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1st Energy Regulation and Investment Conference

On April 25-26, 2002 in Budapest, Hungary, more than 60 key officials from 19 autonomous energy regulators in Central/Eastern Europe (CEE) and the Commonwealth of Independent States (CIS) joined regulators from Western Europe and the United States to meet with investors and power sector officials from around the world at the 1st Energy Regulation & Investment Conference, organized by the Energy Regulators Regional Association (ERRA).

The three keynote speakers - Mr. Jean Lemierre, President of the European Bank for Reconstruction and Development, Mr. Jorge Vasconcelos, President of the Council of European Energy Regulators, Mr. Pedro de Sampaio Nunes, Director, Directorate General for Energy & Transport, European Commission - emphasized the importance of autonomous energy regulators to the creation of sound energy markets and overall improvement of the economies of the CEE/CIS countries. The regulators are vital to achieving the necessary power system investment by providing security for investors, creating a reliable regulatory framework, making stable, predictable decisions, giving financial incentives to reduce cost, and measuring and ensuring quality of supply. At the same time, regulators also address the concerns of consumers and ensure reliable and affordable electricity and natural gas supply. In addition, energy regulators will play a key role as many ERRA member countries move towards integration with the European Union and creation of their own regional power markets.

This conference provided a unique opportunity for more than 220 participants to engage in face-to-face discussions that targeted three sub-regions (Central/Eastern Europe, Southeast Europe, Commonwealth of Independent States) and three energy sectors (electricity, gas, district heating).

• Privatization & Competition - There are abundant investment needs in the region both in the form of privatization possibilities and new projects. What is the best strategy to approach these opportunities? Investors, representatives of utilities, regulators, and privatization officials in the region shared with their ideas and experiences during three sub-regional roundtables.
• Pricing & Investment Policies - Despite many challenges, independent regulators in CEE/CIS countries have demonstrated significant progress and achievements in the tariff/pricing area. The focused breakout sessions examined current tariff structures and new policies that apply to the pricing of electricity, gas, and district heating services.
• Regional Electricity Trade - Many ERRA member countries are preparing for the integration of their energy systems with the European Union (EU) and international energy markets. Members of the Council of European Energy Regulators (CEER) from Western Europe explored the implications of these larger electricity trading systems for regulators and the regional and institutional development dimensions.

NARUC representatives shared their experiences with ERRA members and others at the ERRA Sixth Annual Conference on April 24 and the subsequent 1st Energy Regulation and Investment Conference on April 25-26. NARUC President William Nugent (Maine PUC) provided Welcoming Remarks at both Conferences. NARUC Second Vice President Stan Wise (Georgia PSC) gave a presentation on the Georgia Gas Model at the Investment Conference. Other participants included Commissioner Frederick Butler (New Jersey BPU), Chair of the NARUC Committee on International Relations, Chairman William McCarty (Indiana URC), Mr. Charles Gray, NARUC Executive Director, and Mr. James Gallagher, Chief Retail Competition (New York PSC).

For more information about this conference, please visit our website: http://www.erranet.org/Events/ERRA/2002/investmentconference
  

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Technical Exchange Between Slovakia and Hungary

Ms. Sylvia Benova, Deputy Director of the Department of Economic Analysis at the Slovakian Regulatory Office for Network Industries (RONI), Slovakia has participated in the first Technical Exchange program that was held in Budapest on May 27-31. Ms. Benova was hosted by the Hungarian Energy Office and explored a whole range of issues including, among these:

• Rules and methodologies guiding price regulation and tariff setting in the electricity distribution and transmission, including treatment of cross-subsidies and the ways to eliminate them;
• Process of liberalization of the electricity market in Hungary;
• Definition of eligible and non-eligible consumers;
• Rules guiding technical and price regulation of power generation;
• Role and activities of the regulatory agency in the legislation process.

