UPDATE ON REGULATION Prof. Inna Šteinbuka, Chair Public Utilities Commission of Latvia Meeting of Nordic –Baltic Energy Regulators November 10, 2003 Vilnius,

UPDATE ON REGULATION

Prof. Inna Šteinbuka, Chair

Public Utilities Commission of Latvia

Meeting of Nordic –Baltic Energy Regulators

 November 10, 2003

Vilnius, Lithuania

HIGHLIGHTS

• Public Utilities Commission – multi-sector regulator

• Key indicators and trends • Gas Market structure• Electricity Market structure• Main achievements• Gas tariffs• Electricity tariffs• Future challenges and activities

PUBLIC UTILITIES COMMISSION - MULTI - SECTOR REGULATOR

• Established in July, 2001

• Independent authority:

- 5 Commissioners appointed by the Parliament for a 5 year period

- decisions can be challenged only by the court

- funding: duty on the net turnover of regulated services

PUBLIC UTILITIES COMMISSION - MULTI - SECTOR REGULATOR

Regulated public utilities in the energy sector:

- electricity generation, transmission, distribution and sales- cogeneration (above 1MW) - gas (natural and liquified) transmission, distribution, storage, filling and sales

PUBLIC UTILITIES COMMISSION - MULTI - SECTOR REGULATOR

• Commission positioned itself as a strong stakeholder in the energy sector

• Staff recruiting and organizational optimization completed

• During this year institution has significantly strengthened its capacity by intensive training activities and applied cases

KEY INDICATORS AND TRENDS

Year 2002

Increase of GDP - 6.1%

Increase of electricity demand - 3.5%

Increase of natural gas demand - 0.4%

Gross natural gas consumption in Latvia (mln m³)

16091564

1356

124512991326

1088

0

200

400

600

800

1000

1200

1400

1600

1800

1996 1997 1998 1999 2000 2001 2002

Structure of natural gas consumption in 2002

Other consumers

5.5%

Transport0.1%

Heat and electricity generation

64.5%

Construction0.3%Agriculture,

forestry, hunting, fishing

1.2%

Industry22.1%

Households6.3%

Gross electricity consumption in Latvia (mln kWh)

4882458344774461450541884132

0

1000

2000

3000

4000

5000

6000

1996 1997 1998 1999 2000 2001 2002

Structure of electricity consumption in 2002

Other consumers

35.6%

Industry29.8%

Construction1.5%

Transport2.9% Households

27.0%Agriculture,

forestry, hunting, fishing

3.2%

GAS MARKET STRUCTURE

• Vertically integrated private company “Latvijas Gāze” is the only actor in natural gas transmission, storage, distribution and supply

• Shareholders of “Latvijas Gāze”:- Ruhrgas Energie Beteiligungs AG“ 28.18%- JSC "Gazprom“ 25.0%- LLC "Itera-Latvija“ 25.0%- "E.ON Energie AG“ 18.79%

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 eligibility criteria of gas customers yet adopted

• Amendments to the Energy Law are under discussion (introduction of third party access in gas industry)

ELECTRICITY MARKET STRUCTURE

• Vertically integrated state-owned company “Latvenergo” dominates the sector

• The few privatization attempts failed, in year 2000 the Parliament decided not to sell any parts of the company

• Government’s decision on legal separation of TSO has been put on hold

• Elaboration of the new Electricity Market Act is on the agenda of the Government

ELECTRICITY MARKET STRUCTURE

ELIGIBLE CUSTOMERS

• Threshold of 20 GWh annual consumption with 20 consumers eligible (market opening – 18% in 2003)

• Concept of eligible electricity consumers introduced from January 1st 2001

• Each year the Regulator publishes a list of eligible consumers

• No actual deals reported by now• No legal obstacles to open market for all non-

household customers from July 1st 2004

MAIN ACHIEVEMENTS

New principles of tariff design adopted:• Separation of generation, transmission, distribution

and sales • Price cap• Clear cost allocation• Economic depreciation• Rate of return (7.6% for Latvenergo; 8.4% for Latvijas

Gāze)• Elimination of cross-subsidies

New gas and electricity tariffs adopted

Average natural gas tariffs from July 1, 2003 in LVL/ 1000m³ (at HSFO FOB ARA above 140 USD/t)

increase

Up to 0.5 thousand m3 83.65 25.3%0.5 – 25 thousand m3 79.56 19.2%25 –126 thousand m3 78.60 18.4%126 – 1260 thousand m3 77.40 16.6%1260 – 12600 thousand m3 76.20 19.1%12600 – 20 000 thousand m3 73.79 17.1%20 000 – 126 000 thousand m3 66.58 12.3%Above 126 000 thousand m3 61.17 10.4%

Fixed monthly payment – 0.65 LVL per month1 LVL = 1.55 EURO

GAS TARIFFS

ELECTRICITY TARIFFS

• New tariffs take effect on 1 January 2004

• Extensive consultations organized with customers and society prior to the adoption of the new tariffs

• Reduced cross subsidies among customers groups

• Service tariffs differentiated depending on the connection point in the grid

Average electricity sales prices for captive customers * (LVL/KWh)

present new change110 KV line 0.0246 0.01914 -22%6-20KV bus bar 0.0246 0.02376 -3.4%6-20KV line 0.0291 0.02915 0.2%

* Excluding VAT and including load component

1 LVL = 1.55 EURO

ELECTRICITY TARIFFS

ELECTRICITY TARIFFS

Average electricity sales prices for captive customers * (LVL/KWh)

present new change

0.4 KV bus bar 0.0291 0.03237 11%0.4 KV line 0.0344 0.446 28%households 0.033051 0.38136 15%

* Excluding VAT and including load component

1 LVL = 1.55 EURO

ELECTRICITY TARIFFS

Comparison of electricity prices for households (VAT included )

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0.08400.0698

0.0605

0

0.02

0.04

0.06

0.08

0.1

Latvia2003

Latvia2004

Lithuania Estonia

EU

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FUTURE CHALLENGES AND ACTIVITIES

Further elimination of cross-subsidies

Enforcement of quality related measures

New tasks of the Regulator resulting from the new electricity and gas directives– reconsideration of public service obligations in

the light of universal services– market facilitation and supervision

Thank you for attention!

www.sprk.gov.lvThe home page of Regulator