Tight caps across Member States in Phase 2 and beyond to protect the integrity of
the current scheme.
o International agreement on Phase 3 at an early stage.
o Currently excluded sectors (especially transport) facing the same or similar carbon
reduction incentives to those applicable in energy-intensive industries. However
careful thought must be given as to how to include into the existing Scheme new
sectors or gases.
o We would like to see no limits on the use for EU ETS compliance of credits from
projects carried out under the Clean Development Mechanism (CDM) and Joint
Implementation (JI) schemes, thus recognising the contribution these projects make
in tackling climate change. The linkage of the EU ETS with the wider carbon market
is essential to putting a value on carbon globally, allowing necessary emissions
reductions to take place at the lowest cost to the global economy.