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UPDATE ON REGULATION

Meeting of Nordic –Baltic Energy Regulators November 10, 2003 Vilnius, Lithuania. UPDATE ON REGULATION. Prof. Inna Šteinbuka, C hair Public Utilities Commission of Latvia. HIGHLIGHTS. Public Utilities Commission – multi-sector regulator Key indicators and trends Gas Market structure

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UPDATE ON REGULATION

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

  2. 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

  3. 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

  4. 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

  5. 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

  6. KEY INDICATORS AND TRENDS Year 2002 Increase of GDP - 6.1% Increase of electricity demand - 3.5% Increase of natural gas demand - 0.4%

  7. Gross natural gas consumption in Latvia (mln m³)

  8. Structure of natural gas consumption in 2002

  9. Gross electricity consumption in Latvia(mln kWh)

  10. Structure of electricity consumption in 2002

  11. 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%

  12. 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)

  13. 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

  14. 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

  15. MAIN ACHIEVEMENTS New principles of tariff designadopted: • 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

  16. GAS TARIFFS 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 month 1 LVL = 1.55 EURO

  17. 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

  18. ELECTRICITY TARIFFS Average electricity sales prices for captive customers * (LVL/KWh) present new change 110 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

  19. ELECTRICITY TARIFFS Average electricity sales prices for captive customers * (LVL/KWh) present new change 0.4KV busbar 0.0291 0.03237 11% 0.4KV line 0.0344 0.446 28% households 0.033051 0.38136 15% * Excluding VAT and including load component 1 LVL = 1.55 EURO

  20. ELECTRICITY TARIFFS

  21. 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

  22. Thank you for attention!www.sprk.gov.lvThe home page of Regulator

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