1. www.ero-ks.org 1 United States Agency for International Development (USAID) National Association of Regulatory Utility Commissioners (NARUC) Sponsored by the The Illinois Commerce Commission (ICC) and The Energy Regulatory Office of Kosovo (ERO) Partnership Activity Partnership Activity October 27 – 30, 2008 Prishtina, Republic of Kosovo Key Regulatory Issues and Challenges Confronting the ERO ERO STAFF

2. www.ero-ks.org 2 Recent Regulatory Developments Afrim Ajvazi Legal and Licensing Department

3. www.ero-ks.org 3 Recent Developments I  Rules to be amended/approved  Rule on the Authorization Procedure- final draft  Administrative Measures and Fines - final draft  Rule on Disconnection and Reconnection…  Rule on Dispute Settlement Procedure  Rule on General Conditions for Energy Supply - expected adoption October/November 08

4. www.ero-ks.org 4 Recent Developments II   New rules to be developed   European Commission Liaison Office (ECLO) support project to ERO.   Rule on Pricing for district heating   Tariff Methodology for district heating   Rule on Eligible Customers   Rule on Public participation   Development of “feed in” tariffs for RES - Consultation paper issued by ERO; - WB, expected commencement in begging of 2009   Working Group for identification of quality service standards,

5. www.ero-ks.org 5 Price Regulations and Recent Rate Reviews Ardian Berisha Price & Cost Analyst Price and Tariffs Department

6. www.ero-ks.org 6  Regulated Tariff review period for electricity is set for 3 years from 2007-2009  The first regulated tariffs for electricity were approved by the board of ERO in 2007  The second regulated tariffs for electricity were approved by the board of ERO in 2008  The regulated tariff of 2008 is on average 5% higher than that of 2007.  The Electricity Tariff review for the 2009 season will begin in November 2008. Price Regulations and Recent Rate Reviews

7. www.ero-ks.org 7 District Heating Tariffs  The District Heating Tariffs were firstly set and approved by ERO on the Heating season 2004/2005 according to the RoR Tariff Methodology, and they are set on annual basis.  The district heating tariff for the 2008-2009 season will be approved by the end of October 2008.  The development of secondary legislation in the PTD, foreseen for 2009:   The development of the Tariff Methodology for district heating

8. www.ero-ks.org 8 Licensing and Monitoring Process Afrim Ajvazi Legal and Licensing Department

9. www.ero-ks.org 9  Establishment and enforcement of the regulatory framework,  Approving tariffs  Setting the conditions and criteria for issuing Licenses for energy enterprises  Issuing the Authorization for construction of new generation capacities…  Dispute resolution  Approving technical Codes ERO Statutory Functions

10. www.ero-ks.org 10 Licensing I  Law on Energy Regulator, article 15 determines “the Energy Regulatory Office shall be responsible for the establishment and enforcement of a regulatory framework for the energy sector in Kosovo” To meet its responsibilities, the Energy Regulatory Office shall have the power to: a). grant, modify, suspend, transfer, and withdraw licenses; b). supervise and control compliance with licenses;  Article 30.2 of LER determines criteria for granting the license.  Rule on Licensing determines the procedure for issuing the license, and rights, obligations and conditions of the License.

11. www.ero-ks.org 11 Licensing II Licenses are required for the following energy activities:  the generation of electricity or heat or the co-generation of electr./heat;  the transmission of electricity or natural gas;  the distribution of electricity, heat or natural gas;  the storage of natural gas;  the supply of electricity, heat, or natural gas;  the trade of electricity or natural gas;  the cross-border transmission (import, export, transit) of electricity and natural gas;  any transmission or distribution network operator. No license shall be required for:  the generation of electricity by power plants with capacity not exceeding 5 MW;  the heat generation by heating plants with capacity not exceeding 1 MW;  the generation of electricity or heat for self-consumption;  storage of natural gas below 10,000 cubic meters.

