Citizen's Q&A

  CEER Position Paper on the Future DSO and TSO Relationship

What do we mean by the 'DSO and TSO relationship'?

At a high level, the role of Distribution System Operators (DSOs) and Transmission System Operators (TSOs) is to enable electricity and gas to be transported to customers in a safe, secure, reliable and cost-effective way.

Traditionally DSOs and TSOs have had distinct roles. Across most of Europe, electricity and gas Transmission System Operators (TSOs) own, develop, maintain and operate the respective transmission systems, as well as being responsible for ensuring security of supply at all times. Similarly, electricity and gas Distribution System Operators (DSOs) generally develop, maintain and operate the distribution systems and have responsibility for system security and quality of service in the respective distribution networks.

However, interactions in the work they do are growing as we transition to a sustainable energy system. Carrying out their roles in a secure and cost-efficient manner requires their close cooperation and coordination, as well as appropriate regulatory arrangements that underpin efficient whole system solutions in the best interests of the customers who use it. 

What does the report propose for the future DSO and TSO relationship?

This report proposes a set of high-level principles which CEER believes should set the trajectory of the future DSO-TSO relationship, and related regulatory arrangements. These principles are set out in four areas: overarching principles, governance arrangements, network planning and system operation. Together the principles drive towards the need for effective coordination and cooperation between DSOs and TSOs, and for all parties to act in the best interests of the system as a whole.

How does it work?

There are a range of things DSOs, TSOs and NRAs can do. For instance, DSOs and TSOs can share more information about what is happening, and what they think will happen in the future, on their networks. They can cooperate more in planning how the networks should develop over time. They can also work together more to better understand where actions they take could create problems for one another, or where they might be able to offer each other solutions. NRAs can ensure DSOs and TSOs have the right incentives and have clear roles and responsibilities which enable them to cooperate effectively whilst performing their respective roles.

Why is this important for energy customers? What is the impact on energy customers?

The vast majority of electricity and gas consumers rely on the transmission and distribution networks to deliver energy to them. Consumers pay for this service through retail charges or network tariffs. In order to keep these charges as low as possible, and to ensure that customers receive the best standards of reliability and safe and secure supply, DSOs and TSOs need to work closer together.


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Citizen's Q&A

  CEER Status Status Review on the Implementation of Distribution System Operators’ Unbundling Provisions of the 3rd Energy Package and
CEER Status Review on the Implementation of Transmission System Operators’ Unbundling Provisions of the 3rd Energy Package

What is unbundling?

The term unbundling describes the legal requirement imposed on energy companies obliging them to separate their generation/supply activities from their network operations, be they high voltage transmission or lower voltage distribution.

The background here is that, even in liberalised energy markets, networks are generally a monopoly activity. In other words there is typically only the one transmission or distribution network operator in an area, as this is more efficient than having multiple operators. In order to allow competing generators and suppliers fair access to these monopoly networks, and to ensure that all consumers are treated the same irrespective of their supplier, there must be a minimum level of separation of the networks from the operators’ affiliated generation and supply activities. Hence energy network activities are generally required to be unbundled under EU legislation.

What do the Status Reviews present?

The two CEER Status Reviews focus on whether the Distribution System Operators (DSOs) and Transmission System Operators (TSOs) in Europe have properly unbundled or not, according to the EU’s legislative requirements. The reports emphasise the important role of energy regulators in enabling a clear and transparent unbundling process in compliance with the relevant EU legal provisions.

How does it work?

There are different models of unbundling depending on the network concerned; if the network is transmission then the TSO unbundling rules are stronger and companies are obliged either to sell their grid or isolate the management of the grid within the company through operational and legal measures. For distribution, the DSO unbundling rules are less restrictive because the potential of discrimination is lower.

Why is this important for energy customers? What is the impact on energy customers?

System operators (DSOs and TSOs) are required under EU legislation to act as neutral bodies in terms of how they deal with energy generators, suppliers and customers, thereby facilitating fair competition in energy generation and supply, to the benefit of consumers. Consequently unbundling helps promote and maintain competition in energy markets, ensuring greater choice for consumers and thus facilitating pressure on energy companies to offer the best possible value and services.

Key findings

The main difference between DSOs and TSOs lies in the requirement for TSOs to be certified by the competent NRA as being compliant with the unbundling requirements under the 3rd Package.

