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) Overview of the Energy Regulatory Office Ali Hamiti Chairman of ERO

2. Territory: 10,873 km2 , Consumers ≈ 2.1 mil. inhabitants Electricity in 2007 Net Production 4333 GWh Consumption 4600 GWh Import (Intake) 623 GWh Export (Off take) 360 GWh District Heating 2007 Heat production 140,275 MWh Heat supply to customers 102,307 MWh Gas No physical infrastructure for gas Legislation under development Institutional strengthening and capacity building, ongoing Overview of Energy Capacities in Kosovo

3. Legal framework and institutional setting

4. Energy legislation Primary legislation: • Law on Energy • Law on Electricity • Law on Energy Regulatory Office • Law on District Heating and Law on Gas, under development. • Law on Publicly Owned Enterprises Secondary legislation: (Rules, Codes, Regulations, Administrative Instructions, Procedures, Methodologies etc.) • Issued by ERO, MEM and Government • Prepared by Licensees and approved by ERO

5. Mandate of ERO Economic Regulation of all Energy Activities (Electricity – Heating – Gas) Objective “Set the Regulatory Framework for a Transparent and non discriminatory Energy Market based on free Market principles – promote competition” Tasks • Perform the twin function of protecting Customers and ensuring Investors’Interests • Ensure non-discriminatory access to all transmission/distribution network users at prices reflecting true economic costs • Promote economic efficiency of the customers/users’s consumption by providing short and long term price signals

6. Statutory Powers of ERO (i) • Set the Criteria and Issue Licenses for Energy Enterprises (exemptions) • Issue Secondary Legislation (Rules, Codes, Decrees, Ordinances, Guidelines) • Approve Tariffs on Public Services Activities (non Market-based). Regulated Prices based on “ex-ante” Methodology issued and approved by ERO. • Approve PPAs for PS. • Monitor License Compliance, Abuse of Market Power. Imposes Fines, withdraws Licenses • Grant Permits for Construction of new Capacity, Lines and Pipelines

7. Statutory Powers of ERO (ii) • Issues “Certificates of Origin” for RES – Approves “compensation cost” of PSO. Recovery of “Stranded Costs” determined and approved by ERO • Grants its consent for the separation, merger, reduction in capital or acquisition of Energy Enterprises • Approves Codes • Resolution of Disputes between Customers/Licensees, and two licensees • Monitors the effective legal and accounting unbundlingof Energy Enterprises • GCES and Standards of Services to be met by Licensees • Rules of Allocation of Interconnection Capacity • Maintains a Public Register (Licenses, Eligible Customer, Certificates of Origin)

8. “The Energy Regulatory Office shall be responsible for the establishment and enforcement of a regulatory framework for the energy sector in Kosovo” (Law on Energy Regulator, Article 15) Energy Regulatory Office shall have the power to issue general acts, individual acts, and rules in accordance with the Law on Energy Regulatory Office. In process of preparing the rules and other regulatory issues ERO shall take measures to allow transparent and non-discriminatory participation of the public Participation of the public in the process: Public hearing, ERO web page, Newspapers and TV, Public session for adoption of any rule, act or procedures submitted by licensees Rule on Public Participation not in place yet, Process of adopting secondary legislation

9. Extent and scope of ERO’s regulatory authority (i) Rules developed and adopted by ERO • The Statute of ERO • Code of Ethic and Conduct • Rule on Pricing • Tariff Methodology • Rule on Licensing of Energy Activities in Kosova • Schedule of Fee • Rule on Dispute Settlement Procedure • Rule on Disconnection and Reconnection • Rule on General Conditions for Energy Supply • Rule on Confidentiality of Information • Rule on Public Register • Governance Procedures for Technical /Operational Codes (OCGC)

10. Rules and Codes prepared by KOSTT and adopted by ERO Transitional Market Rules Grid Code Metering Code Electrical Equipment Code Distribution Code Distribution Metering Code Technical Performance Indicators Market Rules Extent and scope of ERO’s regulatory authority (ii)

