United States Agency for International Development (USAID)

1. The Illinois Commerce Commission (ICC) and The Energy Regulatory Office of Kosovo (ERO) Partnership ActivityOctober 27 – 30, 2008Prishtina, Republic of Kosovo Sponsored by the United States Agency for International Development (USAID) National Association of Regulatory Utility Commissioners (NARUC) Key Regulatory Issues and Challenges Confronting the ERO ERO STAFF

2. Recent Regulatory Developments Afrim Ajvazi Legal and Licensing Department

3. Recent Developments I • Rules to be amended/approved • Rule on the Authorization Procedure- final draft • Administrative Measures and Fines - final draft • Rule on Disconnection and Reconnection… • Rule on Dispute Settlement Procedure • Rule on General Conditions for Energy Supply - expected adoption October/November 08

4. New rules to be developed European Commission Liaison Office (ECLO) support project to ERO. Rule on Pricing for district heating TariffMethodology for district heating Rule on Eligible Customers Rule on Public participation Development of “feed in” tariffs for RES - Consultation paper issued by ERO; - WB, expected commencement in begging of 2009 Working Group for identification of quality service standards, Recent Developments II

5. Price Regulations and Recent Rate Reviews Ardian Berisha Price & Cost Analyst Price and Tariffs Department

6. Regulated Tariff review period for electricity is set for 3 years from 2007-2009 The first regulated tariffs for electricity were approved by the board of ERO in 2007 The second regulated tariffs for electricity were approved by the board of ERO in 2008 The regulated tariff of 2008 is on average 5% higher than that of 2007. The Electricity Tariff review for the 2009 season will begin in November 2008. Price Regulations and Recent Rate Reviews

7. The District Heating Tariffs were firstly set and approved by ERO on the Heating season 2004/2005 according to the RoR Tariff Methodology, and they are set on annual basis . The district heating tariff for the 2008-2009 season will be approved by the end of October 2008. The development of secondary legislation in the PTD, foreseen for 2009: The development of the Tariff Methodology for district heating District Heating Tariffs

8. Licensing and Monitoring Process Afrim Ajvazi Legal and Licensing Department

9. ERO Statutory Functions • Establishment and enforcement of the regulatory framework, • Approving tariffs • Setting the conditions and criteria for issuing Licenses for energy enterprises • Issuing the Authorization for construction of new generation capacities… • Dispute resolution • Approving technical Codes

10. Licensing I • Law on Energy Regulator, article 15 determines “the Energy Regulatory Office shall be responsible for the establishment and enforcement of a regulatory framework for the energy sector in Kosovo” • To meet its responsibilities, the Energy Regulatory Office shall have the power to: • a). grant, modify, suspend, transfer, and withdraw licenses; • b). supervise and control compliance with licenses; • Article 30.2 of LER determines criteria for granting the license. • Rule on Licensing determines theprocedure for issuing the license, and rights, obligations and conditions of the License.

11. Licenses are required for the following energy activities: the generation of electricity or heat or the co-generation of electr./heat; the transmission of electricity or natural gas; the distribution of electricity, heat or natural gas; the storage of natural gas; the supply of electricity, heat, or natural gas; the trade of electricity or natural gas; the cross-border transmission (import, export, transit) of electricity and natural gas; any transmission or distribution network operator. No license shall be required for: the generation of electricity by power plants with capacity not exceeding 5 MW; the heat generation by heating plants with capacity not exceeding 1 MW; the generation of electricity or heat for self-consumption; storage of natural gas below 10,000 cubic meters. LicensingII

12. 28 Licenses issued to 20 legal entities 4 electricity generation licenses (3 entities KEK, TGC INC, Ibër-Lepenc) 2 heat generation licenses (2 entities TERMOKOS, GJAKOVE) 1 electricity public supply license (KEK) 2 heat public supply licenses (TERMOKOS, GJAKOVE) 1 electricity distribution license (KEK) 2 heat distribution licenses (TERMOKOS, GJAKOVE) 1 TSO license (KOSTT) 1 MO license (KOSTT) 14 electricity supply/trade licenses. LicensingIII

13. Reporting Manual (role) To help the licensee to comply with license conditions Classifies the license conditions Determines the reporting circle Quarterly reports, Annual reports Compliance audits - system audits (IT) - performance audits Well performing licensees = reward Failure to comply with license conditions = adm. measures &penalties Monitoring Process