The key findings in the CEER Status Reviews are as following:

    - The DSO landscape in Europe remains heterogeneous - in some Member States there are hundreds of DSOs, in other countries there might be only one or two. After the implementation of the 3rd Package, the number of DSOs did not change significantly. We can conclude that the unbundling provisions did not trigger substantial structural changes.
    - We observe different unbundling structures in Member States; some DSOs have a separate ownership to suppliers whereas some others are part of the same group.
    - Apart from the Netherlands where the full ownership unbundling is required by law, in the other Member States (25) participating in the survey, at least a legal and functional unbundling for both gas and electricity DSOs is required. In most countries, different regimes are put in place for gas and for electricity DSOs.
    - 15 out of 26 Member States participating in the survey apply the exemption at national level related to DSOs serving less than 100 000 connected customers.


    - The most prevalent energy unbundling model implemented is the Ownership Unbundling model; with 70% of electricity TSOs and 40% of gas TSOs certified under this model.
    - 6 out of 26 Member States participating in the survey responded that TSOs continue to benefit from an exemption (temporary and/or partial) to the unbundling rules.
    - In general, the ownership structure is more diverse in the gas than in the electricity sector. The public ownership is more prevalent in the electricty than in the gas TSOs.

Electricity TSOs:
     - Half of the responding MSs have a 100% public ownership;
     - 2 out of 26 responding MSs have a full private ownership.
Gas TSOs:
     - 5 out of 26 responding MSs have a 100% public ownership;
     - 4 out of 26 responding MSs have a full private ownership.


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Ref: C15-LTF-43-03, 1 April 2016
CEER Status Reviews provide an overview of the status of implementation of the DSO unbundling provisions set out in the EU's "3rd Energy Package". Under this Package the energy networks are subject to unbundling requirements, which oblige Member States to ensure appropriate separation of networks from generation/supply activities, in order to protect the energy consumer.

CEER Status Review on the Implementation of Transmission System Operators’ Unbundling Provisions of the 3rd Energy Package
Ref: C15-LTF-43-04, Updated on 28 April 2016

Citizen's Q&A

  CEER Report on Investment Conditions in European Countries in 2015

How is energy regulation and investment linked?

Robust regulatory frameworks are essential for the development of energy markets. They promote confidence in market mechanisms and are central in ensuring a level-playing field with sound investment signals for the sector.

National regulatory authorities (NRAs) play an important role in overseeing the monopoly (electricity and gas) networks and market developments. NRAs scrutinise the network companies’ costs and investments and help create a sound and predictable regulatory policy that encourages investment in the public interest. A stable regulatory environment is fundamental for a sound investment climate, which, in itself, is a pre-requisite for an adequate flow of the new investments needed to develop secure, competitive and sustainable energy infrastructure and markets. Predictable independent regulation also helps to reduce regulatory and legal risks for investors, and hence lowers the cost of capital.

The Council of European Energy Regulators (CEER), the EU association representing energy NRAs, promotes an investment friendly, harmonised regulatory environment and the consistent application of EU energy legislation.

What are investment conditions?

Investors base their decisions on a wide range of important factors. The investment conditions indicate the return for the employed capital for the investments. Investment conditions include depreciation, interest rates and tax considerations. These three elements are remunerated in all regulatory systems. It is important to know on what basis depreciations are calculated or what the basis of assessment for the return on equity is. Furthermore, it is important to know with which rate capital investments are compensated. In the report, these two elements (the calculation of the rate of return and the regulatory asset base with the depreciation schemes) are described and analysed in detail.

What is in this report?

This CEER report analyses the conditions for investments in electricity and gas networks in individual EU Member States and Norway. It provides a general overview of the implemented regulatory regimes, the required efficiency developments and analyses the overall determination of capital costs. The report underlines the importance of recognising the overall investment conditions and that individual parameters presented in this study, such as the weighted average cost of capital (WACC), have to be interpreted in the context of a whole country-specific regulatory regime.

Why is this important for energy customers? What is the impact on energy customers?

It is ultimately energy customers who pay for grid investments. In order to have efficient investment, it is only the costs that are needed to maintain the network infrastructure that should be financed by the network charge. Thus, it is important to make clear how capital costs are calculated. This report explains how network operators in each country are remunerated for network infrastructure investments.


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