Edin ZAMETICAState Electricity Regulatory Commission

Bosnia and Herzegovina

Fourth Poverty Reduction Strategies Forum June 26-27, 2007, Athens, Greece

Regional Energy Market in South East EuropeIMPLICATIONS FOR CONSUMERS

Implications for Consumers 2

Agenda

Introduction - Regional market (Energy Community) Market opening Power to choose Demand and price trends Right to cover the costs Vulnerable customers support systems in the region Ongoing activities on customer protection

Implications for Consumers 3

Regional Market (Energy Community)

Implications for Consumers 4

Regional Market (Energy Community)

General Objectives of the Treaty Establishing the Energy Community enhance the security of supply that is essential for economic

development and social stability diversification improve the environmental situation improve energy efficiency, foster the use of renewable

energy

South East European countries are to introduce energy markets based on competition in generation and supply

Implications for Consumers 5

Energy Community Characteristics / Electricity

ENERGY COMMUNITY FINAL REPORT ON COMPLIANCE WITH ELECTRICITY BENCHMARKS April 2007

Implications for Consumers 6

Energy Community Characteristics / Gas

ENERGY COMMUNITY REPORT ON COMPLIANCE WITH THE GAS BENCHMARKS December 2006

Implications for Consumers 7

Consumer Interests

Competition improves efficiency and reduce prices increase

Increased transparency, market discipline, reduced corruption

Regional framework for necessary investments results in reduction of the total investments

More efficient utilization of existing and new infrastructure Affordability - Article 33 of the Treaty: The Energy

Community may also make Recommendations to support effective reform … and to foster the affordability …

Implications for Consumers 8

Market Opening

Each Contracting Party must ensure that the eligible customers within the meaning of the European Community Directives 2003/54/EC and 2003/55/EC are: from 1 January 2008, all non-household customers; and from 1 January 2015, all customers.

Network related activities (transmission and distribution – natural monopoly)

Supply activities (+generation) – market activities – to be deregulated

Implications for Consumers 9

Market Opening in the RegionElectricity (threshold, market opening %) Gas (threshold, market opening %)

Albania 100 GWh/year

Austria 100% 100%

Bosnia and Herzegovina

33% (>10 GWh/a Jan 2007, all non hh Jan 2008, all households Jan 2015)

Bulgaria >20 GWh/a [till June 2006] /9 GWh/a (till Dec 2006) (all non till June 2007; all households july 2007 85% (de iure)

Croatia >9 GWh/a (all non households July 2007, all households July 2008) 45% (>100 bcm/a)

FYROM >20 GWh/a >10 bcm

Greece 70% (all non hh July 2007) >25 GWh/a (CHP and electricity producers)

Hungary all non households [67%] (all hh July 2007) 67%

Italy 80% [non households] (all households July 2007) 100%

UNMIK Kosovo customer at 110 kV (four)

Montenegro gradual opening without dynamics specified

Romania all non households (all July 2007) 75% (all non hh Jan 2007, all households July 2007)

Serbia >3 GWh (21%, January 2007) >50 bcm (47-50%, January 2007)

Slovenia partially open (all households July 2007) partially open % (all households July 2007)

Turkey 6 GWh/a (all households 2011) 80% (de facto)Source: Data from National Regulators, Energy Community Secretariat

Implications for Consumers 10

EU Market Opening and Regulation of Prices

Electricity

Implications for Consumers 11

EU Market Opening and Regulation of Prices

Gas

Implications for Consumers 12

Power to ChooseThis is changing

Customers choose the supplier that provides the energy.

This stays the same

Electricity is delivered over the same poles and wires.

Reliability will stay the same.

Implications for Consumers 13

Power to Choose

Energy Community promotes freedom of energy supplies At the latest from July 2007, and January 2015, all consumers

in EU and SEE respectively, will be free to shop around for gas and electricity supplies. The current (default) supplier will no longer be the only choice.

Switching Supplier – process to be “user-friendly” with easy, cost efficient and standardised procedures for leaving one supplier and signing up with another.

This process will be monitored by regulators, so that customers can be confident that the market is working in their interests.

Implications for Consumers 14

Demand and Price Trends 1/2

Rising demand for electricity Improving living standards Economy in Europe is expected to grow Weather conditions

Implications for Consumers 15

Demand and Price Trends 2/2

Eurostat 11/2006 : EU-25 electricity prices expressed in euro per kWh increased by 5% for households* and by 16% for industrial consumers* between January 2005 and January 2006.

Eurostat 18/2006: EU-25 electricity prices expressed in euro per kWh increased by 7% for households* and by 15% for industrial consumers* between July 2005 and July 2006.