14. Service Quality in Kosovo’s Electricity Sector Azem Kastrati Head of Customer Protection Department

15. National Legal Framework regarding Quality of Services • Energy Regulatory Office has power to prescribe the general conditions • of energy supply and the standards of services to be met by licensees • (Law on Energy Regulator) • In licenses issued by ERO to: TSO, DSO, and PS, are set the • obligations of licensees for Overall and Minimum Standards: • ERO, MEM and Licensees has established the WG to prepare the • Overall and Minimum Standards of supply and services

16. Customer Protection (i) • ERO has legal mandate to protect energy customers (Article 17 of Law • on ERO), therefore ERO has established the Rule on Dispute • Settlement Procedures for resolving disputes in energy sector, including complaints: • by customers against licensees concerning the services provided • by licensees against other licensees related to the performance of the licensed activity • Regarding third party access • In the rule on Dispute Resolution Procedures is set that licensee need to • respond to any customer complaints as soon as possible but not • exceeding 75 days.

17. Customer Protection (ii) • On Rule on General Conditions of Energy Supply are set the deadlines for • respond of licensees on customer requirements. • Connection offershave to be issued and delivered to customers through • Supplier within a time period not exceeding: • thirty (30) calendar days from the date of the application for • connection to the LV network • ninety (90) for connection to the MV and HV network • Supply contract; The suppliers review the application within 30 days • from the date of acceptance and gives notice in writing of its intention to • accept or reject the application. This deadline may be extended by 15 • days in case when additional information is required.

18. Disputes Types of Dispute • In energy sector of Kosova they are several types of disputes: • 1. Meter reading, • 2. Poor quality of services • 3. Incorrect bills • 4. Flat rate billing • 5. Ownership problems with owner of the meters • 6. Unauthorised use of electricity, theft, and tampering with electric • meters etc

19. General Infrastructure Status and Privatisation Theranda Beqiri Board Member

20. KEK is the national, vertically integrated electricity power utility company of Kosovo. It mines lignite coal, operates lignite coal-fired power plants, and distributes electricity Huge amount of money have been already provided to KEK JSC in the period of 2000-2008, with 606.7 million Euros from the KCB and 585.5 million Euros from donors as (EAR, USAID, EU, other donators), but KEK JSC still has massive technical and non-technical losses, low collections and inoperable generation, and insufficient and unstable power supply. In addition to improving the billing and collections of KEK, considerable capital investment is necessary for improving electricity distribution and supply in Kosovo KEK JSC privatization

21. Steps in Process: Thus government decision Nr. 01/36 dated 17 September 2008 set in motion: Legal unbundling of KEK’s Mining, Generation, Distribution, Network and Supply divisions by no later than 31 March 2009. KEK Disco Government Privatization Committee (PC) appointed under the POE Law article 9.2 to coordinate sale of Distribution and Supply as one company KEK JSC Privatization

22. Project Implementation Unit (PIU) will manage day-to-day responsibilities to execute, manage, and oversee the project. The PIU answers directly to the PC. Transaction Advisor (TA) engaged (after announcement approved by Assembly) by international tender and will provide strategic, legal, technical, and financial advisory. PC and TA proceed with the privatization with a world class energy investor via international tender. Close transaction by December 2009 to March 2010. KEK JSC Privatization

23. Relevant Duties assigned by law to ERO include: Assure buyer meets legal requirements to become a licensee Assure the general system of codes, rules and regulations meet international standards (most of this system of documents already exists) Assure proper principles apply to any computation of regulated tariffs (an ongoing duty of ERO done currently by annual cost-based tariff review proceedings) Role of ERO:

24. Transmission Infrastructure and Expansions, Third - Party Rifat Blakaj Head of Energy Supply and Market Structure

25. Shtërpca Podjeva Novi Pazar 2 Leposavic SERBIA MITROVICA SERBIA Valac Ujmani MONTENEGRO Trepça Vushtrria Burimi Skënderaji B PRISHTINA PEJA 5 Klina 2 A 3 Kamenica Berivojcë 4 Bardh 1 Drenasi Deçani Lipjan Feronikeli Rahoveci GJILANI Shtimje 1 ALBANIA GJAKOVA Vitia Ferizaji 2 Theranda 3 2 1 Sharri PRIZRENI Dragashi 1 2 SHKUPI FYROM

26. Background of Electricity in Kosovo • Territory 10 877 km2, Approx. 2.1 million inhabitants • Installed capacity 1521 MW • Thermo capacity 1478 MW • Hydro capacity 43 MW • No nuclear energy, wind, biogas, solar In 2007 • Net Production 4333 GWh • Consumption 4600 GWh • Import (Intake) 623 GWh • Export (Off take) 360 GWh