12. www.ero-ks.org 12 Licensing III 28 Licenses issued to 20 legal entities  4 electricity generation licenses (3 entities KEK, TGC INC, Ibër- Lepenc)  2 heat generation licenses (2 entities TERMOKOS, GJAKOVE)  1 electricity public supply license (KEK)  2 heat public supply licenses (TERMOKOS, GJAKOVE)  1 electricity distribution license (KEK)  2 heat distribution licenses (TERMOKOS, GJAKOVE)  1 TSO license (KOSTT)  1 MO license (KOSTT)  14 electricity supply/trade licenses.

13. www.ero-ks.org 13 Monitoring Process  Reporting Manual (role)  To help the licensee to comply with license conditions  Classifies the license conditions  Determines the reporting circle  Quarterly reports,  Annual reports  Compliance audits -system audits (IT) -performance audits  Well performing licensees = reward  Failure to comply with license conditions = adm. measures & penalties

14. www.ero-ks.org 14 Service Quality in Kosovo’s Electricity Sector Azem Kastrati Head of Customer Protection Department

15. www.ero-ks.org 15 National Legal Framework regarding Quality of Services  Energy Regulatory Office has power to prescribe the general conditions  of energy supply and the standards of services to be met by licensees  (Law on Energy Regulator)  In licenses issued by ERO to: TSO, DSO, and PS, are set the  obligations of licensees for Overall and Minimum Standards:  ERO, MEM and Licensees has established the WG to prepare the  Overall and Minimum Standards of supply and services

16. www.ero-ks.org 16 ERO has legal mandate to protect energy customers (Article 17 of Law on ERO), therefore ERO has established the Rule on Dispute Settlement Procedures for resolving disputes in energy sector, including complaints: a)by customers against licensees concerning the services provided b)by licensees against other licensees related to the performance of the licensed activity c)Regarding third party access In the rule on Dispute Resolution Procedures is set that licensee need to respond to any customer complaints as soon as possible but not exceeding 75 days. Customer Protection (i)

17. www.ero-ks.org 17 Customer Protection (ii) On Rule on General Conditions of Energy Supply are set the deadlines for respond of licensees on customer requirements. Connection offers have to be issued and delivered to customers through Supplier within a time period not exceeding: thirty (30) calendar days from the date of the application for connection to the LV network ninety (90) for connection to the MV and HV network Supply contract; The suppliers review the application within 30 days from the date of acceptance and gives notice in writing of its intention to accept or reject the application. This deadline may be extended by 15 days in case when additional information is required.

18. www.ero-ks.org 18 In energy sector of Kosova they are several types of disputes: 1. Meter reading, 2. Poor quality of services 3. Incorrect bills 4. Flat rate billing 5. Ownership problems with owner of the meters 6. Unauthorised use of electricity, theft, and tampering with electric meters etc Types of Dispute Disputes

19. www.ero-ks.org 19 General Infrastructure Status and Privatisation Theranda Beqiri Board Member

20. www.ero-ks.org 20 KEK JSC privatization  KEK is the national, vertically integrated electricity power utility company of Kosovo. It mines lignite coal, operates lignite coal-fired power plants, and distributes electricity  Huge amount of money have been already provided to KEK JSC in the period of 2000-2008, with 606.7 million Euros from the KCB and 585.5 million Euros from donors as (EAR, USAID, EU, other donators), but KEK JSC still has massive technical and non-technical losses, low collections and inoperable generation, and insufficient and unstable power supply.  In addition to improving the billing and collections of KEK, considerable capital investment is necessary for improving electricity distribution and supply in Kosovo

21. www.ero-ks.org 21 KEK JSC Privatization  Steps in Process: Thus government decision Nr. 01/36 dated 17 September 2008 set in motion:  Legal unbundling of KEK’s Mining, Generation, Distribution, Network and Supply divisions by no later than 31 March 2009.  KEK Disco Government Privatization Committee (PC) appointed under the POE Law article 9.2 to coordinate sale of Distribution and Supply as one company

22. www.ero-ks.org 22 KEK JSC Privatization  Project Implementation Unit (PIU) will manage day-to-day responsibilities to execute, manage, and oversee the project. The PIU answers directly to the PC.  Transaction Advisor (TA) engaged (after announcement approved by Assembly) by international tender and will provide strategic, legal, technical, and financial advisory.  PC and TA proceed with the privatization with a world class energy investor via international tender. Close transaction by December 2009 to March 2010.

