New Requirements for Separation Between Power Grid Companies and other Energy Companies

Based on RME’s Proposal, but with some changes

The changes are mainly based on a proposal from the Regulatory Authority for Energy (RME) and the results of a hearing of the mentioned proposal. The changes will take effect on January 1, 2021, with some transitional rules.

The Ministry previously put out for hearing a proposal for an exemption from the requirement for a functional separation for power grid companies with fewer than 10,000 network customers. The deadline for comments on that proposal was July 1, 2020.

Requirements for individuals that can serve in the management of energy companies

One of the most debated requirements is the extent to which individuals in the corporate management can participate in the management of the power grid company. In RME’s original proposal, which was put out for consultation on June 28, 2019, there was a requirement that “persons with a leading position in a network company cannot have a leading position in the parent company or controlling owner.” However, an exception was proposed stating that if the parent company or controlling owner only “carries out overarching owner management and administrative joint services,” board members could be board members in both companies, provided they did not have a majority.

This proposal generated significant interest in the industry, and in its proposal to the Ministry on February 18, 2020, RME opened up for “other employees than the managing director” in the parent company or controlling owner, to be a board member in the power grid company.

The government has adopted less intrusive rules concerning management in power grid companies than those suggested in RME’s proposal. However, RME has imposed stricter regulations on other companies within the corporation group. The wording in the regulation is now as follows:

"The chairman, board member, managing director, or other employees with real decision-making authority in a power grid company that is part of an integrated enterprise, cannot participate in the management of a company that conducts other activities within the integrated enterprise. The managing director of a power grid company cannot be the managing director of its parent company or controlling owner."

This means that individuals in management can be part of the group management, but they cannot participate in the management of a sister company. Hence, a company/group management cannot engage in other activities than general owner management and administrative joint services. An individual in the management of the power grid company can then be in the management of the group or group board but cannot participate in the management or board of i.e. the production company or broadband company.

Restrictions on selling own capacity, cooperation on joint control centers, and marketing and communication

The Regulation contains a general prohibition against power grid companies selling their own capacity. The Regulation provides exceptions to this prohibition in four specific cases; sale or leasing of excess capacity to a limited extent, sale of fiber capacity wholesale, in extraordinary emergency situations, and sale of control center services to power producers and companies operating district heating activities. This part of the regulation corresponds with RME’s proposal.

The regulation also regulates the extent to which a power grid company can cooperate with others regarding a control center. This provision is related to the aforementioned restriction on selling its own capacity. Power grid companies, along with companies that produce electricity or operate district heating activities, are permitted to cooperate on a joint control center or other control systems.

There is a requirement that in such cooperation, the power grid company must be responsible for the procurement, development, and operation of the control system and other relevant information systems, as well as the allocation of rights in these systems. In many energy corporations today, the IT manager and ICT security officer are enployed in affiliated companies to the corporation. Therefore, it should be considered whether these positions should be transferred to the power grid company.

For existing joint control centers that are organized in such a way that they will not meet the new requirements, a transitional arrangement is proposed until January 1, 2022, for power grid companies that must make major changes in existing control centers to meet the new requirements.

The Regulation also introduces a new requirement for power grid companies to clearly differentiate themselves in their marketing and communication from power suppliers and other companies within the integrated enterprise they are part of. This includes distinct corporate names, business identifiers, and trademark for the power grid company, ensuring clear distinction from power suppliers and other companies within the integrated enterprise. It is optional whether the power grid company or other parts of the group should change their name and logo. However, most corporations are already opting to change the name and logo of the power grid company. This requirement must be met by is also January 1, 2022.