Implications for Consumers 16

Electricity Prices for Households 1/2

Composition of electricity price for household Dc in € per 100 kWh, on January 1, 2006 Source: Eurostat11/2006 household category Dc, with annual consumption of 3500 kWh, of which 1300 kWh during night hours

0

5

10

15

20

25D

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Ital

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Net

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Ger

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Lux

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Nor

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and

Slov

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Bel

gium

Swed

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25

Port

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Aus

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Fran

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Pola

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Spai

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Finl

and

Hun

gary

Slov

enia

Rom

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Uni

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Kin

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Cze

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Mal

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Cro

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Lat

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Bos

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Her

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Est

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Lith

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Gre

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Bul

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Serb

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Mac

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Without T ax Other T axes VAT

d

Implications for Consumers 17

Electricity Prices for Households 2/2

Composition of electricity price for household Dc in € per 100 kWh, on July 1, 2006 Source: Eurostat18/2006household category Dc, with annual consumption of 3500 kWh, of which 1300 kWh during night hours

0

5

10

15

20

25

30D

enm

ark

Net

herl

ands

Ital

y

Ger

man

y

Nor

way

Lux

embo

urg

Swed

en

Irel

and

Bel

gium

Eur

opea

n U

nion

25

Aus

tria

Cyp

rus

Slov

akia

Port

ugal

Fran

ce

Uni

ted

Kin

gdom

Spai

n

Pola

nd

Finl

and

Slov

enia

Mal

ta

Cze

ch R

epub

lic

Hun

gary

Rom

ania

Cro

atia

Est

onia

Lith

uani

a

Gre

ece

Lat

via

Bul

gari

a

Bos

nia

and

Her

zego

vina

Serb

ia

Mac

edon

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Without T ax Other T axes VAT

Implications for Consumers 18

Right to Cover the Costs

The concept of energy being a public good resulted in price bellow the market value

Market-model implies that both for generation/supply and for network companies costs will be covered in addition a reasonable return on capital must be allowed

for. The transition to market model will imply rise in end-user

energy prices, which might be not affordable to certain consumer groups

Implications for Consumers 19

Vulnerable Customers Support Systems in the Region

Tariff based solutions – regulated tariffs for certain well defined consumer groups

Non tariff based solutions – typically introducing a social security system

Non tariff based solutions should be preferred as they do not obstruct market forces.

Two countries have a social electricity tariff scheme (EU members) Countries with significant number of vulnerable customers do not have any

support system (Bosnia and Herzegovina, Montenegro, Macedonia) UNMIK provides only some of the absolute poorest families to exclude them

from paying their electricity bills; however, pensioners with a monthly income of about 40EUR are not beneficiaries of the system.

Serbia provides for discounts only for special categories of customers, which are not necessarily the poorest ones and which are defined by the welfare centre.

Implications for Consumers 20

Vulnerable Customers Support Systems in the Region

T-social tariff, A-social allowance, O-Other

Electricity Gas Heating

Albania A

Austria A (targeted)

Bosnia and Herzegovina A (Sarajevo only) A (Sarajevo only)

Bulgaria A (used for heating) A

Croatia A A

FYROM

Greece A A

Hungary T (permanent) A

Italy

UNMIK Kosovo A

Montenegro

Romania T (targeted) A (not targeted) A (targeted)

Serbia O O

Slovenia

Turkey A (transitional)

Source: ERGEG (TF on South East Europe Customers): Protection of Vulnerable Household Customers in SEE – Report

Implications for Consumers 21

Sector Associations

Industry – well organized (ETSO, UCTE, EURELECTRIC, EFET...)

Regulators (ERGEG, CEER, ECRB, ERRA, IERN, MEDREG…)

Governments Most important stakeholder – H.E. CUSTOMER Empty place for “EURO-Customer” or “EURO-Consumer”

Implications for Consumers 22

Ongoing Activities on Customer Protection

General guidelines on the protection of vulnerable household customers in SEE

Memorandum of Understanding on the Social Dimension of the Energy Community

Conference dedicated to household customers including vulnerable customers and energy efficiency

Implications for Consumers 23

Guidelines

The European Energy Regulators Group for Electricity and Gas (ERGEG) Task Force on South East Europe Customers: GENERAL GUIDELINES ON THE PROTECTION OF VULNERABLE HOUSEHOLD CUSTOMERS IN SEE approved at the ERGEG CFG level Council of European Energy Regulators (CEER) GA

decided to provide them without CEER or ERGEG General Assembly approval to the European Commission as advice

The documents now is handed over to the ECRB to be further developed according to the needs of the region / country specificities

Implications for Consumers 24

Memorandum of Understanding

Memorandum of Understanding on the Social Dimension of the Energy Community (on the Agenda of the Ministerial Council Meeting 29 June 2007)

MoU covers two social aspects: consumers protection compatible with a sustainable and competitive

market industry workers rights

It is envisaged that the implementation of Article 3 of Directive 2003/54 EC will primarily be focused on the interests of the most vulnerable customers.

The European Commission is invited to develop strategies to deal with the issues of affordability, energy poverty, district heating reform, rural distribution, isolated systems and social impacts of reforms.

Establishment of Social Forum to be assessed

Implications for Consumers 25

Conference

European Commission and Energy Community Secretariat: high level conference dedicated to household customers including vulnerable customers and energy efficiency

Scope: electricity, gas and heating Participants: ministers (energy and social affairs),

municipalities, regulators, market players, donors Invitees: Energy Community plus Observers Date: 2nd half of October, 2007 Place - to be determined Rough agenda mid July

Implications for Consumers 26

THANK YOU FOR YOUR ATTENTION!

Edin Zametica, M.Sc. E.E.

Chief of Staff

State Electricity Regulatory Commission

Bosnia and Herzegovina

ezametica@derk.ba

Tel: +387 35 302060

Fax: +387 35 302077