Georgian National Energy and Water Supply Regulatory Commission

1. Georgian National Energy and Water Supply Regulatory Commission Activities of the Commission Summary Legal Department Maka Salkhinashvili 26 June - 3 July, 2008

2. Background Information Economic reforms in the Georgian Energy sector were initiated by Ordinance N437 of 1996 of the President of Georgia under which within the Ministry of Economy an Energy Regulatory Commission was established to compute electric power tariffs for all steps. These tariffs were then approved by the Minister of Economy. The Commission started functioning independently in 1997, after adoption of the Law of Georgia on Electroenergetics and its only function was regulation of the sector of electroenegrgetics. The Commission is a legal person of public law - a continuing independent body, whose activities are not subordinated to any state office. In 1999, a change was made to the Law of Georgia on Electroenergetics and the Commission was in addition transferred a function of regulation of issues in the Natural Gas sector. In 2002, the Parliament of Georgia passed a law on National Independent Regulatory Bodies, which defined the status of the Commission in the Energy and Natural Gas Regulation, while exempting it from supervision of the public control bodies.

3. In 2003, in order to create additional guarantees to protect consumer interests, an office of public defender of consumer interests was established within the Regulatory Body, independently of the Regulatory Commission. • On the basis of changes and amendments to the Law of Georgia on Electric Power and Natural Gas made in 2007, the Commission was entrusted the function of regulation of tariffs in Potable Water Supply and Wash Fluid Conduct and in particular, approval of the methodology of defining tariffs on water supply before 1 September, 2008. • At present, the Commission is authorized to issue licenses in the Electric Power and Natural Gas sector and also to regulate the activities of licensees, importers, exporters, commercial system operator and suppliers, including regulation of tariffs and in the sphere of wash fluid conduct – to regulate tariffs only.

4. Legal principles of work of the Commission The Commission is guided by the Laws of Georgia: • Organic Law of Georgia under which the State undertakes to promote free entrepreneurship and growth of competition, which means that the State shall regulate natural monopolies and through national independent regulatory bodies, encourage development of entrepreneurship and competition. • Law of Georgia on National Independent Regulatory Bodies, which establishes independence of the independent regulatory bodies operating in Georgia from any political pressure, improper influence and illegal interference on part of public bodies or other persons, and also from any actions which might possibly infringe upon their independence. This law governs financial independence of the regulatory bodies, license and tariff rights, protection of consumer interests.

5. Law of Georgia on Electric Power and Natural Gas, which governs and regulates electric power, natural gas and water supply and wash fluid conduct, while defining the status and functions of the Commission, functions of a commercial system operator, rules of licensing, establishment of tariffs. • Law of Georgia on Licenses and Authorizations, which along with other issues, governs legal aspects of issue, invalidation, entry of changes and amendments into licenses for the activities in electric power and natural gas sector. • Law of Georgia on Regulation Fee, which governs financial independence of the Commission and provides for implementation of the public function of Regulation.

6. General Administrative Code of Georgia governing administration of applications and complaints submitted to the Commission, rules of adoption of normative and individual administrative legal acts. • Code of Administrative Legal Offences of Georgia, defining administrative responsibility for violation of terms and conditions of a license, and in case of theft of electric power and natural gas – lays administrative responsibility on physical and legal persons. • Law of Georgia on Normative Acts, which defines general issues relating to preparation, adoption, publication, enforcement, recording and systematization of the normative acts passed by the Commission.

7. In addition to the Laws of Georgia, the Commission is guided by Decree of the Parliament of Georgia, normative acts adopted by the Government of Georgia (Ministry): Decree of the Parliament of Georgia • On main directions of the state policy in the Energy sector of Georgia Acts of the Government of Georgia (Ministry) • Electric power balance • Natural gas balance • Rules of the electric power market • Rules of the natural gas market • Rules of operation, installation and use of energy units and other technical facilities in Energy • Rules of regulation and partial deregulation

