Edin ZAMETICA State Electricity Regulatory Commission Bosnia and Herzegovina

1. Edin ZAMETICAState Electricity Regulatory CommissionBosnia and Herzegovina Regional Energy Market in SouthEast EuropeIMPLICATIONS FOR CONSUMERS Fourth Poverty Reduction Strategies Forum June 26-27, 2007, Athens, Greece

2. Agenda • Introduction - Regional market (Energy Community) • Market opening • Power to choose • Demand and price trends • Right to cover the costs • Vulnerable customers support systems in the region • Ongoing activities on customer protection

3. Regional Market (Energy Community)

4. Regional Market (Energy Community) • General Objectives of the Treaty Establishing the Energy Community • enhance the security of supply that is essential for economic development and social stability • diversification • improve the environmental situation • improve energy efficiency, foster the use of renewable energy • South East European countries are to introduce energy markets based on competition in generation and supply

5. Energy Community Characteristics / Electricity ENERGY COMMUNITY FINAL REPORT ON COMPLIANCE WITH ELECTRICITY BENCHMARKS April 2007

6. Energy Community Characteristics / Gas ENERGY COMMUNITY REPORT ON COMPLIANCE WITH THE GAS BENCHMARKS December 2006

7. Consumer Interests • Competition improves efficiency and reduce prices increase • Increased transparency, market discipline, reduced corruption • Regional framework for necessary investments results in reduction of the total investments • More efficient utilization of existing and new infrastructure • Affordability - Article 33 of the Treaty: The Energy Community may also make Recommendations to support effective reform … and to foster the affordability …

8. Market Opening • Each Contracting Party must ensure that the eligible customers within the meaning of the European Community Directives 2003/54/EC and 2003/55/EC are: • from 1 January 2008, all non-household customers; and • from 1 January 2015, all customers. • Network related activities (transmission and distribution – natural monopoly) • Supply activities (+generation) – market activities– to be deregulated

9. Market Opening in the Region

10. EU Market Opening and Regulation of Prices Electricity

11. EU Market Opening and Regulation of Prices Gas

12. Power to Choose This stays the same Electricity is delivered over the same poles and wires. Reliability will stay the same. This is changing Customers choose the supplier that provides the energy.

13. Power to Choose • Energy Community promotes freedom of energy supplies • At the latest from July 2007, and January 2015, all consumers in EU and SEE respectively, will be free to shop around for gas and electricity supplies. The current (default) supplier will no longer be the only choice. • Switching Supplier – process to be “user-friendly” with easy, cost efficient and standardised procedures for leaving one supplier and signing up with another. • This process will be monitored by regulators, so that customers can be confident that the market is working in their interests.

14. Demand and Price Trends 1/2 • Rising demand for electricity • Improving living standards • Economy in Europe is expected to grow • Weather conditions

15. Demand and Price Trends 2/2 • Eurostat 11/2006 :EU-25 electricity prices expressed in euro per kWh increased by 5% for households* and by 16% for industrial consumers* between January 2005 and January 2006. • Eurostat 18/2006: EU-25 electricity prices expressed in euro per kWh increased by 7% for households* and by 15% for industrial consumers* between July 2005 and July 2006.

16. Electricity Prices for Households 1/2 Composition of electricity price for household Dc in € per 100 kWh, on January 1, 2006 Source: Eurostat11/2006 household category Dc, with annual consumption of 3500 kWh, of which 1300 kWh during night hours

17. Electricity Prices for Households 2/2 Composition of electricity price for household Dc in € per 100 kWh, on July 1, 2006 Source: Eurostat18/2006 household category Dc, with annual consumption of 3500 kWh, of which 1300 kWh during night hours

18. Right to Cover the Costs • The concept of energy being a public good resulted in price bellow the market value • Market-model implies that both for generation/supply and for network companies • costs will be covered • in addition a reasonable return on capital must be allowed for. • The transition to market model will imply rise in end-user energy prices, which might be not affordable to certain consumer groups

19. Vulnerable Customers Support Systems in the Region • Tariff based solutions – regulated tariffs for certain well defined consumer groups • Non tariff based solutions – typically introducing a social security system Non tariff based solutions should be preferred as they do not obstruct market forces. • Two countries have a social electricity tariff scheme (EU members) • Countries with significant number of vulnerable customers do not have any support system (Bosnia and Herzegovina, Montenegro, Macedonia) • UNMIK provides only some of the absolute poorest families to exclude them from paying their electricity bills; however, pensioners with a monthly income of about 40EUR are not beneficiaries of the system. • Serbia provides for discounts only for special categories of customers, which are not necessarily the poorest ones and which are defined by the welfare centre.

20. Vulnerable Customers Support Systems in the Region Source: ERGEG (TF on South East Europe Customers): Protection of Vulnerable Household Customers in SEE – Report

21. Sector Associations • Industry – well organized (ETSO, UCTE, EURELECTRIC, EFET...) • Regulators (ERGEG, CEER, ECRB, ERRA, IERN, MEDREG…) • Governments • Most important stakeholder – H.E. CUSTOMER • Empty place for “EURO-Customer” or “EURO-Consumer”

22. Ongoing Activities on Customer Protection • General guidelines on the protection of vulnerable household customers in SEE • Memorandum of Understanding on the Social Dimension of the Energy Community • Conference dedicated to household customers including vulnerable customers and energy efficiency

23. Guidelines • The European Energy Regulators Group for Electricity and Gas (ERGEG) Task Force on South East Europe Customers: GENERAL GUIDELINES ON THE PROTECTION OF VULNERABLE HOUSEHOLD CUSTOMERS IN SEE • approved at the ERGEG CFG level • Council of European Energy Regulators (CEER) GA decided to provide them without CEER or ERGEG General Assembly approval to the European Commission as advice • The documents now is handed over to the ECRB to be further developed according to the needs of the region / country specificities

24. Memorandum of Understanding • Memorandum of Understanding on the Social Dimension of the Energy Community (on the Agenda of the Ministerial Council Meeting 29 June 2007) • MoU covers two social aspects: • consumers protection compatible with a sustainable and competitive market • industry workers rights • It is envisaged that the implementation of Article 3 of Directive 2003/54 EC will primarily be focused on the interests of the most vulnerable customers. • The European Commission is invited to develop strategies to deal with the issues of affordability, energy poverty, district heating reform, rural distribution, isolated systems and social impacts of reforms. • Establishment of Social Forum to be assessed

25. Conference • European Commission and Energy Community Secretariat: high level conference dedicated to household customers including vulnerable customers and energy efficiency • Scope: electricity, gas and heating • Participants: ministers (energy and social affairs), municipalities, regulators, market players, donors • Invitees: Energy Community plus Observers • Date: 2nd half of October, 2007 • Place - to be determined • Rough agenda mid July

26. THANK YOU FOR YOUR ATTENTION! Edin Zametica, M.Sc. E.E. Chief of Staff State Electricity Regulatory Commission Bosnia and Herzegovina ezametica@derk.ba Tel: +387 35 302060 Fax: +387 35 302077