M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Working Group for Chapter 15 – ENERGY Bilateral screening: Chapter 15 PRESENTATION OF MONTENEGRO Brussels, April 2013

Chapter 15: Energy ELECTRICITY Radmila Damjanovic Ministry of Economy Branko Kotri Energy Regulatory Agency M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union o Relevant Acquis – EU Legislation o National legislation o Competent Authorities o Administrative Capacities o Transposition and implementation overview TABLE OF CONTENTS Chapter 15: ENERGY

Chapter 15: Energy RELEVANT ACQUIS – EU LEGISLATION M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Directive 2009/72/EC concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC Regulation (EC) No 714/2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003 Regulation (EC) No 713/2009 of the European Parliament and of the Council of 13 July 2009 establishing an Agency for the Cooperation of Energy Regulators Commission Regulation (EU) No 838/2010 on laying down guidelines relating to the inter-transmission system operator compensation mechanism and a common regulatory approach to transmission charging Commission Regulation (EU) No 774/2010 on laying down guidelines relating to inter-transmission system operator compensation and a common regulatory approach to transmission charging Regulation (EU) No 1227/2011 on wholesale energy market integrity and transparency Directive 2008/92/EC concerning a Community procedure to improve the transparency of gas and electricity prices charged to industrial end-users (recast) Commission Decision 2003/796/EC on establishing the European Regulators Group for Electricity and Gas Commission Recommendation 2012/148/EU on preparations for the roll-out of smart metering systems Chapter 15: ENERGY

NATIONAL LEGISLATION Energy Law ("Official Gazette of Montenegro", No. 28/10, 40/11, 06/13) Many pieces of secondary legislation Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union INSTITUTIONAL FRAMEWORK Parliament of Montenegro Government of Montenegro Electricity undertakings Ministry of Economy Energy Regulatory Agency Chapter 15: ENERGY Administration for Inspection Affairs

Chapter 15: Energy ADMINISTRATIVE CAPACITIES Ministry of Economy -Sector for Energy Ministry of Economy -Sector for Energy Energy Regulatory Agency Montenegrin Electricity Transmission System Operator 8 employees + 1 trainee 3 employees 28 employees + 2 trainees 318 employees 2623 employees + 3 trainees 7 employees + 4 trainees Electric Power Industry of Montenegro Montenegrin Electricity Market Operator M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY Administration for Inspection Affairs

Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union TRANSPOSITION AND IMPLEMENTATION OVERVIEW Chapter 15: ENERGY

Chapter 15: Energy THIRD ENERGY PACKAGE IN RELATION TO ELECTRICITY M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union  Directive 2009/72/EC, Regulation (EC) No 714/2009 and Regulation (EC) No 713/2009  Partially transposed into national legislation through the Energy Law and through numerous pieces of secondary legislation  Will be fully transposed into national legislation by ammendments to the Energy Law - deadline: 1 January 2015 Chapter 15: ENERGY

Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union PUBLIC SERVICE OBLIGATIONS AND CUSTOMER PROTECTION (1/3)  Universal service rights to customers in electricity are in major parts already ensured, but  The provision of the Energy Law Art shall be modified or amended to enable also foreign companies to obtain a supply license and supply customers in Montenegro  Supplier switching process well defined but the deadline of 3 weeks is to be transposed in the Energy Law (possible transitional period min 3 years)  Final closure account within 6 weeks is to be transposed in the General Supply Conditions  Public Supplier – Elektroprivreda Crne Gore AD – EPCG (Electric Power Industry of Montenegro J.S.C.)  Decision of the Government of Montenegro on Appointment of Public Electricity Supplier ("Official Gazette of Montenegro", No. 07/11) Chapter 15: ENERGY

Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union PUBLIC SERVICE OBLIGATIONS AND CUSTOMER PROTECTION (2/3)  Electricity transmission, distribution and public supply are public services  Customer protection is mostly ensured (different customer protection measures by suppliers, supply of vulnerable customers, measures against energy poverty)  Decision on setting tariffs for supply of vulnerable customers ("Official Gazette of Montenegro", No. 45/12)  Since 2008, Montenegro has been applying subsidy programs for socially weak household customers  The concept of protection of vulnerable customers in the Energy Law is under discussion to be broadened also to socially weak household customers (to receive a reduction on regulated tariff) Chapter 15: ENERGY

Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union PUBLIC SERVICE OBLIGATIONS AND CUSTOMER PROTECTION (3/3) New protection measures for customers are to be ensured  More information required: o request to publish CO2 emissions o radioactive waste o the right on dispute settlement to be indicated in or with the bill Missing requirement: a single point of contact for all customers to receive information on their rights Pending decision on out-of-court dispute settlement Chapter 15: ENERGY

Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union AUTHORISATION PROCEDURE FOR NEW GENERATING CAPACITY Requirements are mostly implemented Energy Law ("Official Gazette of Montenegro", No. 28/10, 40/11 and 06/13) Rulebook on criteria for issuance of authorization, content of a request and register of authorization (“Official Gazette of Montenegro”, No. 49/10) 5 authorizations were issued Missing criteria are to be explicit in Energy Law Chapter 15: ENERGY

