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1. Where the distribution system operator or the hydrogen distribution network operator is part of a vertically integrated undertaking, it shall be independent at least in terms of its legal form, organisation and decision making from other activities not relating to distribution or hydrogen distribution. Those rules shall not create an obligation to separate the ownership of assets of the distribution system or the hydrogen distribution network from the vertically integrated undertaking. Member States may provide that hydrogen distribution network operators are able to rent or lease hydrogen network assets from other distribution system owners, distribution system operators or hydrogen distribution network operators within the same undertaking. Such renting or leasing shall not lead to cross-subsidies between different operators.

2. In addition to the requirements laid down in paragraph 1, where the distribution system operator or the hydrogen distribution network operator is part of a vertically integrated undertaking, it shall be independent in terms of its organisation and decision-making from the other activities not related to distribution or hydrogen distribution. In order to achieve this, the following minimum criteria shall apply:

(a) management of the distribution system operator or the hydrogen distribution network operator shall not participate in company structures of the integrated natural gas undertaking or the vertically integrated undertaking responsible, directly or indirectly, for the day-to-day operation of the production, transmission, and supply of natural gas and hydrogen;

(b) appropriate measures shall be taken to ensure that the professional interests of persons responsible for the management of the distribution system operator or the hydrogen distribution network operator are taken into account in a manner that ensures that they are capable of acting independently;

(c) the distribution system operator or the hydrogen distribution network operator shall have effective decision-making rights, independent from the integrated natural gas undertaking or the vertically integrated undertaking, with respect to assets necessary to operate, maintain or develop the network; in order to fulfil those tasks, the distribution system operator or the hydrogen distribution network operator shall have at its disposal the necessary resources including human, technical, financial and physical resources; this shall not prevent the existence of appropriate coordination mechanisms to ensure that the economic and management supervision rights of the parent company in respect of return on assets, regulated indirectly in accordance with Article 78(7), in a subsidiary are protected; in particular, this shall enable the parent company to approve the annual financial plan, or any equivalent instrument, of the distribution system operator or the hydrogen distribution network operator and to set global limits on the levels of indebtedness of its subsidiary; it shall not permit the parent company to give instructions regarding day-to-day operations, nor with respect to individual decisions concerning the construction or upgrading of distribution lines, that do not exceed the terms of the approved financial plan, or any equivalent instrument;

(d) the distribution system operator or the hydrogen distribution network operator shall establish a compliance programme which sets out measures taken to ensure that discriminatory conduct is excluded, and shall ensure that observance of that compliance programme is adequately monitored; the compliance programme shall set out the specific obligations of employees to meet that objective; an annual report, setting out the measures taken, shall be submitted by the person or body responsible for monitoring the compliance programme, or the compliance officer of the distribution system operator or the hydrogen distribution network operator to the regulatory authority and shall be published; the compliance officer of the distribution system operator or the hydrogen distribution network operator shall be fully independent and shall have access to all the necessary information of the distribution system operator or hydrogen distribution network operator and any affiliated undertaking to fulfil the compliance officer’s task.

3. Where the distribution system operator or the hydrogen distribution network operator is part of a vertically integrated undertaking, the Member States shall ensure that the activities of the distribution system operator or the hydrogen distribution network operator are monitored by regulatory authorities or other competent bodies so that it cannot take advantage of its vertical integration to distort competition. In particular, vertically integrated distribution system operators or hydrogen distribution network operators shall not, in their communication and branding, create confusion in respect of the separate identity of the supply branch of the vertically integrated undertaking.

4. Member States may decide not to apply paragraphs 1, 2 and 3 to distribution system operators which are part of an integrated natural gas undertaking serving less than 100 000 connected customers. Where a distribution system operator benefits from a derogation in accordance with this paragraph on 4 August 2024, Member States may decide not to apply paragraphs 1, 2 and 3 to a hydrogen distribution network operator within the same undertaking, provided that the combined number of connected customers of the distribution system operator and the hydrogen distribution network operator remains inferior to 100 000.