In her assessment of the results of this visit, Ms. Benova noted that this type of information exchange is especially beneficial for new regulators as it allows them to learn best practices and technical skills from their colleagues in other countries.

Note: ERRA is still accepting applications for technical regulatory exchanges. If you are interested in learning more, please click here.

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On June 26, the chairmen of 10 ERRA member organizations (Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Turkey) and Slovenia, as an observer, met in Vienna to define topics of mutual interest and to outline the course of actions to be taken. Issues related to staff training, pricing for energy services and renewables were at the top of the regulators' agenda.

The EU Accession Working Group of the Energy Regulators Regional Association was established with the aim of providing a common platform for those ERRA member organizations where EU accession is a high priority for national governments and EU membership is accessible in the near future. These ERRA members agreed that there are numerous topics related to energy regulation that necessitate common solutions and management by accession country regulators. The next meeting of EU Accession Working Group is scheduled for September 16 in Bratislava, Slovakia.

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Partnerships

Click here to learn more about partnerships!

The State Energy Regulatory Commission of Bulgaria and the New Jersey Board of Public Utilities Initiate Their Energy Regulatory Partnership

On May 23, 2002 the National Association of Regulatory Utility Commissioners (NARUC), represented by Ms. Erin H. Skootsky, Director of International Programs; the New Jersey Board of Public Utilities (BPU), represented by the Honorable Frederick F. Butler, Commissioner; and the State Energy Regulatory Commission of Bulgaria (SERC), represented by the Honorable Konstantin Shushulov, Chairman; signed a Letter of Understanding in order to officially launch their Energy Regulatory Partnership. The Signing Ceremony was held at the Embassy of the Republic of Bulgaria in Washington, DC and presided over by the Honorable Emil Yalnazov, Deputy Chief of Mission.

NARUC, through cooperation and funding by the United States Agency for International Development (USAID), will implement and oversee this partnership. The Energy Regulatory Partnership Program is a vehicle for the exchange of experience and information between U.S. and international regulatory bodies with the goal of improving regulatory practices and fostering long-term sustainable relationships between regulatory bodies in both countries. The purpose of this partnership is to create a framework through which the BPU will work with the SERC in developing its institutional capacity in market-based regulation. The partnership includes broad access to US regulatory practices and allows American regulators the chance to learn new techniques and methodologies as well as gain an understanding of the international regulatory environment.

Chairman Konstantin Shushulov, Commissioner Angel Semerdjiev, Commissioner Dobrinka Dobreva, Commissioner Toma Giortchev, and Commissioner Valeriy Vlatchkov arrived in Newark, New Jersey on May 18, 2002. During the week, the SERC delegates have received a thorough introduction into the functions and authority of the BPU. On Wednesday, they took the opportunity to visit a New Jersey based utility. The BPU has received a brief introduction into the organization and authority of the SERC, which will be dealt with in more detail during the next visit.

The Electricity Regulatory Authority of Albania and the Indiana Utility Regulatory Commission Initiate Their Energy Regulatory Partnership

On July 11, 2002 the Indiana Utility Regulatory Commission (IURC), represented by the Honorable William D. McCarty, Chairman; the Electricity Regulatory Authority (ERE), represented by the Honorable Engjell Cuci, Chairman; and the National Association of Regulatory Utility Commissioners (NARUC), represented by Mr. Jason P. Czyz, Program Officer, International Programs; signed a Memorandum of Understanding in order to officially launch their Energy Regulatory Partnership. The Signing Ceremony was held at the Embassy of the United States of America in Tirana, Albania and presided over by the Honorable Harry Birnholz, USAID Mission Director. The signing ceremony was covered by national media outlets and aired on the nightly national news.