Chapter 15: Energy MONTENEGRIN ELECTRICITY TRANSMISSION SYSTEM OPERATOR M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

ELECTRICITY TRANSMISSION SYSTEM SCHEME OF MONTENEGRO Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union UNBUNDLING OF TSO Ownership unbundling (OU) model was applied Current ownership structure: a)CGES: Government of Montenegro 55%, Terna 22,0889 %, other shareholders 22,9111% (none of them generators nor suppliers) b) EPCG: Government of Montenegro 55%, A2A 43,7073%, other shareholders 1,2927%  CGES management is independent from influence of generation, suppliers and traders Chapter 15: ENERGY

Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union ENERGY LAW – TRANSMISSION (1/2) Energy Law defines: Rights, obligations and responsibilities of TSO Contents of the national rules on operation of transmission system (Grid Code) Forbidding national TSO any activities in generating, supplying and trading of electricity Enabling non-discriminatory access to transmission system Legal unbundling of TSO from other energy activities Obligation of obtaining licence for transmission activities Priority of RES in dispatching Chapter 15: ENERGY

Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union ENERGY LAW – TRANSMISSION (2/2) Energy Law is partly compliant with Directive 2009/72/EC and Regulation (EC) No 714/2009 and in no conflict In order to reach full compliance, the Energy Law needs to be amended regarding: Unbundling Certification Certification related to third countries Obligations of TSO Dispatching and balancing  Deadline for adopting amendments in the Law: 1 January 2015 Some requirements will be implemented through by-laws Chapter 15: ENERGY

Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union TARIFF METHODOLOGY Methodology defines: Determination of tariffs and revenues and expenses based on historical data for last three years Inclusion of incomes and expenses related to ITC mechanism in calculation of tariffs and regulatory allowed revenue Note: CGES signed ITC contract and directly participates in ITC mechanism Regulation (EU) No 838/2010 and Regulation (EU) No 774/2010 are implemented Chapter 15: ENERGY

Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union NATIONAL GRID CODE Adopted 2011 In compliance with Energy law and ENTSO-E OH Contains standards from draft version of ENTSO-E RfG Code available at the time when Network Code was in preparation Grid Code defines: o Development planning of transmission system o Connection to transmission system o Metering o Operation of transmission system o Access to transmission system Chapter 15: ENERGY

Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union CAPACITY ALLOCATION RULES Adopted 2011 In compliance with Energy Law and Grid Code Basic principles: o Non-discriminatory and market criteria for capacity allocation o Curtailment of allocated capacity only in case of system emergency o Transparency of information on available capacity o “Use It or Lose It” principle for allocated capacity o Profit is used for reducing of regulatory allowed income Capacity calculation: using NTC method Capacity allocation: auctions performed on yearly, monthly and daily basis Auction Office for SEE is established, expected start of work: end of 2014 Chapter 15: ENERGY

MONTENEGRIN ELECTRICITY DISTRIBUTION SYSTEM OPERATOR: ELECTRIC POWER INDUSTRY OF MONTENEGRO J.S.C. Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

MONTENEGRIN DSO Operates within the national power company EPCG EPCG has licences for:  Generation  Distribution  Supply  pending legal unbundling process of DSO Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

ENERGY LAW – DISTRIBUTION (1/2) Energy Law defines: – Rights, duties and responsibilities of DSO – Exchange at connection point – Electricity Distribution Grid Code – Electricity metering in the distribution system – Access on metering data Secondary legislation Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union ENERGY LAW – DISTRIBUTION (2/2) The Energy Law is partly compliant with Directive 2009/72/EC The Energy Law needs amendments regarding: o explicitly specifying that undertakings which own a distribution system are DSOs o preventing DSO from taking advantage of being part of VIU to distort competition o prohibition of branding or communication which would create confusion with the separate entity of the supply branch o preventing information about DSO’s activities which may be commercially advantageous from being disclosed in a discriminatory manner o transparency in procurement of energy for loss covering  Deadline for adopting amendments in the Law: 1 January Chapter 15: ENERGY

MONTENEGRO SMART METERING PROJECT Implementation of Recommendation 2012/148/EU Project started in December 2011 Includes the replacement of 175,000 meters Completion date: May 2014 Next step planned: expansion of the project with additional 125,000 meters Percentage of smart metering systems after full implementation of the project: 82% The Energy Law needs amendments Deadline for adopting amendments in the Law: not later than accession of MNE to the EU Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

MONTENEGRIN ELECTRICITY MARKET OPERATOR Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

UNBUNDLING COTEE FROM TSO Government of Montenegro established Montenegrin Electricity Market Operator – COTEE, as limited liability company in July 2011 Ownership unbundling model from TSO (CGES) COTEE is fully state-owned legal entity Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

