Institutional Compliance Institutional Compliance Regulatory BenchmarkingRegulatory Benchmarking

UpdateUpdate

Cathy ConnorsCathy ConnorsPierce AtwoodPierce Atwoodcconnorscconnors@@pierceatwoodpierceatwood..comcom

33rdrd Energy Week Energy WeekAthens GreeceAthens GreeceJune 2004June 2004

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004

Regulatory BenchmarkingRegulatory BenchmarkingTimeline and Overview (I)Timeline and Overview (I)

First Report – May 2003• Initial overview of SEE-REM regulators

3rd Athens Forum Conclusion (Sofia Oct. 2003)• Declared benchmarking is a “key tool” and should be

done on a regular basis• Adopted CEER proposal for Regulatory Benchmarking

Standards, noting the need for an annual benchmarking process

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004

Regulatory BenchmarkingRegulatory BenchmarkingTimeline and Overview (II)Timeline and Overview (II)

2nd Regulatory BenchmarkingOctober 2003 to June 2004

• Circulation and finalization of questionnaire• Completion of questionnaire• Compilation of data

Next Steps• Finalization of data• Analysis, conclusions and recommendations

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004

Recent Benchmarking EffortsRecent Benchmarking Efforts

EC benchmarking reports on implementation of internal electricity and gas market (3d Report March 2004)

World Bank’s “Framework for Development of Regional Energy Trade in SEE” (March 2004)

OGEL/Eurelectric Report on Regulatory Models in Liberalized European Electricity Market (Jan. 2004)

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004

The Goals of this Regulatory The Goals of this Regulatory Benchmarking Reporting Exercise (I)Benchmarking Reporting Exercise (I)

SHORT TERM

Measure regulatory developmentInform regulators and relavant authorities of

regional status and progressReveal differences in competencies/functionality of

regulatorsPromote key characteristics of regulatory role

• Authority• Autonomy• Accountability

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004

The Goals of this Regulatory The Goals of this Regulatory Benchmarking Reporting Exercise (II)Benchmarking Reporting Exercise (II)

SHORT TERM

Regulatory Benchmarking is designed to achieve goals of:• EU Directives and regulations on liberalization of

energy markets (2003/54/EC, 2003/55/EC, & 1228/2003)

• Athens Memoranda of Understanding

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004

The Goals of this Regulatory The Goals of this Regulatory Benchmarking Reporting Exercise (III)Benchmarking Reporting Exercise (III)

LONGER TERM

Strengthen regulatory cooperation

Encourage enhancement of competencies

Create a sound and stable regulatory framework necessary to stimulate investment and ensure security of supply within the SEE-REM process

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004

Authorities Supporting this Authorities Supporting this Benchmarking ExerciseBenchmarking Exercise

EC 96/92/EC – Art. 26 (The Electricity Directive)

EC 2003/54/EC – Art. 28 (The Second Electricity directive)

The First Athens MOU, Section 4The Second Athens MOU, Section 7

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004

The History of this Regulatory The History of this Regulatory Benchmarking Reporting ExerciseBenchmarking Reporting Exercise

Pierce Atwood/USAID Regulatory Benchmarking Reports• Prepared by Pierce Atwood in Conjunction with CEER Working

Group• Data gathered from comprehensive responses to

benchmarking questionnaire based on input from participants (THANK YOU)

• First Report issued May 2003• Second Report

• Draft – June 2004 SEE Energy Week; • Final – Fall 2004 (projected for next Forum)• Additional countries; expanded information

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004

Scope of the 2004 Regulatory Scope of the 2004 Regulatory Benchmarking Report (I)Benchmarking Report (I)

The current draft Second Report contains detailed information on regulatory development in fifteen SEE countries:

•Albania•Austria•Bosnia & Herzegovina•Bulgaria•Croatia

•FYR of

Macedonia•Greece•Hungary•Italy•Moldova

•Romania•Serbia & Montenegro•Slovenia•Turkey•UNMIK

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004

Scope of the 2004 Regulatory Scope of the 2004 Regulatory Benchmarking Report (II)Benchmarking Report (II)

The current draft report is based on CEER’s standards adopted at the Athens Forum in October 2003:

• Independence

• Competencies

• Internal Organization

• Procedures for Core Regulatory Activities

• International Activities

• Enforcement

• Accountability

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004

Preliminary Results contained in the Preliminary Results contained in the current draft Second Report (I)current draft Second Report (I)

