1. STATE ENERGY REGULATORY COMMISSION (SERC) Prof. Konstantin Shushulov Chairman Budapest, Hungary May 19, 2004 4 th Annual Meeting of the Energy Regulators Regional Association

2. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 2 Key Events and Activities in 2003 through May 2004 Adoption of the new Energy Act: December 2003 Preparation of the respective secondary legislation The new EA is in conformity with the EU Directives for the internal markets in electricity and natural gas Creation of conditions for opening of the market in electricity and natural gas New Structure of SERC New powers of SERC: regulating water supply and sewage water Active participation in the privatization processes Active participation in the initiatives on a regional level

3. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 3 Electricity, Heat and Gas Supply Sectors: SERC Resolutions of 06.2003, granting the status of eligible consumers (10 consumers); Start of the privatization of the 7 electricity distribution companies; By the virtue of the EA, SERC issues guarantees of origin of electricity and “green” certificates to producers of electricity and heat from RES and from co-generation (12.2003); Ordinance on regulating the prices of electricity (02. 2004); Key Events and Activities in 2003 through May 2004

4. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 4 Electricity, Heat and Gas Supply Sectors: SERC will coordinate and regulate the processes of sale and purchase of “green” certificates; SERC has determined a preferential purchase price for electricity generated by wind power stations with a capacity up to 10 MW; SERC has determined a purchase price for electricity generated from RES; Tender documentation for 4 gas distribution regions from the inventory of the Ministry of Energy and Energy Resources has been prepared; Tenders for Mizia and Dobroudja regions have been conducted, tender procedures for Trakia and Dounav regions have been opened. Key Events and Activities in 2003 through May 2004

5. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 5 Key Events and Activities in 2003 through May 2004 Draft secondary legislation developed by SERC: Rules for the terms and procedures for access to the electricity transmission and electricity distribution networks; Trading rules for electricity; Management rules for the electricity system; Management rules for the electricity distribution networks; Measurement rules for the quantity of electricity; Rules for the terms and procedures for access to the gas transmission and gas distribution networks; Trading rules for natural gas. In accordance with the Energy Act, a public discussion of these rules was conducted on 23.04.2004; Draft rules for regulatory accounting for electricity distribution companies. SERC experts have taken part in the preparation of all Ordinances set out in the EA.

6. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 6 Key Anticipated Issues & Activities for the Next Year Liberalization of the electricity and natural gas market in the Republic of Bulgaria; Participation in the pre-privatization preparation of the electricity distribution companies and conducting competitions for licensing of the regional gas distribution companies; Activities related to the establishment of a regional electricity and natural gas market; Control on the compliance with the conditions and rules for supply of consumers with electricity and natural gas; Determining and control on the service quality indicators.

7. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 7 Key Issues and Status of Tariff Methodologies and Levels Basic methods of price regulation in the Ordinances on regulating the prices of electricity, natural gas and heat: - incentive regulation (price cap, revenue cap); - rate of return on capital (cost-plus). The second stage of the adopted model three-year schedule for increasing the prices for residential consumers of electricity has been realized. The two-step tariff for residential consumers of electricity has been preserved. The effective tariff structure of the prices for active electric power, used for industrial and public activities, has been preserved. A new method - “revenue cap” – in the sale of electricity by public retailers will be in force from 1 January 2005. The prices of natural gas cover costs. The prices of heat for households will be subsidized by 2005.