Energy Policy and Central Energy Authorities as Pillars of Reforms. The Bulgarian Experience 1999pre

1
Energy Policy and Central Energy Authorities as
Pillars of Reforms. The Bulgarian Experience
(1999-present)

• Presented by Vladimir Stariradev
• Director of European Integration and
  International Projects
  
• Bulgarian Ministry of Energy and Energy
  Resources
  
• Seminar Institutional Aspects of Reforms of the
  Electricity Market
  
• Rome, 24 March 2003

2
Bulgarian energy Policy
Most important tasks of the government
to harmonize regulatory framework with EU acquis
and provide conditions for a competitive energy
market to establish a modern market-oriented ene
rgy sector in line with EU directives on
electricity and gas markets. Energy strategy dev
eloped and approved in July 2002 outlining an
energy policy in line with EU energy policy and
defining the following directions for action
Establishing a sustainable legal framework for
investment and trade Establishing competitive ma
rket relations in the energy sector based on
cost-reflective tariffs and free contracting
Establishing the necessary legal, regulatory and
market environment before the implementation of
new large investment and privatisation projects
Promoting use of renewables and improvement of
energy efficiency as a means for increasing
overall economy competitiveness, security of
energy supply and environment protection
Social protection through shifting government
subsidies from producers to vulnerable consumers
and implementation of large scale energy
conservation measures and socially oriented
tariffs Strengthening of Bulgarias position as
a reliable partner for supplying electricity and
transit of energy materials and products.
3
Legal basis (1)

• Energy and Energy Efficiency Act (EEEA) - mid
  1999
  
• unified regulation of line-bound energy
  subsectors
  
• state governance of energy sector
• rights and obligations of actors in generation,
  import, export, transmission, distribution and
  sale of electricity, gas and heat
  
• improving energy efficiency and promoting the use
  of renewables
  
• institutions developing and implementing national
  energy policy
  
• State Agency of Energy and Energy Resources -
  overall energy policy
  
• State Energy Efficiency Agency - energy
  efficiency policy
  
• State Energy Regulatory Commission - independent
  regulatory body.
  
• Act supplementing and amending EEEA - end of
  2001
  
• changes in energy sector administration (energy
  policy developed and carried out by the Minister
  of energy and energy resources)
  
• legal basis for SERC strengthening and financial
  independence
  
• supplemented regulation of commercial relations
  in heat and electricity subsectors

4
Legal basis (2)
Ordinances adopted in 2002 on
rules of access to electricity transmission and
distribution networks - further develops the
possibility for direct contracting between
independent producers and eligible customers
using the electricity transmission and/or
distribution networks rules of access to gas tra
nsmission and distribution networks - gives
detailed regulation of the possibility for
natural gas production enterprises and eligible
customers for contracting sale of natural gas
using the transmission and/or distribution
networks to meet the own needs of customers
electricity, heat and natural gas price setting
and application - set the rules for price
regulation, including setting, indexation,
approval and control of their application, in
accordance with the EEEA requirements.
5
Draft of new Energy Act
to be discussed by the Council of Ministers in
March 2003 provides a clearer definition of rel
ationships in the energy sector and energy
efficiency as high priorities of the governments
economic policy sets the commitments of the stat
e regarding the development of the institutional,
legislative and financial prerequisites for
implementation of this policy
enables the implementation of a new market model
concerning the electricity and natural gas
sub-sectors and the development of internal
competitive energy market strengthens the regul
atory body in the energy sector, the Energy
Regulatory Commission (ERC), by ensuring its
independence revokes the monopsony model and int
roduces a regulated third party access to
electricity and gas networks gives grounds for t
he adoption of secondary legislation to regulate
intermediate stages of market opening in full
compliance with the electricity and gas market
directives at the same time facilitating
supplements and amendments depending on future
development of the national electricity market.
6
The electricity market model in the transition
period

• accounting and/or legal unbundling of
  activities
  
• single buyer of electricity generated and
  imported in the country
  
• state control over new investments in generation
  - tendering procedure for construction of new
  generation capacities
  
• generation, transmission and distribution
  separated in 2000 into independent companies -
  the formerly vertically integrated National
  Electricity Company (NEK) split into
• seven independent generators
• seven distributors
• national electricity transmission company.

7
The new electricity market model
regulated third party access replaces the
monopsony model and a competitive market will be
gradually established first stage of the model i
mplementation - based on bilateral contracts and
a balancing market in the longer-term - introduc
tion of a spot market gradual deregulation of ge
neration complete opening subject to reciprocity
regarding EU member-states as of the date of
accession of Bulgaria to the EU
other states as of entering into force of an
international agreement on mutual observance of
EU internal market rules.
8
Bilateral contracting market model
9
Bilateral contracts for electricity supply
Producers selling availability to NEK condensi
ng TPPs
NEK (Public supplier)
Traders
Public retailers DISCOs
Regulated part of the market
Deregulated part of the market
10
Ministry of Energy and Energy Resources (MEER)

• Established in December 2001 with amendments to
  EEEA. Develops and carries out the national
  energy policy, by
  
• developing an Energy strategy to be approved by
  the Parliament
  
• adopting plans for the overall energy balance of
  the country
  
• approving programmes and investments on energy
  efficiency, environment protection, restructuring
  and privatization in the sector
  
• developing secondary legislation concerning
  activities in the sector
  
• issuing every two years a list of the necessary
  new
  
• generating capacities above 25 MW
• heat transmission networks
• natural gas distribution networks and storage
  facilities
  
• proposing for approval by the Council of
  Ministers the construction of generating
  capacities above 200 MW or of nuclear power
  plants
• exerting the rights of the state as a shareholder
  in energy sector companies
  
• grounding proposals for subsidizing activities in
  the energy sector
  
• organizing the issuance of concessions for
  production of energy resources
  
• organizing the harmonization of Bulgarian
  legislation with the EU acquis.