Independence

• Majority of countries: Energy laws in place defining regulatory authority Regulatory bodies are separate legal entities Regulatory bodies have separate budgets and funding

sources

• Half of countries: Budget subject to approval by government

• Minority of countries: Government may review and revise decisions

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004

Regulatory Benchmarking:Regulatory Benchmarking:Preliminary Results (II)Preliminary Results (II)

Competencies

• All countries have ability to access information, either via regular reports, audits, or on request

• Over half have authority to issue tariffs and tariff regulations

• Only half participate in monitoring balance, future capacity, quality standards

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004

Regulatory Benchmarking:Regulatory Benchmarking:Preliminary Results (III)Preliminary Results (III)

Internal Organization, Resources and Capacity

• From 3 to 9 regulators (most have 3 or 5)

• Staff size ranges from 3 to 282 (most between 15-60)

• Most regulator salaries comparable to Ministry/ industry officers and above civil servants; salaries as percent of budget varies, from 12% – 60%

• Most have sufficient technical resources

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004

Regulatory Benchmarking:Regulatory Benchmarking:Preliminary Results (IV)Preliminary Results (IV)

Procedures for Core Regulatory Activities (1)

• Majority of Countries:• Accounting systems for unbundled activities

• Role in reviewing investment plans (usually as part of tariff setting process)

• Indirect or sharing role in promoting competition (e.g., through monitoring market dominance)

• Minority of Countries:• No role in monitoring unbundling

• Unclear delineation of authority between regulator and competition agency with respect to promoting competition

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004

Regulatory Benchmarking:Regulatory Benchmarking:Preliminary Results (V)Preliminary Results (V)

Procedures for Core Regulatory Activities (2)

• Majority of countries: • Dispute settlement authority; procedures for public participation in

hearings and rulemakings

• Rulemaking and/or enforcement authority over interconnections, market rules, grid codes, metering, quality standards, congestion management and connections and repairs

• Minority of countries: • Rulemaking authority limited; government controls• Dispute settlement authority limited

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004

Regulatory Benchmarking:Regulatory Benchmarking:Preliminary Results (VI)Preliminary Results (VI)

International Activities

• Majority of Countries: Participate as member in international initiatives Slightly fewer may participate in decision-making in

these initiatives

• Minority of Countries: Lack resources to plan sustainable, long-term

participation in regional and international initiatives

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004

Regulatory Benchmarking:Regulatory Benchmarking:Preliminary Results (VII)Preliminary Results (VII)

Enforcement

• Majority of Countries: Have the right to penalize license violations Fines and license modification/suspension most

common mechanisms

• Minority of Countries Have authority to reduce rate of return or impose

performance-based rates Utilize enforcement powers

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004

Regulatory Benchmarking:Regulatory Benchmarking:Preliminary Results (VIII)Preliminary Results (VIII)

Accountability

• All Countries Issue annual reports

• Majority of Countries Must report either regularly or on request before

governmental body, and are subject to audit Must cooperate and share information with other

governmental bodies

• Minority of Countries Hold fully public hearings

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004

Preliminary ConclusionsPreliminary Conclusions

Need for Particular Attention in Areas of:• Secondary legislation, including tariff and licensing regulations

Power to draft, issue and adopt secondary legislation• Unbundling

Accounting Regulatory monitoring role

• Institutional strengthening Greater participation in regional activities Implementation of public participation processes in rule-making Adoption of codes of ethics Expanded regulatory role in areas of supply security, congestion

management, interconnection rules, market opening Utilization of enforcement powers

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004

Next StepsNext Steps

Confirm Data• Regulators provide input to draft report

Analysis of Data Essential• Assess import of the data• Determine the structure and direction of the Analysis

Regulators, Donors and other Interested Parties Use Data and Analysis to Determine Path for Regional Reform

• Identify needs in each country and regionally• Utilize regional/international institutions and partnerships • Develop action plans

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004

ConclusionConclusion

The establishment of a sound, stable and independent regulatory framework is critical to:• Integrate and liberalize energy markets

• Facilitate competition

• Reduce risks for new entrants

• Develop rules to establish a level playing field for all stakeholders

• Monitor of market behavior

• Settle disputes

• Create a sense of continuity and trust among market players

• Implementation of these goals both at national and multinational (regional) level