8. Status and functions of the Commission • Establishment of the procedures and conditions of licensing of the electric power production, transmission, dispatch and distribution, and also of transportation and distribution of the natural gas, issue of licenses, entry of changes and amendments into them and their invalidation; • Establishment and regulation of tariff of the electric power production, transmission, dispatch, distribution, conduct, import and export, compulsory purchase of a system reserve margin by a commercial system operator, and also transportation, distribution, delivery and consumption of the natural gas; • Settlement, within its competence, of disputes with licensees, importers, exporters, suppliers and consumers and also a commercial system operator; • Control over compliance with terms and conditions of licenses in the electric power and natural gas sector and implementation of measures against violations, as prescribed by Law; • Organization and coordination of works on certification in the Energy sector; • Establishment of tariffs on water supply.

9. The Commission is guided by regulations adopted by itself: • Regulation, activities and standing orders of the GNERC • Methodology, rules and procedures of establishment of tariffs on electric power • Methodology and establishment of tariffs on natural gas • Procedure of licensing in the Electric Power and Natural Gas sector • Payment of the electric power fee under procedure of restructuring of debts incurred in the ,,SS IES Telasi” subscriber sector after 1999 and methodology of charging of the unrecorded power and fixed tariffs • Rules of electric power supply, servicing and consumption

10. Rule of calculation and payment of the regualtion fee in the electric power and natural gas sector • Rules of consumption of natural gas • Tariffs of natural gas • Tariffs of electric power • A provisional rule of measuring of the quantity of electric power consumed by individual consumers without electric power meters • Tariffs of electric power conduct

11. THE COMMISSION ADOPTS NORMATIVE ACTS: • Prepares a draft • Adopts a draft at the session of the Commission,by public administrative procedure • Sends a project to the Ministry of Justice • Approves a draft on the basis of opinion of the Ministry A normative act is published in an official printed body

12. In addition to normative acts, the Commission is entitled to adopt individual and administrative legal acts/decisions. For instance, issue of licenses to separate companies, on settlement of disputes between consumers and companies and other. In 1997-2007, the Commission adopted 217 regulations and 975 decisions

13. Commission • The Commission consists of three members. Commission members are appointed by and dismissed by the President of Georgia. • A Commission member may be a Georgian citizen with higher education, who has adequate qualification and experience to perform functions specified by the Law of Georgia on Electric Power and Natural Gas. • A Commission member is appointed for 6 months under recommendation of the Chairman of the Commission.

14. In making a decision by the Commission, each member of the Commission has one vote. • Sessions of the Commission are public. The Commission adopts regulations and decisions by the public administrative procedure. regulations and decisions of the Commission may be appealed in general courts of Georgia.

15. FINANCIAL INDEPENDENCE OF THE COMMISSION Finances of the Commission are regulated by the Georgian laws : • On electric power and natural gas • On independent national regulatory bodies • On regulation fee

16. Receipt of a regulatory fee by an independent regulatory body is not an economic activity. Georgian National Energy and Water Supply Regulatory Commission is a person defined by the Law of Georgia on Independent National Regulatory Bodies, which are not established on the basis of the state-own property. • The Commission is primarily funded through regulation fees. A regulation fee is transferred to the account of the Commission and sums available on its account are managed by the Commission solely. • The Commission may be funded from the State Budget and through grants. • Control over the financial activities of the Commission is carried out as prescribed by the effective legislation by relevant competent bodies, including an independent auditor invited by the Commission. • Annually, before March 31, the Commission prepares a report on performance for every past year to submit it for consideration to the President of Georgia, Parliament of Georgia and the Ministry. Such report shall be made available to general public.

17. JUDICIAL PRACTICE • The Regulatory Commission in Georgia, as well as in other countries, performs the function of quasi-courts considering disputes between companies and consumers. The function of a Regulator is to bring close to each other and to balance two subjects of legal relationship being in unequal conditions, on one side – interests of a monopolistic company and on the other – interests of consumers, who have no choice other then to resort to their services. • In legal proceedings, the Commission is involved as a suitor, defendant and a third person in course of consideration of both civil and administrative cases. • The Commission, participates on average in 30-50 legal proceeding annually and most of cases are decided in favor of the Commission.

18. Thank you for attention