NARUC, through cooperation and funding by the United States Agency for International Development (USAID), will implement and oversee this partnership. The Energy Regulatory Partnership Program is a vehicle for the exchange of experience and information between U.S. and international regulatory bodies with the goal of improving regulatory practices and fostering long-term sustainable relationships between regulatory bodies in both countries. The purpose of this partnership is to create a framework through which the IURC will work with the ERE in developing its institutional capacity in market-based regulation. The partnership includes broad access to US regulatory practices and allows American regulators the chance to learn new techniques and methodologies as well as gain an understanding of the international regulatory environment.

Chairman William D. McCarty; Ms. Laura Cvengros, Assistant Director of Electricity; Ms. Karin Boychyn, Electricity Analyst; Ms. Melanie Price, Assistant General Counsel; and Mr. Jerry Webb, Director of the Gas, Water, and Sewer Division; arrived in Tirana, Albania on July 6, 2002. During the course of the week the IURC and ERE exchanged information about their respective agencies; including a detailed introduction into the authority, structure, and function of each agency. On Wednesday, the delegates visited the hydro generation plant at Vau Dejes on the Drin River, the third largest in Albania. The delegates also met with the Minister of Industry and Mining, Mr. Viktor Doda.

The National Energy Regulatory Agency of Moldova and the Iowa Utilities Board Initiate Their Partnership

On July 17, 2002 the Honorable Diane C. Munns, Chairman of the Iowa Utilities Board (IUB); and the Honorable Nicolae Triboi, General Director of the National Energy Regulatory Agency of Moldova (ANRE); and the National Association of Regulatory Utility Commissioners (NARUC), represented by Mr. Jason P. Czyz, Program Officer, International Programs; signed a Memorandum of Understanding, officially launching their partnership. The signing ceremony was presided over and witnessed by the Honorable Pamela Hyde Smith, U.S. Ambassador to Moldova and USAID Country Director, Mr. John Starnes. The signing ceremony was covered by national media outlets and aired on the nightly national news. The ceremony was followed by a press conference in which the signatories fielded questions about their agencies and the partnership.

The purpose of the partnership is to create a framework through which ANRE will have broad access to US regulatory practices and benefit from the IUB's decades of experience. The partnership allows American regulators to increase their understanding of the international regulatory environment. The partnership is a two-way learning process for the participants.

Chairman Diane C. Munns, Commissioner Mark O. Lambert, Commissioner Elliott G. Smith, Mr. Allan Kniep, General Counsel, and Mr. William Smith, Federal-Legislative Programs Coordinator arrived in Chisinau on July 13, 2002. During the course of the week, the IUB delegation met with Director General Nicolae Triboi, Director Marin Profir, Director Vasile Carafizi and senior staff members of ANRE to exchange information about their respective agencies, including a detailed introduction into the authority and function of each agency. After the introductory sessions, the two agencies delved into issues concerning commission organization and structure. The sessions resulted in many lively discussions and the exchange of experience, laying the foundation for future cooperation.

During the next executive exchange, the IUB and ANRE will prepare a work plan outlining the future of their partnership. The partners will work to identify best practices in energy regulation with the goal of improving commission efficiency and transparency.

The partnership between the IUB and ANRE was made possible through the efforts of the National Association of Regulatory Utility Commissioners (NARUC), supported by the United States Agency for International Development (USAID). NARUC's Energy Regulatory Partnership Program is a vehicle for the exchange of experience and information between U.S. and international regulatory bodies with the goal of improving regulatory practices and fostering long-term sustainable relationships.

New Regulatory Partnership

NARUC is pleased to announce that the New York State Public Service Commission (PSC) and the Croatian Energy Regulatory Council (CERC) will pursue a Regional Energy Regulatory Partnership over the next year. NARUC, through cooperation and funding by the United States Agency for International Development (USAID), will implement this partnership.

The partnership will be designed as a vehicle for the exchange of experience and information between U.S. and Croatian regulatory bodies with the goal of improving regulatory practices and fostering long-term sustainable relationships between regulatory bodies in both countries. This partnership will allow the CERC to have broad access to US regulatory practices and will enable the PSC to learn new techniques and methodologies as well as gain an understanding of the international regulatory environment.

