Institutional Compliance Regulatory Benchmarking Update Cathy Connors Pierce Atwood 3 rd Energy Week Athens Greece June 2004

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004 Regulatory Benchmarking Timeline and Overview (I) First Report – May 2003 Initial overview of SEE-REM regulators 3 rd 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 Benchmarking Timeline and Overview (II) 2nd Regulatory Benchmarking October 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 Efforts EC benchmarking reports on implementation of internal electricity and gas market (3d Report March 2004) World Banks 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 Benchmarking Reporting Exercise (I) SHORT TERM Measure regulatory development Inform regulators and relavant authorities of regional status and progress Reveal differences in competencies/functionality of regulators Promote key characteristics of regulatory role Authority Autonomy Accountability

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004 The Goals of this Regulatory 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 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 Benchmarking 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 4 The Second Athens MOU, Section 7

Regulatory Benchmarking Update - 3rd Energy Week Athens June 2004 The History of this Regulatory Benchmarking 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 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 Benchmarking Report (II) The current draft report is based on CEERs 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 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: 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: 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 ) 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: 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: 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: 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: 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: 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 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 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 Conclusion 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