1. REGIONAL REGULATORY BENCHMARKING REPORT OVERVIEW Prepared for USAID, Bureau of Europe and Eurasia by: Catherine R. Connors Pierce Atwood One Monument Square Portland, Maine 04101 Telephone: 207-791-1389 Fax: 207-791-1350 E-mail: cconnors@pierceatwood.com

2. TABLE OF CONTENTS I.Introduction: A.Purpose B.Scope II.Goals and Timelines III.Regional Overview: A. Market Development B.Institutional Development IV.Conclusion: Next Steps Pierce Atwood 1

3. I. Introduction: Purpose and Scope of Report A.Purpose: 1.Support objectives of Athens MOU of 15 November 2002 2.Contribute to EC benchmarking efforts on electricity market opening Emphasis on Role of Regulator Pierce Atwood 2

4. I. Introduction: Purpose and Scope of Report B.Scope: 1.Report contains information of regulatory development in SEE: AlbaniaGreece Bosnia & HerzegovinaRomania BulgariaSerbia and Montenegro CroatiaTurkey FRYOMUNMIK Pierce Atwood 3

5. II. Goals and Timelines A.Athens MOU requires among other actions, establishment of the following: 1.A State Energy Authority by June 2003 2.An Electricity Regulatory Authority by June 2003 3.A Transmission System Operator by June 2003 4.Distribution System Operators by January 2005 Pierce Atwood 4

6. II. Goals and Timelines B.To achieve creation of REM by 2005, as the Athens MOU provides, the Second SEER Athens Forum adopted 20 January 2003 Action Plan. Key elements focus on: 1.National Institutions 2.National Markets 3.Regional Market 4.EU/Stability Pact Roles Pierce Atwood 5

7. III. Regional Overview The ten SEE jurisdictions are in different stages of advancement in creating autonomous and competent regulators: Six have regulatory bodies and of those, efforts are underway in four to increase regulators competencies and independence The remaining four countries without a regulatory body are working toward the development of such agencies with laws either passed but not implemented; in draft form; or planned for the upcoming year. Pierce Atwood 6

8. III. Regional Overview 1.Market Development: A.Market Opening: has begun in four countries most lack set timetables regulators role typically limited or undefined B.Market Monitoring: most laws broadly define regulators role to encourage competition, but are limited as to specifics regulators influence over technical aspects primarily through approval of market rules and grid code role in resolving third party disputes is in early stages and likely to evolve in practice Pierce Atwood 7

9. III. Regional Overview 1.Market Development (contd): C.Tariffs: for the most part, separate transmission and access tariffs not yet established approximately half report some form of cross-subsidies attention to cross-border tariffs and stranded costs remain for the most part in early stages or undefined D.Other issues vary throughout the region, with each jurisdiction showing different nuances in division of authority: CongestionTransmission investment InterconnectionBalancing services Pierce Atwood 8

10. III. Regional Overview 2.Institutional Development of Regulatory Agencies A.funding primarily derived from fees most with annual Parliamentary approval B.Commissioners, staff and resources number of commissioners varies from 3 to 7 with two to six year terms; most staggered size of staff varies widely, from 2 to 270 with salaries typically at or above similar civil servant positions generally, 1:1 ratio of computers to staff; four have websites Pierce Atwood 9

11. III. Regional Overview 2.Institutional Development of Regulatory Agencies (contd): C.Jurisdiction majority have regulator in charge of both gas and electricity; some also grant regulator jurisdiction over district heating; others include oil and oil derivatives role in dispute resolution evolving in almost all, regulator issues licenses strength of enforcement powers varies D.Accountability almost all require annual report to Parliament some require annual audit transparency of operations varies most have confidentiality, code of ethics, conflict of interest provisions Pierce Atwood 10

12. IV. Conclusion: Next Steps Participant confirmation - finalization of report INSERT Pierce Atwood 11