electricity

1. Multi-sectoral regulation of services of general interest aspects of electronic communications sector: the Latvia’s experience communications public transport Prof. Edvins Karnitis Public Utilities Commission Latvia post gas water electricity district heating

2. Usage of SGEI and payments for them (2008)

3. SGEI: market concentration in Latvia by HHI (2008)

4. Multi-sectoral model: harmonized regulation • component of the national strategic issues: consistence with economy, state intervence level, social policy, etc.; • unified essence: provision of services of general economic interest, transition to competition; • service providers – multi-utility companies, strong investors; • consumers – users of various services; • knowledge management: unified strategy, methodology, principles and instruments, adoption of methods and experience considering sectoral peculiarities; • small country factor: analogous environment on whole territory, effective resource utilization – human, financial; • strong independent regulatory body; • convergency of services;

5. Latvia’s case: multi-sectoral two-level regulatory model till 2010 PUC • electricity supply • gas supply • cogeneration • electronic communications • postal services • railway infrastructure • rail passenger transport Municipal regulators • boiler houses • district heating: supply • water supply • sewerage • waste management Basic idea: to draw regulation nearer to residents (consumers)

6. Divided regulation of unified process

7. Two-level principle: the major weakness of the Latvia’s regulatory system in the past • consolidation on a large scale (15 unified municipal regulators), the anticipated benefit has not been achieved; • lack of co-ordination among municipal regulators, mutual disconnection, lack of common management, unconnected with the PUC; • dependence: municipal institution is a subject to strong local pressure and parochialism; • lack of awareness and skills to develop competent regulatory systems in small territories; • increasing municipal regulatory costs (0,4% vs 0,2% of turnover); • interlinked processes and/or businesses of the same company is regulated by two regulatory bodies;

8. Unified microlevel regulatory procedures • Regulations on issuing licenses for provision of services and general registration; • Regulations on information submission by service providers; • Provisions on cooperation and consultation with service providers and consumers • Procedure for acquaintance with tariff projects; • Unified methodological principles for determination of tariffs for services; • Regulations on dispute solving;

9. Multi-sectoral model: current functional imperfections • lack of technological regulatory instruments in framework of the PUC: • railway; • energy; • communications; • decreasing functionality: • railway cargo transportation; • frequency and numbering planning; • energy tariffs setting; Tendency in ministries: to perform regulatory functions

10. Multi-sectoral model: potential discussions • lower quality of regulation, regulator cannot concentrate to problems of one sector; • politically elected decision makers are not experts in regulated sectors; • regulation costs are not fully adequate to sectoral contributions; • different level of sector liberalization, harmonization problems; Coordination problems between sectoral regulation are much higher

11. The PUC: independence • independence of decision-makers; • financial independence (0,17% of utilities’ turnover); • supervision, lack of any direct pressure or influence on PUC; • supervision problems: • involvement in current activities non-related to regulation; • braking normative initiative: long process, approach of the ME; • conformity with national policy, annual reports to Parliament; cancellation of decisions by court; • unachievable for sectoral regulator level of real independence, growing authority; • higher level – changes in the Satversme (Constitution);

12. PUC and its interlinkage

13. Implementation: combined structure of the PUC Board Electronic communications and Post Department Municipal services and railway Department Energetics Department Economic Analysis Department Legal Department • sectoral support • unification of decisions

14. Actors in the regulatory process • every inhabitant is using electricity, post and passenger transport services; • district heating, water supply, waste management are wery popular services; • fixed penetration rate – around 28%; • mobile telephone penetration rate of actual users exceeds 105%; • 40% of households use natural gas in their kitchens; • more than 600 providers have been registered in elcom sector; • 53 companies provide postal services; • near 370 licenses have been issued in various energetics segments;

15. Strong balanced regulation: to keep equal distance from all involved parties

16. Participation and information • all regulatory decisions and their substantiations, licence data, annual public reports are available in printed and electronic forms; • public communications: PUC’s WWW page, national and regional printed and electronic mass media, sectoral editions; • information regarding tariff proposals is published in the official/regional newspaper; any provider/end-user can submit PUC his suggestions in defined time period; • public hearings have been chosen as the procedure that gives the possibility for everybody to express his attitude and propose motions; • Client Compass is created and maintained on the WWW page; • regular consultations with service providers, special consulting papers are regularly published;