The partnership will include multiple visits to New York and Croatia, as well as Croatian participation in training activities. The first visit is planned to take place in Zagreb in February 2003.

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ERRA Continues to Expand

Three more members joined rapidly expanding ERRA on April 24, 2002. During its meeting in Budapest, Hungary, General Assembly voted to accept Croatian Energy Regulatory Council (CERC) and Turkish Energy Market Regulatory Authority (EMRA) as a Full members. Romanian National Natural Gas Regulatory Authority (ANRGN) joined ERRA as an Associate member.

Bulgaria: Regulatory Partnership with the New Jersey Board of Public Utilities
State Energy Regulatory Commission
The Energy Regulatory Partnership between the State Energy Regulatory Commission of Bulgaria (SERC) and the New Jersey Board of Public Utilities (BPU) was officially launched in May 2002. This partnership will be implemented by NARUC, through cooperation and funding by the United States Agency for International Development (USAID). The SERC delegates made an introductory visit
to Newark, New Jersey and Washington, DC on May 18-24.

Bulgaria: SERC Approves New Laws
The State Energy Regulatory Commission of Bulgaria has approved the following Ordinances as of April 2002:

• Formation and Application of Electric Energy Prices and Tariffs;
• Formation and Application of Heat Energy Prices and Tariffs;
• Formation and Application of Natural Gas Prices and Tariffs;
• Terms and Procedure for Access of Eligible Customers and Independent Producers to the Electricity Transmission and Distribution Networks;
• Terms and Procedure for Providing Access to Gas Transmission and/or Distribution Networks to Eligible Customers and Gas Producers.
  

Hungary: Industrial Consumers Will Pay Higher Price for Natural Gas
Hungarian Energy Office
On July 1, the price of natural gas for the large industrial consumers in Hungary increased by 5.2%. The price increase applies only to those large consumers that have gas meter readings exceeding 500 cubic meters per hour and those purchasing gas through the distribution grid and not directly from the MOL Rt. At the moment, large industrial consumers account for 15% of the total gas consumption of Hungary, or approximately 2 billion cubic meters of natural gas.

Hungary: HEO Examines Electricity Supply Quality
In 2001, 856 complaints concerning consumer protection were received by at the Hungarian Energy Office, most of which were in connection with electricity supply. The Hungarian Energy Office has examined the blackouts of 2001 and the associated electricity supply quality. Both electricity suppliers and consumer interest groups participated in the process. Particular attention was given to the duration of blackouts as well as the condition of the grids. The Office has found that on the national level the number of blackouts has dramatically decreased since 1999, a year which could be characterized by a strikingly high number of blackouts. However, the duration of blackouts increased by 15% on the middle voltage grids that supply a large number of consumers. The average duration of a blackout was 2.0 hours.

Hungary: New Management at the State-Owned Companies
Since the formation of the new government in May 2002, the heads of many state-owned companies have been replaced. Mr. Gyula Lengyel became the new president and Mr. LaszloPal the new CEO of the Magyar Villamos Muvek Rt. (MVM - the Hungarian TSO). Mr. Antal Tombor was appointed to lead Magyar Villamos Energia Rendszeriranyito Rt. (Mavir - the Hungarian ISO). The management of the MOL Rt. has remained unchanged.

Kyrgyz Republic: New Tariff Structure
State Energy Agency under the Government of the Kyrgyz Republic

Currently the draft of the medium-term tariff structure is being developed by the State Energy Agency (SEA). A working group has been established in the SEA that works on the medium-term tariff basis. The group includes representatives of energy companies, the heat distribution company, the Ministry of Finance, the Ministry of Social Labor, and the National Bank. Development of the medium-term tariff structure is designed for tariffs for 2002-2005 and will include:

• Benchmark index of an average tariff that would ensure financial viability of the sector.
• Intermediate indices of tariffs with the goal of setting final target tariff by 2005.
• Tariffs for each category of customers and setting of an average annual tariff for 2002 -2005.
• Monetary subventions to provide for the necessary minimum of electricity consumption.

