UPDATE ON REGULATION

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UPDATE ON REGULATION
Meeting of Nordic Baltic Energy
Regulators  November 10, 2003 Vilnius, Lithuania

• Prof. Inna teinbuka, Chair
• Public Utilities Commission of Latvia

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HIGHLIGHTS

• Public Utilities Commission multi-sector
  regulator
• Key indicators and trends
• Gas Market structure
• Electricity Market structure
• Main achievements
• Gas tariffs
• Electricity tariffs
• Future challenges and activities

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PUBLIC UTILITIES COMMISSION - MULTI -
SECTOR REGULATOR

• Established in July, 2001
• Independent authority
• - 5 Commissioners appointed by the Parliament
  for a 5 year period
• - decisions can be challenged only by the court
• - funding duty on the net turnover of regulated
  services

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PUBLIC UTILITIES COMMISSION - MULTI - SECTOR
REGULATOR

• Regulated public utilities in the energy sector
• - electricity generation, transmission,
  distribution and sales
• - cogeneration (above 1MW)
• - gas (natural and liquified) transmission,
  distribution, storage, filling and sales

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PUBLIC UTILITIES COMMISSION - MULTI - SECTOR
REGULATOR

• Commission positioned itself as a strong
  stakeholder in the energy sector
• Staff recruiting and organizational optimization
  completed
• During this year institution has significantly
  strengthened its capacity by intensive training
  activities and applied cases

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KEY INDICATORS AND TRENDS

• Year 2002
• Increase of GDP - 6.1
• Increase of electricity demand - 3.5
• Increase of natural gas demand - 0.4

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Gross natural gas consumption in Latvia (mln m³)
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Structure of natural gas consumption in 2002
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Gross electricity consumption in Latvia (mln kWh)
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Structure of electricity consumption in 2002
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GAS MARKET STRUCTURE

• Vertically integrated private company Latvijas
  Gaze is the only actor in natural gas
  transmission, storage, distribution and supply
• Shareholders of Latvijas Gaze
• - Ruhrgas Energie Beteiligungs AG 28.18
• - JSC "Gazprom 25.0
• - LLC "Itera-Latvija 25.0
• - "E.ON Energie AG 18.79

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GAS MARKET STRUCTURE

• Latvia could be considered as a non-connected
  market in the meaning of Article 28(1) of
  Directive 2003/55/EC having only one main
  external supplier (market share more than 75)
• Possible derogation from Articles 4, 9, 23, 24
  of the Directive
• No legal eligibility criteria of gas customers
  yet adopted
• Amendments to the Energy Law are under discussion
  (introduction of third party access in gas
  industry)

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ELECTRICITY MARKET STRUCTURE

• Vertically integrated state-owned company
  Latvenergo dominates the sector
• The few privatization attempts failed, in year
  2000 the Parliament decided not to sell any parts
  of the company
• Governments decision on legal separation of TSO
  has been put on hold
• Elaboration of the new Electricity Market Act is
  on the agenda of the Government

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ELECTRICITY MARKET STRUCTURE

• ELIGIBLE CUSTOMERS
• Threshold of 20 GWh annual consumption with 20
  consumers eligible (market opening 18 in 2003)
• Concept of eligible electricity consumers
  introduced from January 1st 2001
• Each year the Regulator publishes a list of
  eligible consumers
• No actual deals reported by now
• No legal obstacles to open market for all
  non-household customers from July 1st 2004

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MAIN ACHIEVEMENTS

• New principles of tariff design adopted
• Separation of generation, transmission,
  distribution and sales
• Price cap
• Clear cost allocation
• Economic depreciation
• Rate of return (7.6 for Latvenergo 8.4 for
  Latvijas Gaze)
• Elimination of cross-subsidies
• New gas and electricity tariffs adopted

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GAS TARIFFS

• Average natural gas tariffs from July 1, 2003
• in LVL/ 1000m³ (at HSFO FOB ARA above 140 USD/t)
• increase
• Up to 0.5 thousand m3 83.65 25.3
• 0.5 25 thousand m3 79.56 19.2
• 25 126 thousand m3 78.60
  18.4
• 126 1260 thousand m3 77.40
  16.6
• 1260 12600 thousand m3 76.20
  19.1
• 12600 20 000 thousand m3 73.79
  17.1
• 20 000 126 000 thousand m3 66.58
  12.3
• Above 126 000 thousand m3 61.17
  10.4
• Fixed monthly payment 0.65 LVL per month
• 1 LVL 1.55 EURO

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ELECTRICITY TARIFFS

• New tariffs take effect on 1 January 2004
• Extensive consultations organized with customers
  and society prior to the adoption of the new
  tariffs
• Reduced cross subsidies among customers groups
• Service tariffs differentiated depending on the
  connection point in the grid

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ELECTRICITY TARIFFS

• Average electricity sales prices for captive
• customers (LVL/KWh)
• present new change
• 110 KV line 0.0246 0.01914 -22
• 6-20KV bus bar 0.0246 0.02376 -3.4
• 6-20KV line 0.0291 0.02915 0.2
• Excluding VAT and including load component
• 1 LVL 1.55 EURO

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ELECTRICITY TARIFFS

• Average electricity sales prices for captive
• customers (LVL/KWh)
• present new change
• 0.4 KV bus bar 0.0291 0.03237 11
• 0.4 KV line 0.0344 0.446 28
• households 0.033051 0.38136 15
• Excluding VAT and including load component
• 1 LVL 1.55 EURO

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ELECTRICITY TARIFFS
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FUTURE CHALLENGES AND ACTIVITIES

• Further elimination of cross-subsidies
• Enforcement of quality related measures
• New tasks of the Regulator resulting from the new
  electricity and gas directives
• reconsideration of public service obligations in
  the light of universal services
• market facilitation and supervision

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