11. Rules to be developed and approved Rule on Authorization Procedure, Rule on Administrative Measures and Fines, Development of “feed in” tariffs for RES, Rule on Pricing for District Heating, Tariff Methodology for District Heating, Rule on Eligible Customers, Rule on Public Participation, Rules to be changed and amended Rule on disconnection and reconnection Rule on General Conditions of Energy Supply Rule on Dispute Settlement Procedures Current Activities

12. Organizational Structure – Distribution of Stuff (*) – and Board Member

13. Legal, Licensing Monitoring Department: Provides Legal Support to all ERO issues. Preparation of all types of Licenses, Applications, Procedures, and monitoring of compliance with Rules, License conditions and relevant decisions of the Regulator Customer Protection Department: represents the interest of consumers, investigates consumer complaints and dispute resolution. Pricing andTariff Department: main objective is to prepare position of the Regulator on tariff system, on network tariff structure, on the structure of regulated end-user (retail) tariff. Energy Supply and Market Structure Department: Responsible for modelling, analysing the energy market supporting regulatory activity. Modelling the different markets, analysing behaviour of market participants, proposing amendments of market rules creating efficient competition. Technical Advisory Group: Advice to the Board and to all Departments Administration: Responsible for administration and effective operation and function of ERO Responsibilities

14. Cooperation and coordination with other government agencies on: Energy strategy Policies Fulfilling obligations from ECSEE treaty Energy efficiency and renewable Structuring of the sector Investments Relationship with other government agencies

15. Assembly Approve Energy strategy submitted by government Appoint Board Members of Regulators Review the budget for the independent agencies including regulators Government Ministry of Energy and Mining Preparation of Energy strategy in close cooperation with other ministries and agencies and with ERO Create the policies and strategies for new investments Fulfilling obligations from ECSEE treaty Give incentives for Energy efficiency and renewable Structuring of the sector Ministry of Economy and Finance Management and ownership of energy POE Regulators: ERO and ICMM Economic regulation Authorities in Kosovo Energy Sector

16. Participation of Kosovo on ECSEE Treaty (i) Athens MoU 2002-2003 SEE REM • Treaty’s concentric circles: • The extension of the EC acquis communautaire • The creation of mechanism for operating of Network Energy Market • The creation of single Energy Market Treaty Establishing ECSEE Signed on 25 October 2005 On 01.07.2006entered into force Dir 2003/54 Dir 2003/55 EC Reg. 1228/03 Kosovo is signatory Party of ECSEE Treaty

17. Participation of Kosovo on ECSEE Treaty (ii) • ERO is member of Energy Community Regulatory Board of ECSEE Treaty • ERO staff is actively participating on Working Groups established by ECRB: 1. Electricity WG; 2. Customer WG; 3. SEE Coordinated Auction Office Implementation Group (SEE CAO IG); and 4. Gas WG.

18. Decision-making independence is set in Constitution of the Republic of Kosovo, and in the Law on Energy Regulatory Office The independence given by constitution and Law is in compliance with requirements of EC Directive 2003/54 Decisions issued by the Board of ERO must be subject to administrative review procedures within the ERO. After such review, the decision may be appealed to a court of competent jurisdiction. In reviewing such a decision, the court shall not substitute the technical discretion of the Energy Regulatory Office with its own discretion; Exclusion of conflict of interest, Protection from political influences Financial independence is key issue for decision-making independence. In practice the implementation of the financial independence is with some problems because of some interpretation of Law on Public Financial Management and Accountability (LPFMA) related to budget of ERO. Decision-making independence and process of ERO

19. ERO has its own incomes from the fees paid by the licensees carrying out energy activities in Kosovo. The budget of the ERO shall provide an estimate of the balance between the total costs and expenses of ERO and total revenues of ERO ERO shall prepare draft budget before the beginning of each calendar year and with the annual financial report shall be submitted to the Assembly for review. ERO shall open bank account to deposit all received revenues. ERO shall use the funds for the following purposes: Financing the activities of ERO and its administration, including the operating costs, salaries, wages, benefits of members, employees andstuff, cost of studies etc. Capital expenditure Capacity Building of staff Making payments of relevant taxes, fees etc. Fiscal autonomy

20. Thank you