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CEER Meeting with Regulatory Authorities from New Member States Rome, October 9, 2003

CEER Meeting with Regulatory Authorities from New Member States Rome, October 9, 2003. E NERGY REGULATION AND IMPLEMENTATION OF NEW EU DIRECTIVES Prof. Inna Šteinbuka, chair Public Utilities Commission, Latvia. OUTLINE. Regulatory system of public utilities in Latvia

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CEER Meeting with Regulatory Authorities from New Member States Rome, October 9, 2003

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  1. CEER Meeting withRegulatory Authorities from New Member StatesRome, October 9, 2003 ENERGY REGULATION AND IMPLEMENTATION OF NEW EU DIRECTIVES Prof. Inna Šteinbuka, chair Public Utilities Commission, Latvia

  2. OUTLINE • Regulatory system of public utilities in Latvia • Public Utilities Commission – multi-sector regulator • Legislation framework in energy sector • Energy sector indicators • Electricity sector: - market structure - tariff setting methodology and tariffs - Common Baltic Electricity market • Gas sector: - market structure - tariff setting methodology and tariffs • Regulator and CEER: prospects

  3. REGULATORY SYSTEM OF PUBLIC UTILITIES IN LATVIA Ministy of Economy PARLIAMENT Local governments Public Utilities Commission Municipal Regulators • Energy • Telecommunications • Post • Railway • Domestic waste • management • Water supply and • sewage • - Heat supply

  4. PUBLIC UTILITIES COMMISSION -MULTI - SECTOR REGULATOR • Regulated public utilities in energy sector: - electricity generation, transmission, distribution and sales - cogeneration - gas (natural and liquid) transmission, distribution, storage, filling and sales

  5. PUBLIC UTILITIES COMMISSION -MULTI - SECTOR REGULATOR • Established on July, 2001 • Independent authority: - 5 commissioners appointed by Parliament for 5 year period - decisions can be challenged only by court - funding: duty on net turnover of regulated services

  6. REGULATORS’ MISSION • promotion of the competition • protectionof the consumers’ interests • promotion of theinvestment-driven development of the utilities’ providers • determination of the pricing method • approval of tariffs • issuing licencesfor utilities’ providers • quality control • acting as dispute settlement authority, decisions are binding and might be appealed to courts only

  7. LEGISLATION FRAMEWORK IN ENERGY SECTOR • Law on regulators of public utilities (adopted on 19th October 2000) • Energy law (adopted on 3rd September 1998): covering both: electricity and gas sectors • Different regulations (secondary legislation) of Cabinet of Ministers

  8. STRUCTURE OF ENERGY RESOURCES in LATVIA in 2002

  9. ENERGY SECTOR INDICATORS

  10. ELECTRICITY CONSUMPTION TRENDS • The consumption of electricity in the Baltic States after the collapse of the Soviet Union has decreased, due to a massive restructuring of the national economies Source: Energy Information Administration / DOE (www.eia.doe.gov)

  11. ELECTRICITY PRODUCTION COMPOSITION Source: US Department of Energy / Office of Fossile Energy (www.fe.doe.gov), data for year 2001

  12. ELECTRICITY MARKET STRUCTURE • There is a vertically integrated state-owned electricity company “Latvenergo”, and many small generators • The few privatization attempts failed, and in 2000, the parliament decided not to sell any parts of the company • Government is seeking and discussing a proper model for legal separation • Challenge – as imports from Lithuania and Estonia will decrease, alternative suppliers should be selected. Option: construction of additional local generating capacity, which requires investments

  13. ELIGIBLE CUSTOMERS • Latvia Threshold 20 GWh annual consumption 20 consumers eligible (market opening – 18% in 2003) • Estonia Threshold 40 GWh annual consumption 11 consumers eligible (market opening – 12% in 2002) • Lithuania Threshold 9 GWh annual consumption 25 consumers eligible (market opening – 26% in 2003; all consumers – in 2010) Latvia: • Concept of eligible customers of electricity from January 1st 2001 • List of eligible customers shall be published by Regulator • No any real deal reported by now • No legal obstacles to open market for all non-household customers from July 1st 2004

  14. TARIFF SETTING METHODOLOGY: ELECTRICITY • In January 2003 the Public Utilities Commission adopted new tariff setting methodologies(prior to their entry into force), based on the following principles: • Separation of generation, transmission, distribution and sales • Price cap • Clear cost allocation • Rate of return (7.6% for Latvenergo) • Elimination of cross-subsidies • Beneficial tariffs for eligible consumers

  15. COMPARISON OF ELECTRICITY TARIFFS in BALTIC STATES in 2002Average monthly bill* for residential consumers, (with VAT, in EUR) *Calculated at Latvian average level of consumption

  16. COMMON BALTIC ELECTRICITY MARKET • Electricity markets of each Baltic country is too small for effective competition • Technical interconnection capacity is sufficient for the market to develop • European Union requirements will change existing generation patterns and role of Estonia and Lithuania as exporters of electricity - in Lithuania – closure of Ignalina nuclear power plant - in Estonia the restructuring of oil-shale-powered thermal power plants • New investments should be encouraged

  17. Natural Gas Consumption Trends • The consumption of natural gas in the Baltic States after the collapse of the Soviet Union has decreased, due to a massive restructuring of the national economies Source: Energy Information Administration / DOE (www.eia.doe.gov)

  18. STRUCTURE OF NATURAL GAS CONSUMPTION IN LATVIA IN 2001

  19. GAS MARKET STRUCTURE • A vertically integrated private enterprise “Latvijas Gāze” holds monopolisticposition in natural gas transmission, storage, distribution and supply • Shareholders of “Latvijas Gāze”: - Ruhrgas Energie Beteiligungs AG“ 28,18% - AAS "Gazprom“ 25,0% - SIA "Itera-Latvija“ 25,0% - "E.ON Energie AG“ 18,79% • 56 enterprises operate in liquid propan gas (LPG) market

  20. GAS MARKET STRUCTURE • Latvia could be considered as a non-connected market in the meaning of Article 28(1) of Directive 2003/55/EC having only one main external supplier (market share more than 75%) • Possible derogation from Articles 4, 9, 23, 24 of the Directive • No legal preconditions for eligibility criteria of gas customers • No legal preconditions for third party access (government is seeking and discussing a proper model for amending Energy law for third party access)

  21. TARIFF SETTING METHODOLOGY: GAS • In January 2003 the Public Utilities Commission adopted new tariff setting methodologies (prior to their entry into force), based on the following principles: • Separation of transmission, distribution, storage and sales • Price cap • Clear cost allocation • Rate of return (8,4% for Latvijas gāze) • Elimination of cross-subsidies

  22. COMPARISON OF NATURAL GAS TARIFFS in BALTIC STATES in 2002Average monthly bill* for residential consumers using gas for everyday necessities (with VAT, in EUR) * Calculated at Latvian average level of consumption

  23. COMPARISON OF NATURAL GAS TARIFFS in BALTIC STATES in 2002Average monthly bill* for residential consumers using gas for heating, (with VAT, in EUR) *Calculated at Latvian average level of consumption.

  24. Regulator and CEER: prospects • Regulator is interested to become member of Council of Europe Energy Regulators as soon as possible • Contact person: Lija Makare, Head of External relations division, phone +371 7097211, e-mail: lija.makare@sprk.gov.lv

  25. Thank you for attention! Address: Public Utilities Commission Brivibas str.55, Riga, LV-1050 Phone +371 7097200, Fax +371 7097277 Internet home page: www.sprk.gov.lv

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