11
State Energy Regulatory Commission (SERC) (1)

• legal entity under the Council of Ministers (CM),
  competence in
  
• issuing and withdrawing of permits and licenses
• regulating prices and tariffs
• developing and proposing for adoption by CM
  secondary legislation concerning issuing permits
  and licenses and determining the rules for
  setting of electricity, heat and natural gas
  prices
• monitoring of energy companies for compliance
  with market principles, issued licences and price
  formation rules.
  
• permanently acting collective body (7 members),
  supported by the State budget
  
• members and Chairman nominated by CM and
  appointed for a period of 5 years, eligible for a
  second mandate
  
• supported by an administration amounting to over
  80 people
  
• SERC sessions are open, but it may decide for
  some to be closed
  
• SERC decisions are taken with a majority of 2/3
  of total number of members, may be appealed
  within 30 days in front of the Supreme
  Administrative Court.

12
State Energy Regulatory Commission (SERC) (2)
Cost-reflective approach applied in setting
prices (cost plus method, i.e. covering the costs
and a rate of return on assets), based on the
following principles ensuring balance between th
e interests of the energy enterprises and the
consumers creating incentives for enhancing effi
ciency of the energy enterprises, which are
subject to price regulation providing equal cond
itions for the different producers, suppliers and
consumers taking into consideration the economic
ally grounded costs, including costs for
maintening of reserve capacities necessary for
the reliable supply with electricity, natural gas
and heat supply and maintenance of fuel reserves
achievement of energy efficiency, environmental
protection and nuclear safety
radioactive waste storage and decommissioning of
nuclear facilities maintenance and economically
grounded investments programs
return on assets in line with capital market
conditions ban on cross-subsidizing of consumers
and producers.
13
Strengthening of SERC

• 1. Amendments to EEEA
• officials entitled to draw up statements for
  found infringements, based on which penalties are
  imposed.
  
• primary allocator of State budget funds -
  financial independence, stability and
  independence in taking decisions
  
• possibility for extra financial bonuses provide
  for employment of highly qualified experts in the
  administration.
  
• 2. Draft of new Energy Act - Energy Regulatory
  Commission (ERC)
  
• right to issue secondary legislation within its
  competence
  
• co-financing of ERC both from the budget and from
  collected licensing fees
  
• conditions provided for the financial
  independence of ERC, its independence in taking
  decisions and stability
  
• extension of competence - in issuing tradable
  green certificates for electricity from
  renewables and cogeneration and protection of
  consumers.
• energy prices are regulated by ERC and not
  regulated in cases competition is available
  
• ERC will gradually set free from regulation the
  prices of energy enterprises when it decides that
  they carry out their activity in competition.

14
Regional Technical Coordination Centre (RTCC)
Bulgaria proposes the establishment of a RTCC in
order to institutionalize relations among natio
nal energy sector authorities of the different
SEE countries support coordination of various re
gional initiatives and energy projects of common
interest To complement the adopted institutiona
l structure of cooperation under the Athens
process , a permanent RTCC staffed from all SEE
countries could coordinate the activities of the
three regional task forces already envisaged -
SE-CEER, SE-ETSO, SE-MFG If also represented in
the RTCC, the donors and the EC or its
Secretariat would add value sharing experience
and providing policy advice.
15
EUROPEAN COMMISSION
Athens Process
Athens Forum (SEEERF) (Integration EC/SEE -
Political Coordination)
Orientations Guidelines Compliance
Requirements - Training
National Reforms Implementation
16
Arguments for locating RTCC in Sofia

• Sofia hosted for 7 years the Black Sea Regional
  Energy Centre established with EC support which
  carried out projects related to the energy sector
  regional development. RTCC would make use of
  available premises, equipment, data-base,
  contacts. This experience will contribute to
  operate RTCC efficiently right after
  establishment.
• Bulgaria is close to the optimum location
  regarding travels from most countries in the
  region thus minimizing related costs
  
• Bulgaria has long-standing constructive relations
  in the energy sector with the other countries in
  the region
  
• Bulgaria is a reliable producer and exporter of
  electricity and its role in transiting natural
  gas, oil and electricity will continue to grow
  due to its geographic location
• There is political consensus in Bulgaria in
  support to the establishment of such centre.
  
• Bulgaria commits to provide up to 0.3 million
  EURO to cover costs related to the establishment
  and functioning of RTCC during the first year of
  its operation, including
• cost of premises (rents) and equipment to be used
  by the RTCC
  
• salaries of local experts and support staff
• part of RTCC operational costs.

17
Expected results of RTCC establishment

• facilitated coordination between the layers of
  the Athens process institutional structure, the
  donors, EC and the countries
  
• strengthened involvement of SEE countries in the
  management of the Athens process components
  
• improved organization of activities under joint
  initiatives and increased efficiency of
  identification, approval, co-funding, management
  and monitoring of projects of common interest
• minimizeded overlapping of works, efforts and
  spent funds under different energy projects of
  regional scale.