ERRA 4th Annual Conference May 19, Budapest, Hungary. Latvia Country Update UPDATE ON REGULATION Ainars Čunčulis Head of Energy Department Public Utilities Commission of Latvia

ERRA 4th Annual Conference May 19, Budapest, Hungary. Latvia Country Update 2 HIGHLIGHTS Public Utilities Commission – multi-sector regulator Key indicators and trends Main achievements Gas tariffs Electricity tariffs Future challenges and activities

ERRA 4th Annual Conference May 19, Budapest, Hungary. Latvia Country Update 3 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

ERRA 4th Annual Conference May 19, Budapest, Hungary. Latvia Country Update 4 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 liquefied) transmission, distribution, storage, filling and sales

ERRA 4th Annual Conference May 19, Budapest, Hungary. Latvia Country Update 5 PUBLIC UTILITIES COMMISSION - MULTI - SECTOR REGULATOR Commission positioned itself as a strong stakeholder in the energy sector Staff recruiting and organizational optimization completed During year 2003 institution has significantly strengthened its capacity by intensive training activities and cases

ERRA 4th Annual Conference May 19, Budapest, Hungary. Latvia Country Update 6 KEY INDICATORS AND TRENDS Year 2003 Increase of GDP – 7,5 % Increase of electricity demand – 5.7% Increase of natural gas demand – 3.8%

ERRA 4th Annual Conference May 19, Budapest, Hungary. Latvia Country Update 7 MAIN ACHIEVEMENTS New principles of tariff design adopted: Separation of generation, transmission, distribution and sales Price cap Clear cost allocation ( regulated/ not regulated business) Rate of return (7.6% for Latvenergo; 8.4% for Latvijas Gāze) Elimination of cross-subsidies New gas and electricity tariffs adopted Gas April 2003 Electricity October 2003

ERRA 4th Annual Conference May 19, Budapest, Hungary. Latvia Country Update 8 Average natural gas tariffs from July 1, 2003 in LVL/ 1000m³ (at HSFO FOB ARA above 140 USD/t) increase Up to 0.5 thsd m % 0.5 – 25 thsd m % 25 – 126 thsd m % 126 – 1260 thsd m % 1260 – thsd m % – thsd m % – thsd m % Above thsd m % Fixed monthly payment – 0.65 LVL per month 1 LVL = 1.5 EURO GAS TARIFFS

ERRA 4th Annual Conference May 19, Budapest, Hungary. Latvia Country Update 9 ELECTRICITY TARIFFS New tariffs in force from January 1, 2004 Extensive consultations have been organized with customers/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

ERRA 4th Annual Conference May 19, Budapest, Hungary. Latvia Country Update 10 Average electricity sales prices for captive customers * (LVL/KWh) presentnewchange 110 KV line % 6-20KV bus bar % 6-20KV line % * Excluding VAT and including load component 1 LVL = 1.5 EURO ELECTRICITY TARIFFS

ERRA 4th Annual Conference May 19, Budapest, Hungary. Latvia Country Update 11 ELECTRICITY TARIFFS Average electricity sales prices for captive customers * (LVL/KWh) presentnewchange 0.4 KV bus bar % 0.4 KV line % households % * Excluding VAT and including load component 1 LVL = 1.5 EURO

ERRA 4th Annual Conference May 19, Budapest, Hungary. Latvia Country Update 12 FUTURE CHALLENGES AND ACTIVITIES Follow up on implementation of cost allocation methodologies by companies Supervision of recently issued new regulations on data reporting Work on enforcement of quality related measures discounts in case of non conformity with defined criteria survey on customers’ claims New Electricity market act on agenda

ERRA 4th Annual Conference May 19, Budapest, Hungary. Latvia Country Update 13 THE WORLD LIKES BEEING SLIGHTLY REGULATED Thank you for attention! The home page of Regulator