ENERGY LAW – MARKET OPERATOR (1/2) The Energy Law defines: o organization and management of the electricity market o activities related to the production of electricity from renewable energy sources and high-efficiency cogeneration Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

ENERGY LAW – MARKET OPERATOR (2/2) The Energy Law and secondary legislation are partly compliant with Third energy package and with Directive 2008/92/EC and in no conflict Legislation needs amendments  right of large non-household customer to contract simultaneously with several suppliers Deadline: 1 January 2015 Regulation (EU) No 1227/2011 is not transposed into national legislation The Energy Law needs amendments Deadline for adopting amendments in the Law: not later than accession of MNE to the EU Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

MARKET RULES In compliance with the Energy Law Approved in July 2012 Market rules define:  Reception and registration of market participants  Rights, obligations and responsibilities of participants in the electricity market  Operation of the market - bilateral contracts  The application procedure and operational scheduling  The balancing mechanism Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

ELECTRICITY MARKET Consists of the wholesale and retail markets Official opening: 1 January 2009 for all eligible customers (all customers except households) Planned opening for household customers: 1 January 2015 Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

NATIONAL REGULATORY AUTHORITY: ENERGY REGULATORY AGENCY Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

One single regulatory authority at national level NRA is legally distinct and functionally independent from other public or private bodies NRA acts impartially and transparently Legal accountability – Decisions fully reasoned & justified – Decisions subject to judicial review – Decisions are available to the public Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union DESIGNATION AND INDEPENDENCE OF REGULATORY AUTHORITY Chapter 15: ENERGY

Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Autonomous decision making already implemented by the Energy Law : – ex ante: no interference from the Government nor from any other public or private entity prior to a decision by the NRA – ex post: decisions of the NRA are immediately binding and directly applicable no need for having any approval or consent from any other entity cannot be subject to review, suspension or veto by the Government, the Ministry or by any entity controlled by the Ministry or Government INDEPENDENCE OF NRA – DECISION MAKING Chapter 15: ENERGY

INDEPENDENCE OF NRA – RESOURCES Budgetary autonomy: – Separate annual budget allocation – Autonomous implementation of the budget – Resources surplus at the end of the year is transfered to the State budget (corresponding existing provision in the Energy Law expire 2016 ) Adequate human and financial resources  Further capacity building of NRA  Staff training, particularly to gas sector activities regulation Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

INDEPENDENCE OF THE NRA – BOARD MEMBERS Appointed for fixed term of 5 years, renewable once Rotation scheme: not same end date of term for all board members May be relieved from office during their term only if: o they no longer fulfill the conditions set out in the Directives (breaches of the independence or impartiality of the NRA) o or have been guilty of serious misconduct under national law (fraud, bribery,…) o Energy Law is to be changed in the part relating to the dismissal of all Board members Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

INDEPENDENCE OF THE NRA – STAFF Act independently from any market interest Do not seek or take direct instructions from any government or other public or private entity when carrying out the regulatory tasks  without prejudice to close cooperation, as appropriate, with other relevant national authorities or to general policy guidelines issued by the government not related to the regulatory powers and duties Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

PROMOTION OF REGIONAL COOPERATION The Energy Law is partly compliant with Directive 2009/72/EC and Regulation (EC) No 713/2009 regarding promotion of regional cooperation Missing requirements are to be transposed into the Energy Law Deadline for adopting amendments in the Law: 1 January 2015 Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

GENERAL OBJECTIVES OF NRA General objectives of the regulatory authority under Art. 36 of Directive 2009/72/EC are to be completely transposed into the Energy Law Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

CORE DUTIES OF THE NRA NRA sets methodologies for regulatory revenue and prices, gas use and storage, ancillary and system service and balancing service, for setting regulated tariffs for tariff customers NRA approves methodologies for setting of tariffs for access to transmission and distribution networks, for charging of unauthorised use of electricity, setting of tariffs for last resort supplier NRA sets the methodology and approves tariffs ensuring that there are no cross-subsidies NRA takes care about customer protection  moreover: in case of delay, NRA sets interim transmission and distribution tariffs Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

MONITORING DUTIES NRA monitors compliance of energy undertakings, including transmission and distribution system operators, system owners with their obligations, including as regards cross-border issues Extended monitoring duties: – Access to networks and infrastructure – Markets and competition – Customer protection, etc. Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union REQUIRED ENHANCED POWERS NRA issues binding decisions NRA carries out investigations on functioning of the markets and imposes proportionate measures NRA requires relevant information from undertakings NRA has appropriate rights of investigation and relevant powers of instruction and for dispute settlement of:  Customer complaints on operators’ decisions  Disputes among undertakings or among customers and undertakings, when NRA is empowered by contracting parties NRA at present may not impose penalties Chapter 15: ENERGY

NRA ENHANCED ACCOUNTABILITY NRA decisions are issued in accordance with the General Administrative Procedure and are subject to the judicial review NRA’s decisions may be examined by the Administrative Court Decisions are public while preserving confidentiality of commercially sensitive information Chapter 15: Energy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 15: ENERGY

Thank you for your attention! QUESTIONS