23. www.ero-ks.org 23 Role of ERO:  Relevant Duties assigned by law to ERO include:  Assure buyer meets legal requirements to become a licensee  Assure the general system of codes, rules and regulations meet international standards (most of this system of documents already exists)  Assure proper principles apply to any computation of regulated tariffs (an ongoing duty of ERO done currently by annual cost- based tariff review proceedings)

24. www.ero-ks.org 24 Transmission Infrastructure and Expansions, Third - Party Rifat Blakaj Head of Energy Supply and Market Structure

25. www.ero-ks.org 25 PRIZRENI GJILANI PRISHTINA MITROVICA Ujmani Valac Deçani Leposavic Vushtrria Burimi Klina Dragashi Shtërpca Vitia Rahoveci Lipjan Shtimje Ferizaji Kamenica Podjeva SHKUPI 2 Drenasi 1 2 1 3 A B 1 3 4 Theranda Sharri 1 2 2 FYROM ALBANIA MONTE NEGRO SERBIA Novi Pazar 2 PEJA Skënderaji GJAKOVA Trepça Berivojcë 5 Feronikeli Bardh

26. www.ero-ks.org 26 Background of Electricity in Kosovo  Territory 10 877 km2, Approx. 2.1 million inhabitants  Installed capacity 1521 MW  Thermo capacity 1478 MW  Hydro capacity 43 MW  No nuclear energy, wind, biogas, solar In 2007  Net Production 4333 GWh  Consumption 4600 GWh  Import (Intake) 623 GWh  Export (Off take) 360 GWh

27. www.ero-ks.org 27 HV transformers and lines Transformers 400/220 and 220/110kV - owned by KOSTT and HV Lines 400kV, 220kV and 110kV - owned by KOSTT

28. www.ero-ks.org 28 Connection to regional network

29. www.ero-ks.org 29 PRIZRENI GJILANI PRISHTINA MITROVICA Ujmani Valac Deçani Leposavic Vushtrria Burimi Klina Dragashi Shtërpca Vitia Rahoveci Lipjan Shtimje Ferizaji Kamenica Podjeva SHKUPI 2 Drenasi 1 2 1 3 A B 1 3 4 Theranda Sharri 1 2 2 MACEDONIA ALBANIA Montenegro SERBIA Novi Pazar 2 PEJA Skënderaji GJAKOVA Trepça Berivojcë Thermopower Hydropower Line 400kV Line 220kV Substation Vallaqi 1955 Ferizaj 1975 Vushtrria 1979 Berivojca 2002 Gjilani 1974 Prishtina 1 1969 Prishtina 2 1987 Prishtina 3 1985 Prizreni 1 1972 Prizreni 3 1987 Prizreni 2 1983 Gjakova 2 1980 Theranda 1978 Vitia 1984 Deqani 1986 Burimi 1989 Klina 1988 Peja 1961 Drenas 1982 Podujeva 2003 5 Prishtina 5 2003 Kosova A 1960 Prishtina 4 1987 Kosova B 1980 Lipjani 1991 Line 110kV 1953-58 1958 1959 1967 1969 1972 1973 1960 1977 1963 1971 1977 1980 1978 1981 1983 Feronikeli 1983 Bardh 1983 1984 1988 1990 1991 2003 Gjakova 1 1967 Development of Power System of Kosova Vushtrria 2 PEJA 2 2003 2006

30. www.ero-ks.org 30 HV transformers and lines Line 400 kV 181 km Line 220 kV 361 km Line 110 kV 643 km Substation

31. www.ero-ks.org 31 B1B2 EPS EPCg EMS 1200MVA 1080MW TS KOSOVA B 400kV 220kV A A3A4,A5 EPS 40MW TS Podujeva 80MW Feronikeli+Drenasi KESH TS KOSOVA A TS Gjakova2 TS Klina TS Gjakova1 TS Deqani TS Peja2 1 400MVA 312MW TS Prizreni1 3 TS Theranda TS Vushtrria1 2 TS Shupkovci TS Vallaqi TS Burimi U N A1 TS Gjilani TS Berivojca TS Vitia TS Bibaj TS Sharri TS Theranda 300MVA 270MW 141MW P=128.1MW 6.7 157.9MW 128.4MW 22.5MW TS Prishtina5 TS Bardhi TS Prishtina3 2 1 Kos A TS Lipjani B 110kV P=217MW P=86.4MW P=44.8MW TS Prishtina4 P=108.6MW 112.7MW 86.8MW 300MVA 270MW TS Priz.2 220kV 37.8MW     Transmission capacity is limited in 852MW Intern Capacity limited due to 110kV Actual transmission capacity (internal) Voltage 400kV Voltage 220kV Voltage 110kV Voltage profil

