Regulatory framework in the Energy Sector Chairman Ph.D. Tserenpurev Tudev Energy Regulatory Commission of Mongolia Energy Mongolia-2012 Ulaanbaatar Mongolia May 2012

Legal framework of regulation Licensing Tariff regulation Content

Legal framework of energy regulation  Civil Law  Law on Licensing  Law on Energy  Law on Renewable Energy  Law on Consumer right protection  Competition law Эрчим хүчний салбар дахь зохицуулалтын орчин Legal framework of regulation

Energy Regulatory Commission  Energy Regulatory Authority was established according to the Energy Law adopted in  On 09 December 2011 Parliament of Mongolia approved amendments to the Energy law of Mongolia. According to the newly amended law Energy Regulatory Authority has been reorganized as an Energy Regulatory Commission.  Energy Regulatory Authority shall regulate generation, transmission, distribution, dispatching and supply of energy. Legal framework of regulation

According to Energy Law ERC shall have the following full powers: To set the terms and conditions to obtain a license; To set operational and licensing terms and requirements for licensees; to monitor compliance with these terms and requirements; To develop methodology for determining tariffs; to review and approve tariffs of licensees; to set selling tariffs to consumer; to implement tariff indexation; To establish a pricing and tariff system that enables supply of energy at the lowest possible cost and allows an adequate rate of return; To approve methodology for setting fuel price used for energy generation; and review its calculation; Эрчим хүчний салбар дахь зохицуулалтын орчин Legal framework of regulation

 To review investment plan of licensee on expanding or renew the electricity or heat transmission lines; and distribution networks; and to decide that investment issue by tariff regulation;  To approve tariff indexation procedure;  To resolve disputes between licensees and disputes between licensees and consumers in accordance with its jurisdiction  To submit to the Government its proposal on subsidies for licensees related to their tariff losses for the purpose of relieving load that comes in on consumer. Company Logo Legal framework of regulation

According to Renewable Energy Law ERC shall have the following full powers:  Review tariff applications of a generating licensee that uses a renewable energy power source connected to the grid in accordance with this law;  Approve a sample agreement to be concluded by and between a transmitter and a generator that uses a renewable energy power source and monitor the contract implementation. Эрчим хүчний салбар дахь зохицуулалтын орчин Legal framework of regulation

Energy regulation of Mongolia is based on licensing structure. Objectives of licensing are:  to conform energy generation and supply activities with the Energy law and regulations;  to monitor activity of legal entity that plays strategic role in country;  to regulate activity of legal entity that has monopolistic characteristic; to provide with reliable energy supply;  to create safe environment for the licensed entity that could conduct its business stable for long period years;  to protect right of energy consumer;  to control construction work of new energy facility, especially new power plant;  Other: to monitor company structure, financial resources, technical capability, accounting etc., Licensing

Principles for issuing license  A decision whether to issue a license shall be made within 60 days from the date of receipt of the application for a license;  In case the application and enclosed documents fail to meet the requirements, they shall be returned to the applicant within 10 days from the date of receipt;  The decision to issue a license or a justification for refusal shall be published;  A license shall be granted to a financially capable legal entity, which possesses experience or is able to operate in the given field;  In case several legal entities submit applications for the same type of license, the license shall be granted on the basis of competitive tendering;  License issuing process shall be open, precise and none discriminative manner. Licensing

Terms of license:  Construction of energy facility - up to 5 years  Electricity and heat generation; and transmission years  Other – 10 years  Extension of license term – up to 25 years Issued Licenses:  As of today there are 83 legal entities that obtain energy licenses from the ERC. They have 173 licenses of 10 types.  In 2011 ERC issued following licenses for construction of energy facility: Two thermal power plants with installed capacities of totally 734 MW; A coal heating plant; A diesel station; Three wind parks with installed capacities of totally 202 MW; and A solar plant with capacity of 443 kW  802 МW from above will be used for consumers, while other MW for licensees’ own use. Licensing

Tariff regulation issues to be implemented in accordance with the amendments to Energy Law To approve methodology for setting fuel price used for energy generation; and review its calculation:  to develop and approve methodology;  to review fuel price calculation of each mining company in accordance with the approved methodology; Baganuur mining Shariin gol mining Shivee ovoo mining Aduunchuluun mining Other mining Tariff regulation

To review 3-5 years investment plan of licensee on expansion or rehabilitation of the electricity or heat transmission lines; or distribution networks; and to decide that investment issue by tariff regulation:  To develop 5 years plan for expansion or rehabilitation of electricity or heat transmission lines; or distribution networks that are required to be financed by tariff revenue;  ERC will review investment plan of each company and make calculation of tariff which will reimburse those investments. Depreciation cost Return on investment Tariff regulation

 To approve energy tariff indexation  Factors to be considered in the indexation: To consider the factors’ changes on operation costs of generation, transmission, distribution and supply licensees: Change of fuel price, exchange rate, customers price index and taxes; Review on quarterly basis; Before implementation of indexation, to regulate company’ tariff that recovers real costs; Factor to improve company’ efficiency Tariff regulation

 To submit to the Government its proposal on subsidies for licensees related to their tariff losses for the purpose of relieving load that comes in on consumer For the purpose of determining appropriate level of tariff, to make comprehensive study on consumers paying capacity in the capital, aimags and soums; On the basis of that study, to determine tariff level which will meet with paying capacity of each consumer and summarize required quantity of subsidy in whole country; To advise with the Government about consumer tariff and subsidy of the whole country and regions; and develop related policy or tendency on them. Tariff regulation

Principles for determining tariff to ensure appropriate degree of revenue in which required costs and investment return of licensed activity should be calculated. To determine rate of return that should attract foreign and domestic investors’ interests; To update tariff setting methodology. Tariff regulation

Measurements to be taken in the near future 1.To implement following measures step by step : To increase electricity tariff step by step and take it to appropriate level in the end of 2013; To increase heat tariff of households step by step and eliminate cross subsidy between products; To implement capacity tariff in the biggest entities; From the last 6 months of 2012, to implement consumed basis differentiated electricity tariffs for each households; to set for first 150kWh of comsumed electricity and then to increase above 150 kWh. Tariff regulation

 For the purpose of encouraging decrease of pollution, to implement flexible policy on electricity tariff;  To make tariff as a leverage for increasing of consumption in night time and decreasing of evening peak demand;  To take measures for improving operational efficiency and technical and economical indices of the licensees;  To improve cost management. Tariff regulation