27. HV transformers and lines Transformers 400/220 and 220/110kV - owned by KOSTT and HV Lines 400kV, 220kV and 110kV - owned by KOSTT

28. Connection to regional network

29. Shtërpca Podjeva Development of Power System of Kosova SERBIA Novi Pazar 2 Leposavic Vallaqi 1955 SERBIA Kosova B 1980 1981 MITROVICA 1978 Podujeva 2003 Valac Ujmani Montenegro Trepça Vushtrria 1979 2003 Burimi 1989 1953-58 Prishtina 5 2003 Vushtrria 2 Peja 1961 Vushtrria 2006 Prishtina 3 1985 1960 Burimi 1959 Prishtina 2 1987 Skënderaji 1988 Berivojca 2002 Deqani 1986 2003 1983 B 1958 PRISHTINA PEJA Klina 5 Prishtina 4 1987 PEJA 2 2006 2 A 1977 3 1977 Kamenica 1983 2003 Berivojcë 4 Bardh 1 Drenasi Deçani Kosova A 1960 1991 1983 1980 Lipjan 1983 1973 Feronikeli 1988 1967 1963 Rahoveci ALBANIA 1969 Lipjani 1991 GJILANI Shtimje 1971 1 1984 Klina 1988 SERBIA 1972 GJAKOVA Vitia Ferizaji 1990 2 Gjakova 1 1967 Theranda Gjilani 1974 1984 1988 1988 1973 Thermopower Drenas 1982 Gjakova 2 1980 3 Vitia 1984 2 1 Hydropower Sharri PRIZRENI Line 400kV Prishtina 1 1969 Prizreni 2 1983 Ferizaj 1975 Dragashi Line 220kV 1 Theranda 1978 2 Line 110kV SHKUPI Substation Prizreni 1 1972 Prizreni 3 1987 MACEDONIA

30. Line 400 kV 181 km Line 220 kV 361 km Line 110 kV 643 km Substation HV transformers and lines

31. Actual transmission capacity (internal) EPS EMS EPCg B 1 B 2 400 kV 1200 MVA Voltage 400kV TS TS Podujeva » 1080 MW KOSOVA B 40 MW 220 kV EPS A A 3 A4 , A 5 TS 220 kV Prishtina 4 Voltage 220kV TS 300 MVA TS 400 MVA 80 MW 300 MVA » Priz . 2 270 MW » KOSOVA A » 312 MW Feronikeli + Drenasi 270 MW 110 kV 86 . 8 MW 157 . 9 MW 112 . 7 MW A 1 N TS Vushtrria 1 141 MW TS Gjilani B TS Vushtrria 2 TS Prishtina 5 TS Berivojca TS Shupkovci TS Bardhi TS Vitia TS Gjakova 2 TS Vallaqi TS Prishtina 3 TS Bibaj TS Klina TS Burimi 37 . 8 MW TS Prishtina 2 TS Sharri 22 . 5 MW TS Gjakova 1 KESH P = 128 . 1 MW TS Prishtina 1 TS Lipjani TS Theranda TS Deqani P = 44 . 8 MW Kos A 128 . 4 MW Voltage profil TS Peja 2 6 . 7 MW P = 217 MW TS Peja 1 Voltage 110kV P = 108 . 6 MW U TS Prizreni 1 TS Prizreni 3 Transmission capacity is limited in 852MW TS Theranda Intern Capacity limited due to 110kV P = 86 . 4 MW

32. Investment in transmission Starting from year 1953 – 110 kV Line - connection Serbia - Macedonia 1962 –first generator 65 MW connected in 110 kV 1980 – 1991 - built most of substations 1991 – 2003 – no investment in transmission nor in generation Number of substation built per year

33. Transmission Congestion Serbia Serbia Leposavic 400 kV Socanica 220kV Vallaçi Zvecan 110kV Besiana Ujmani 35kV Monte Negro Trepça 1 Mitrovica 2 Vushtrria Burimi KOS B Skenderaji Pr5 Pr2 Gjurakoci KOS A Pr3 Prishtina 4 Peja Drenasi Klina Pr1 N. Brda Klina 1 Palaj Deçani Berivojca Lipjani Malisheva Albania Gjilani Ferizaji 1 Serbia LP 293/2 Gjakova 1 Rahoveci Xrxa Theranda Vitia Gjakova 2 Shtrpce 1. Zones with limited supply Prizreni 2 Prizreni 3 Kaçaniku Prizreni 1 Sharri Zhur 4 2.Transformation 220/110kV insufficient Macedonia 3.Trasmission Lines under operation 30 - 50 years Dragashi