17. Services of general economic interest: not a conjunctive term only • they are fundamental for health, even for life itself of every citizen as well as for elimination of his/her social exclusion; • theyare essential for business, backbone of the national economy; • general availability of qualitative services is of great importance for equalization of life quality in the whole territory; service providers have a limited interest in general provision of qualitative services (low income consumers, remote and sparsely populated areas, unprofitable services) for affordable tariffs; Universal service is a real instrument for general availability and affordability of various services across the whole country

18. Unified Regulator – unified universal service model • priority – liberalized sectors: • electronic communications; • postal services; • electricity; • opened for district heating, water, gas, waste; Unified: principles, methodology, procedures, management Sector specific: services, indicators, financing

19. Policy of the EU related to US: aiming at unified approach • Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community; Protocol on services of general interest; Lisbon, 13 December 2007; • Services of general interest, including social services of general interest: a new European commitment; COM(2007)725; • White Paper on services of general interest; COM(2004)374; • sectoral Directives: • electronic communications and post; • electricity and gas;

20. Set of the US: post • minimum facilities have been adopted by Directive; • service oriented, technologically neutral; • clusters of US users: • expensive (remote, sparsely populated) areas – uniform tariffs; • vulnerable individuals (low-income households, invalids) – electronic communications, electricity; not actual in postal market; • all users throughout the national territory – to guarantee service, to decrease uniform tariffs (electronic communications, post); • processing and delivery of postal items (including registered and insured items) weighing up to 2 kg; • processing and delivery of postal packages weighing up to 20 kg; • delivery of subscribed periodicals;

21. Set of the US: electronic communications • minimum scope – Directive 2002/22/EC; • restriction on fixed location only has been annulled – technological development since 2000; • access will be combined with special support for vulnerable users; easy general access is guaranteed in practice: 92% of customers evaluate as easy access to mobile network and 77% – access to fixed network (Eurobarometer 2007);

22. Liberalized market: necessity for new US model Market opening abolish any potential cross-subsidy. US obligations cannot be put on incumbent only. All companies have to be included.

23. US financing: principles Sectoral separation. Efficiency, market equilibrium, sustainability …

24. US financing: implementation • budget financing (taxes): not related to sector, support of cream skimmers; • sectoral contribution – the base: fair dealing, market is not distorted; • general participation, equal rate of duty;de minimis exemptions (for newcomers and small providers) – not purposeful; • combined financing – budget partnership max 10% of total funding (motivation of contributors); • compensation of real expenditures for really provided/used services (post factum); • customer-oriented – financing of US provider, uniform process, use of standard billing system;

25. Compensation of the net cost: algorithm • calculation of the US compensation – according to audited annual report of the US provider; • methodology for calculation of intangible benefits (scale effect, marketing, branding, ...); • minimum unfair burden exemptions – not purposeful, distort the market; • participation of all providers of the sector, proportionality (equal rate of duty);

26. Compensation of the net cost: principles • compensation of real expenditures for really provided / used services (post factum): • company-oriented – compensation to customers, for personalized services only, significant delay, hard administration; • customer-oriented – financing of US provider, uniform process, use of standard billing system;

27. Compensation of the net cost: roadmap Reports of service providers on year n-1 turnover and prognoses on year n Decision of the CoM on year n-1 and framework for years n and n+1 Payments into US Fund for year n-1 Audited annual reports of US providers on year n-1 1 Jan 1 Feb 1 Mar 1 Apr 1 May 1 Jun 1 Jul Year n-1 Year n • annual decision on contribution rate and budget co-financing (CoM), framework for next 2 years (compensation, sector turnover); • unutilized or unavailable funding – included in next year calculation;

28. Provider of the US: • any sectoral service provider (standard of quality) have a chance to become the US provider; • selection of the US provider – principles of efficiency, objectivity, transparency, non-discrimination, proportionality and equality; duty of the Regulator; • one or more US providers? (small country and small market); desig-nation • for personalized services (vulnerable consumers) – choice of US customer (standard of quality!); • tendering (beauty contest) on state aid: efficiency, quality, experience, reliability, trust… ; • periodicity – every third year; • if no acceptable applications – obligation on incumbent (LP);

29. US: socio-economic concept of national significance • Public Utilities Commission: • management of the US scope and quality standard; • tendering procedures; • control of expenditures and net cost; • Ministry of Transportation (MoT) – sector policy; • Ministry of Finance (MoF): administration of US Fond; • Ministry of Welfare (MoW) – vulnerable people; • Local governments – formalize low-income households; • implementation – ???; Strong, independent, fair-dealing Regulator – a crucial issue

30. Court verdicts on PUC’s decisions (2002–2009)