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An Overview of the Energy Regulatory Office (ERO)

Dr. Ali HamitiChairman of ERO

INTERNATIONAL INVESTORS' CONFERENCEPristina, 20 - 21 January 2010

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Energy Regulatory Office (ERO) is an Independent Agency established in accordance with Constitution of the Republic of Kosovo. (Articles 119, 142 stipulate the establishment of Independent Agencies and guarantee their independence.

In particular, Law on Energy Regulator establishes the independent Energy Regulator and defines powers, duties and functions of the ERO:

Protect Customers while Ensuring Investors’ Interests;

Ensure non-discriminatory access for all transmission or distribution network users at access prices reflecting true economic costs;

Promote economic efficiency of energy use by providing short and long term true economic prices;

Promote economic efficiency of the customers/users’s consumption by providing short and long term price signals.

Mandate of ERO: Economic Regulation

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Primary legislation:

Law on Energy;

Law on Energy Regulatory Office;

Law on Electricity;

Law on District Heating;

Law on Natural Gas;

Secondary legislation: Rules, Codes, Regulations, Administrative Instructions, Procedures, Methodologies

etc;

- Issued by ERO and/or the Government;

- Prepared by Licensees and approved by ERO.

The energy legislation is harmonized and in compliance with the ECSEE Treaty acquis communautaire.

Legislation Affecting Regulation of the Energy Sector in Kosovo

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Participation of Kosovo on ECSEE Treaty

Kosovo is a signatory Party of ECSEE Treaty ERO is a member of Energy Community Regulatory

Board of ECSEE Treaty ERO staff participates on Working Groups established

by ECRB:

- Electricity Working Group (EWG)

- Customer Working Group (CWG)

- Gas Working (GWG)

- SEE Coordinated Auction Office Implementation Group (SEE CAO IG)

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Issues Licenses for Energy Enterprises;

Issues/Approves Secondary Legislation (Rules, Codes, Decrees, Ordinances, Guidelines);

Approves Tariffs for regulated activities and customers;

Approves PPA s for Power Supply to Public Supplier;

Monitors License Compliance, Abuse of Market Power. Impose Fines, Withdraw Licenses for abuse;

Issues Authorizations for Construction of new Generating Capacity, and Transmission Lines;

Resolves disputes between licensees and customers;

Principal Statutory Powers of ERO

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Rules developed and adopted by ERO

The Statute of ERO

Code of Ethic and Conduct

Rule on Pricing

Tariff Methodology

Rule on Licensing of Energy Activities in Kosova

Schedule of Fee

Rule on Dispute Settlement Procedure

Rule on Disconnection and Reconnection

Rule on General Conditions for Energy Supply

Rule on Confidentiality of Information

Rule on Public Register

Rule on Administrative Measures and Fines

Rule on Authorization Procedure

Governance Procedures for Technical /Operational Codes (OCGC)

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Rules currently under development

RES Support Scheme (Feed-in Tariff)

Rule on Certificate of Origin

Rule on Pricing for District Heating

Tariff Methodology for District Heating

Rule on Eligible Customers

Rule on Public Participation

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Relationship with government agencies

Cooperation and coordination with other government agencies on:

Energy strategy

Sector Policies

Compliance with ECSEE Treaty

Energy efficiency and renewables

Structuring of the sector

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Summary of Privatization Regulatory Issues

Most ERO secondary legislation required for privatization of energy

enterprises are already in place; ERO’s published tariff methodology allows regulated enterprises to

recover their reasonable actual costs and profit; ERO has conducted three tariff reviews in the past, and is currently

conducting its fourth electricity tariff review for the regulated companies;

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ERO Duties Referring to Privatization

Relevant Duties (assigned by law) include: Assure buyer meets legal requirements to become a licensee Assure the general system of codes, rules and regulations meet

international standards (most of this system of documents already

exists) Assure proper principles apply to any calculation of regulated

tariffs (an ongoing duty of ERO done currently by annual cost-

based tariff review proceedings) Assure that quality of services are met by licensee Assure that transitional market rules are implemented

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Tariff Design Criteria

Based on well-established & understood economic principles;

Ensure no discrimination or cross subsidy between customer groups;

Tariffs should provide cost reflective price signals;

Unbundled accounts for mining, generation, distribution and supply;

Minimize complexity & associated costs, including cost of metering and

billing;

Enable protection of vulnerable customers

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The tariff structure is based on: Generation Availability

Demand Forecast

Generation & Mining Costs

Imports

Transmission Costs (Unbundled from KEK)

Distribution Costs

Supply Costs

Allowed Losses

Depreciation

Allowed Return on commercially-financed investments

Subsidies, Exports and Costs of serving unregulated customers are deducted from the allowed revenues

Basis of Tariff Calculation

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Transitional market rules in place:Promote competition;

Define market players including eligible customers;

Market Monitoring;

Transparent and non-discriminatory third parties Access;

Energy Market Restructuring and Design

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Dr. Ali Hamiti Chairman of the Board

Address: Energy Regulatory Office 1 Hamdi Mramori Str.10000 Prishtina, Kosovo

Tel: + 381 38 247 615 Fax: + 381 38 247 620E-mail: ali.hamiti@ero-ks.orgWeb: www.ero-ks.org

Thank you!