At the same time, the agency is actively implementing a public information campaign to educate consumers about the need to introduce new tariffs for electricity and a new system of social protection for low-income consumers.

Kyrgyz Republic: Creation of the "Electricity Sector Board" and the Grid Code

The Electricity Advisory Sector Board was established this summer with the assistance of the Kyrgyz State Energy Agency. The Board includes all companies dealing with generation, sale, distribution and transmission of electricity. The goal is to elaborate consistent understanding and approaches to formation of market relations in the energy sector of the Kyrgyz Republic.

The Grid Code (Rules for Using National Grid) was approved by the SEA Executive Board and registered with the Ministry of Justice.

Latvia: Request to Raise Natural Gas Prices Has Been Rejected
Public Utilities Commission

In November 2001, "Latvijas Gaze" submitted a draft of natural gas tariffs to the Board of the Latvian Public Utilities Commission. The intention was to raise natural gas tariffs by approximately 10-20%. The Regulator evaluated this application, and on 4 March 2002 passed a decision to reject the proposed tariffs. The decision on rejection was motivated by ten arguments. Regarding this decision, "Latvijas Gaze" had brought an action against the Regulator. However, the court ruled that the decision of the Regulator was fair and reasonable. Legal proceedings in this case are still ongoing, because "Latvijas Gaze" has not yet used all routes of appeal.

Latvia: Amendments to the Energy Law
The Latvian Public Utilities Commission has initiated amendments to the Energy Law. These amendments are necessary in order to state by law the liberalization of the natural gas market, i.e., to support the consumers' free options to choose the supplier. Besides the aforementioned amendments to the Energy Law will also provide that the price for liquefied gas enterprises will not be regulated. Currently, there are 61 liquefied gas enterprises, which compete with each other.

Latvia: Public Hearings
The Public Utilities Commission has adopted internal procedure regarding public hearings, with the goal of learning more about public opinion on the important issues in the sphere of public utilities regulation. Several public hearings have been already held. A recent public hearing was held July 2 on the tariff calculation methodology for connection fee to the electricity network. The Regulator intends to follow the practice of public hearings also in the future.

Lithuania: Price Caps For The Services Of Natural Gas Confirmed
The National Control Commission for Prices and Energy
In the beginning of July, the National Control Commission for Prices and Energy confirmed the price caps for the services of natural gas transmission and distribution, which will be valid until June 30, 2005. The price caps for the services of natural gas transmission and distribution are fixed for a three-year period and have to be revised annually with consideration of the inflation rate, coefficients of efficiency set forth by the Commission, fluctuations of gas consumption, and other factors irrespective of the activities of the company. Every year gas undertakings shall set forth specific transmission and distribution prices not exceeding the fixed price caps. The price cap for natural gas for captive customers has to be readjusted every 6 months subject to the changes in the price of gas purchased from foreign suppliers, and the price caps for transmission and distribution services have to be adjusted once per year.

Lithuania: Privatization of the State-Run Gas Utility
In June, the consortium of German companies "Ruhrgas" and "E.On Energie" acquired 34% of the shares of "Lietuvos dujos" AB upon winning the tender of the strategic investor. The two German utilities paid Lit116m for their stake, placed another Lit34m in an escrow account, which the Lithuanian government could draw after meeting certain conditions and pledged to invest Lit70m in a new issue of shares. The Russian gas company "Gazprom" has also announced its intentions to take part in the privatization tender on "Lietuvos dujos" AB. According to a statement on 16 July by the Baltic state's privatization authority, a consortium led by the Russian gas giant was the only group to have applied for the tender documentation by the deadline. Preliminary bids are due on September 11 with final bids to follow on November 12. Gazprom's partner in the deal, the local gas distributor Dujotekana, is aiming to acquire a 9% stake while its Russian partner would buy 25%.

