CONSUMER ISSUE: Factoring consumer concerns into the public interest STRIKING A BALANCE IN THE MIDST OF CHANGE May 13-16, 2012 Québec City, Québec (Canada) CONSUMER ISSUE: Factoring consumer concerns into the public interest Presented by: Elena V. Pomchalova The Deputy Head of Federal Tariff Service of Russia

Energy markets reforms life cycles Launching RES and energy efficiency programs 1930 - 1960 Tariffs regulation period The State is the main owner and regulator Hyperconcentrated systems Stable prices 1990 - 2000 Liberalization Assets privatization Private capital Involvement Decentralization Resources efficiency 1880 - 1920 Regulation of monopolies Easing spatial limitation Enlargement of energy generation and local grids Crises of resources, Accidents in energy systems Progressive monopolization of energy generation and retail energy markets Coal-fired power industry, Oil has been introduced as motor fuel The first investments cycle in power industry: local energy delivery, small and middle energy suppliers The main market players are state’s monopolies The Blackouts and disasters during 1965-1970 The second investments cycle in power industry: programs of households electrification, launching hydro-electric power stations, grids development Impossibility to attract private investments, government expenditures inefficiency The oil crises 1973, 1979 Oil market politicization «Greening» of power industry (international and national rules & norms) Resource markets liberalization 2010 -… New cycle of reforms? Market liberalization A high proportion of RES in energy balance Consumers’ protection The Great Britain is first country which launched energy market liberalization The third investments cycle in power industry: market pricing and private capital attraction More than 100 countries are carried out power sector reforms The 1–3 Energy Packages, rules and standards for RES Start of new investments cycle in power sector Deficit of funds in power sector Coal crises, What is the next step? _________________ Based on the CSR North-West World Energy Map 2011 1

“The Future of the Electric Grid” An interdisciplinary MIT study 2011 “But the increased cost of new transmission and distribution investments, combined with possible increases in average generation costs due to policy mandates, such as renewable portfolio standards or more stringent environmental regulations, may lead to significant increases in the delivered cost of electricity.” “The Electric Power Research Institute (EPRI) estimates the average incremental increase in monthly electricity bills required to finance smart grid transmission and distribution investments will be in the range of 8%–12% for the USA residential and commercial customers when amortized over a 10-year period. In the same report, EPRI also notes that digital-based technologies depreciate more quickly than do historic distribution system assets, so maintaining the smart grid system may require higher ongoing investment levels than in recent decades.” “Rising rate levels challenge most regulatory systems. In the same time excessively conservative decision-making by utilities and their regulators may dramatically slow cost-effective investments to modernize the grid.” “Finding ways to increase the efficiency of the power system, and therefore reduce costs, will be critical to offsetting of pressure on regulatory system. Improved transparency and active customer education and engagement also may help mitigate some customer resistance to necessary rate increases. Collecting and publishing comparable data on utilities’ costs and service quality can help regulators evaluate and reward good, efficient performance.” ___________________ Based on the MIT studies materials 2

Launching of “new energy”, new type of balance The World is in process of global designing and decision making about energy future in next 40-60 years. The criteria are: Ecological stability and availability of energy; Technological renovation; High efficiency of energy producing and consumption; Access to power markets for new type of players; Refusing from regulation based on “technological neutrality”; Customers’ Needs & Rights ensuring. ___________ Based on the materials of MIT, Centre for Strategic Research North-West (St-Petersburg), Conference “Regulators’ role in developing energy infrastructure, investments and operational rules for networks: EU and Russian experience and plans” (Florence 7-th February 2012) 3

Main regulatory task is Ensuring the right balance Existing relaible functioning Modernization, Investments Energy sector Customer Balance Balance Customer Needs & Rights 4

more complicated structure and concerns Regulatory “pie” more complicated structure and concerns Political decisions: strategic goals & plans structural decisions II. Regulatory decisions: common methodology coordination additional tools Investors III. “Pure” regulation Setting up tariffs Access to infrastructure services Domestic tasks Regional (international) development The other view: 5

for consumers and investors protection? What tools do we have for consumers and investors protection? (The Case of Russia) Wholesale and retail prices monitoring. Powers to fine the market players and regional regulatory authorities (independent from federal regulators) in case of law violation. Powers to repeal regional regulatory authorities’ decisions in case of law violation. Information disclosure standards (setting up the forms and terms of disclosure, penalties for non-publication). The tariff calculators on the FTS of Russia website: energy, public utilities. The grid connection fee calculator is under development. Setting up the requirements on energy efficiency programs for regulated organizations. Introduction NP Market Council representatives' into the Board of regional regulatory authorities (new Commissioners). 6

The new tools are under discussing (The Case of Russia) Setting up the quality standards of services provided by the Guaranteeing suppliers. Widening list of disclosure information by the Guaranteeing suppliers. Approval the model contract of energy supply. The Guaranteeing suppliers obligation to create and support call- centers – “hot lines” for consumers. The NP Market Council obligation to publish wholesale price forecast for forthcoming year with monthly actualization. 7

It’s necessary: Political, structural, directly state budget supporting for development tasks (investments & investors) and consumers. Stimulating regulation to support: existing power system efficiency (traditional energy generators, grids, vulnerable customers); new technological platform of power generation, transmission and distribution; new types of consumers creating (non-carbon transport, Smart cities e.t.c.). Upbringing/fostering consumers to be more energy educated and responsible. Creating specialized flexible training system for existing and newly hired energy regulators’ employees since the market structure is getting ever more complicated. Launching specialized new research studies, forecasts and foresights to face market (structural & technological) changes. 8

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