Ainārs Meņģelsons Public Utilities Commission Latvia 11th Baltic Energy Regional Initiative October 1, 2010 Jūrmala, Latvia ELECTRICITY REGIONAL INITIATIVE UPDATE ON LATVIA

2 11thBaltic Energy Regional Initiative October 1, 2010 Jūrmala, Latvia KEY DATA GDP 2009 versus 2008 – decrease by 18% GDP 1st quarter of 2010 versus 1st quarter of decrease by 6,1 % GDP 2nd quarter of 2010 versus 2nd quarter of decrease by 2,1% Electricity consumption:  2009 versus 2008 – decrease by 7,9%  1st half of 2010 versus 1st half of increase by ~2%

3 11thBaltic Energy Regional Initiative October 1, 2010 Jūrmala, Latvia Electricity Market Opening All households and non household consumers with less than 50 employees and yearly turnover less than LVL 7 million have the rights to the universal service in electricity sector Universal service – the right to be supplied at the regulated price Consumers who do not qualify for universal service are obliged to buy electricity at the market price

4 11thBaltic Energy Regional Initiative October 1, 2010 Jūrmala, Latvia Electricity Market Opening Regulator has granted rights to JSC Latvenergo from January 1, 2009 to set the tariffs for captive customers by the company itself:  Regulator assesses tariffs in conformity with the calculation methodology and justification within 21 days  if the Regulator does not reject tariff proposal, it enters into force on the date indicated by the company  if the Regulator rejects tariff proposal for a justified reason, tariffs do not enter into force

5 11thBaltic Energy Regional Initiative October 1, 2010 Jūrmala, Latvia Electricity Market Opening 35,6% of total electricity volume is traded for contract price (non-regulated) In 2009, 90 customers switched to another supplier, 4 of them switched back on 1st January 2010 On 1 January % of free market customers purchased electricity from independent traders

6 11thBaltic Energy Regional Initiative October 1, 2010 Jūrmala, Latvia TSO unbundling TSO – AS “Augstsprieguma tīkls” legally unbundled from June 1, 2007 First version of concept on TSO unbundling in line with the 3rd package presented to the Cabinet of Ministers in June 2010 Initial option - Independent system operator The lead institution in adoption of the 3rd package - the Ministry of Economics, the first meeting of stakeholders took place in June 2010

7 11thBaltic Energy Regional Initiative October 1, 2010 Jūrmala, Latvia Tariffs set up Tariff calculation methodologies approved by Regulator are in force from 2002 and amended respectively. Regulator, after receiving a justified application from the system operator (SO), approves tariffs or rejects them. The procedure is described in the Law and can take max 4 months. Regulator has the rights to ask the SO to submit new tariff proposal, if the case is present. No subsidies are included in the SO’s tariffs.

8 11thBaltic Energy Regional Initiative October 1, 2010 Jūrmala, Latvia Access to the system Regulator in 2008 and 2009 adopted regulations on connection of producers and users to the system Technical and operational requirements to the market participants are described in the Grid Code. TSO – AS “Augstsprieguma tīkls”, has made available model contracts to access the Transmission System on its Internet web page. Slight adjustment could be required in the Grid Code after adoption of the 3rd package.

9 11thBaltic Energy Regional Initiative October 1, 2010 Jūrmala, Latvia Retail market - electricity Already settled: universal service last resort supplier Adjustments required: provisions related to vulnerable customers current switching time is 2 months – the new directive envisages only 3 weeks on requirements related to providing information to the customers

10 11thBaltic Energy Regional Initiative October 1, 2010 Jūrmala, Latvia Investments in generation Authorization procedure – in line with the 3rd package Conducted in accordance with objective, transparent and non discriminatory criteria Reason for refusal shall be objective, non-discriminatory, well founded and duly substantiated From November 1, 2010 no more electricity feed in tariff for new CHPs using natural gas Tendering procedure - in line with the 3rd package The procedure can be launched only when the authorization procedure and energy efficiency/demand side measures are insufficient to ensure security of supply Details of tendering procedure should be published in Official Journal of EU 6 months prior to the closure of tender

11 11thBaltic Energy Regional Initiative October 1, 2010 Jūrmala, Latvia Legal amendments - power To fulfill the Regulation on conditions for access to the network for cross-border exchanges in electricity, in January 2010 the Grid Code has been amended : The general scheme for the calculation of the total transfer capacity and the transmission reliability margins Harmonized calculation and publication of hourly balance energy prices, the prices of previous months to be published till the date of 15 th of current month The electricity importer/exporter from the non-EU (perimeter) countries should pay perimeter fee – 0,3 Euro/Mwh For consumers with the load less than 100kW the standard load curve could be applied

12 11thBaltic Energy Regional Initiative October 1, 2010 Jūrmala, Latvia Legal amendments - heat Starting from November 1, 2009 the Regulator took over the regulation of district heating from municipal regulators. In April 2010 new tariff calculation methodology of heat tariffs' was approved. During 2010 PUC carried out activities related to collection of information about companies to be regulated and consequently issued or altered respective licenses. The present threshold for regulation of heat companies: Production - installed capacity above 1 MW Trade volume Mwh/per annum