Poland: New Transmission Tariffs
Energy Regulatory Authority

The President of the Energy Regulatory Authority has approved transmission tariffs for 32 out of 33 distribution companies. Three distribution companies executed their right to have tariffs approved for a period longer than one year (3 or 4 years), giving them room for retaining profits resulting from improved efficiency. The tariff for the transmission services set by the Polish Power Grid Company has also been authorized. The electricity prices for final customers are expected to increase by 5.7% (estimated inflation indicator for 2002 is 3.5%). The process of privatization of the Polish power sector is being continued. In the generation and distribution sub-sectors, the process of consolidation is aimed at creation of strong groupings, which would become possible partners for the leading European energy concerns after privatization.

According to the general requirements of the European Union, the Polish Power Grid Company, after the separation of non-core businesses, is to perform the function of an Independent System Operator. Eventual partial privatization of the Polish Power Grid Company is expected after 2005. The Polish gas giant PGNiG is to be restructured. The Transmission services and divided distribution services will be separated into five regional discos.

The organizational structure of the Energy Regulatory Authority is undergoing significant changes aimed at meeting the requirements of European integration. Within the structure of the ERA the position of spokesman for customers rights has been created, allowing complaints to be filed by those not satisfied with the standards of energy supplies in the emerging competitive market. Dr. Leszek Juchniewicz has been appointed by the Prime Minister for a second, five-year term, as the President of the Energy Regulatory Authority.

Romania: New Tariff Methodology for the Romanian Gas Market
Romanian National Natural Gas Regulatory Authority

In reaction to the further opening of the natural gas market, the Romanian National Natural Gas Regulatory Authority (ANRGN) revised the criteria for establishing regulated prices and tariffs. This year, 25 percent of the Romanian natural gas market is set to open, up from 18.78 percent. At the moment, there are 41 accredited economic agents, with a total consumption of 2.93 billion cubic meters. The new tariff methodology, published in July 2002, establishes the way of setting up regulated tariffs for storage, transmission and distribution, as well as the price for captive consumers.
According to the new methodology, there will be nine categories of final consumers, which will result in different regulated prices and tariffs for each category. Final consumers will be differentiated according to technical characteristics of supply systems and their consumption profile as follows:

(1) Residential consumer - a consumer who uses natural gas for heating his own premises, producing warm water and cooking. There is no consumption limit, except the maximum installed flow. In particular, the term "residential" refers to natural gas consumption within households, apartments, social and cultural buildings, hospitals, and public institutions. This category is divided into three sub-categories:

a) Individual residential consumer - consumption within households, apartments, not exceeding an annual consumption of 10,000 cubic meters of natural gas;
b) Collective residential consumer - consumption within households or apartments, having the same meter and exceeding 10,000 cubic meters of natural gas per year;
c) Other residential consumers - public institutions, schools, hospitals, kindergartens, social services and other similar.

(2) Industrial consumer - a consumer who uses natural gas as a raw material in chemical industry or for technological processes in mining industry, construction and other industries. This category is divided into four sub-categories:

a) Small industrial consumer - with consumption of maximum 100,000 cubic meters per year;
b) Big industrial consumer - with consumption of more than 100,000 cubic meters per year;
c) Chemical industry consumer - consumer who uses natural gas as raw material in the chemical industry;
d) Power industry consumer - a consumer who uses natural gas to produce electricity for public utilities.

(3) Commercial consumer - a consumer who uses natural gas in the commercial sector, restaurants, hotels, business centers or in agriculture, greenhouses or for similar uses. There is no consumption limit, except the maximum installed flow.

(4) Thermal energy producing consumer - a consumer who uses natural gas to produce thermal energy for public distribution. Supply is made to the limit of contracted quantities, according to the delivery chart specified in supply contract.