34. Transmission capacities MWh Daily diagram – max. winter consumption Energy in Risk N criteria,capacityi 850-900MW Import Generation N-1 criterion, capacity 650MW Energy which can be transmitted with N-1 criterion h

35. Transmission and distribution losses 2007 300,000 250,000 200,000 150,000 100,000 50,000 0 1 2 3 4 5 6 7 8 9 10 11 12 Transmission Distribution Generation, Consumption and Losses Proportionally growth production, consumption and losses

36. Consumption in 2007 8:00 - 11:00 first peak 19:00 – 23:00 second peak Very high difference between max. and min. load No flexibility in generation

37. Consumption in 28.12.2007 Yearly peak in 2007 – 933 MW with load shedding More than 65% of energy consumed by household During the high season energy used for hitting During the low season at off peak hours surpluses of energy

38. Import Prices Offered average prices from last tender125 €/MWh

39. Generation is based on thermo energy 98% - and it is base load with very small flexibility Energy Deficit – specifically at peak-load – especially on high season Very high-priced imports - The average offered price was 125.21 €/MW Load-shedding – “ABC” plan The transmission and distribution network is old and overloaded – does not fulfill the necessary criteria The n-1 criteria in some cases is not fulfilled Actual situation New Investments are needed in the transmission and distribution network

40. According to the Law on Electricity, TSO and DNO will enable network access to all generators, suppliers and eligible customers Use of Network prices are proposed by transmission and distribution system operators annually and are approved by ERO TSO or DNO may refuse access only if there is insufficient capacity and risks supply assurance, all this based on applied rules The reasons for refusal have to be in a written report and are given to other third parties. Any person refused access to a network or whom objects to conditions imposed upon it for access may file an appeal with the Energy Regulatory Office which shall issue a decision in accordance with the procedures established under the Law on the Energy Regulator. Third party- access to the network

41. but: One supplier One DSO One TSMO Only two Eligible customers Third party From the document (Inter-TSO Agreement for the Kosovo Transmission Network and the [neighbouring Country] Transmission Network KOSTT and [neighbouring TSO] will exchange all mutually agreed operation data related to the co-operation and inform the other Party about disturbances and other operational events influencing the transmission of electric energy. If needed, they will make the relateddata available to a third Party

42. Consumption

44. New Generation Capacity Authorization Procedure, Tender Role of ERO in the Kosovo C Project Nysret Avdiu Board Member

45. AUTHORITY OF ERO Law of Energy Regulatory: Chapter 3 Article 15 and Chapter 8 Chapter 8 LER • New generating Capacity: • 0.1 – 5 MW (no license requirement) • and > 5 MW • Gas Networks • Direct Lines • Direct Pipelines

46. New Generating Capacity Authorization/Tendering Procedure Objective: Ensure security of supply meet environmental target • Authorization procedure • Article 38, LER • Tendering Procedure • Article 39-44, LER Call for Biding By application Tendering Procedure shall be launched only if the Authorization procedure failed Outcome: PERMIT FOR CONSTRUCTION OF FACILITIES – IMPLEMENTATION AGREEMENT Outcome: Contract Agreement

47. KOSOVO C PROJECTDEVELOPMENT OF NEW GENERATING CAPACITYAND ASSOCIATED MINE The World Bank Lignite Power Technical Assistance Project - LPTAP

48. Renewables Ardian Berisha Price & Cost Analyst, Prices and Tariffs Department

49. Legislation Administrative Instruction 06/2007 Consistent to the obligations of the Energy Community Treaty, where Kosovo is a signatory party, it is required to implement Directive 2001/77/EC on Indicative Targets for the consumption of electricity from renewable resources. The indicative targets currently in place are the following: Renewable Energy in Kosovo Currently there are 2 HPPs in Kosovo, generating about 104 GWh annually.

50. Future Developments Small Scale Hydro Power Plants (up to 10MW capacity) The Ministry of Energy and Mining (MEM) conducted a study which estimated Kosovo’s total Small Hydro Power Plant (sHPP) Capacity at 64MW, generating approximately 291 GWh annually. ERO is currently in the process of setting a Feed-In tariff for these sites. Feed-in Tariff Methodology for RES will be developed with help of World Bank Consultants during the beginning of next year . Renewable Energy in Kosovo • Large Scale Hydro Power Plants • HPP Zhur (298 MW capacity generating approximately 391 • GWh annually • Wind, Solar, Biomass and other Resources • Tariff Methodology will also be developed with the help of WB • consultants