32. www.ero-ks.org 32 Investment in transmission Number of substation built per year Starting from year 1953 – 110 kV Line - connection Serbia - Macedonia 1962 –first generator 65 MW connected in 110 kV 1980 – 1991 - built most of substations 1991 – 2003 – no investment in transmission nor in generation

33. www.ero-ks.org 33 Ujmani Vallaçi Trepça Vushtrria Gjilani Berivojca Ferizaji Vitia Sharri Lipjani Theranda Prizreni 3 Prizreni 1 Gjakova 2 Klina Gjakova 1 Deçani Peja Burimi Pr5 Pr3 Pr2 Pr1 KOS B KOS A Prishtina 4 Drenasi Palaj Besiana Macedonia Monte Negro Serbia Xrxa Rahoveci Malisheva Gjurakoci Klina 1 Skenderaji Zhur 4 Dragashi Prizreni 2 400 kV 220kV 110kV 35kV Mitrovica 2 Kaçaniku Shtrpce N. Brda Leposavic Socanica Zvecan 1. Zones with limited supply 2.Transformation 220/110kV insufficient 3.Trasmission Lines under operation 30 - 50 years LP 293/2 Albania 1 1 Transmission Congestion

34. www.ero-ks.org 34 Generation N criteria,capacityi 850-900MW N-1 criterion, capacity 650MW Daily diagram – max. winter consumption MWh h Transmission capacities Energy in Risk Import Energy which can be transmitted with N-1 criterion

35. www.ero-ks.org 35 Generation, Consumption and Losses 0 50,000 100,000 150,000 200,000 250,000 300,000 123456789101112 TransmissionDistribution Transmission and distribution losses 2007 Proportionally growth production, consumption and losses

36. www.ero-ks.org 36 Consumption in 2007 8:00 - 11:00 first peak 19:00 – 23:00 second peak Very high difference between max. and min. load No flexibility in generation

37. www.ero-ks.org 37 Consumption in 28.12.2007 Yearly peak in 2007 – 933 MW with load shedding More than 65% of energy consumed by household During the high season energy used for hitting During the low season at off peak hours surpluses of energy

38. www.ero-ks.org 38 Import Prices Offered average prices from last tender 125 €/MWh

39. www.ero-ks.org 39 Actual situation  Generation is based on thermo energy 98% - and it is base load with very small flexibility  Energy Deficit – specifically at peak-load – especially on high season  Very high-priced imports  - The average offered price was 125.21 €/MW  Load-shedding – “ABC” plan  The transmission and distribution network is old and overloaded – does not fulfill the necessary criteria  The n-1 criteria in some cases is not fulfilled New Investments are needed in the transmission and distribution network

40. www.ero-ks.org 40 Third party- access to the network  According to the Law on Electricity, TSO and DNO will enable network access to all generators, suppliers and eligible customers  Use of Network prices are proposed by transmission and distribution system operators annually and are approved by ERO  TSO or DNO may refuse access only if there is insufficient capacity and risks supply assurance, all this based on applied rules  The reasons for refusal have to be in a written report and are given to other third parties.  Any person refused access to a network or whom objects to conditions imposed upon it for access may file an appeal with the Energy Regulatory Office which shall issue a decision in accordance with the procedures established under the Law on the Energy Regulator.

41. www.ero-ks.org 41 From the document (Inter-TSO Agreement for the Kosovo Transmission Network and the [neighbouring Country] Transmission Network Third party KOSTT and [neighbouring TSO] will exchange all mutually agreed operation data related to the co-operation and inform the other Party about disturbances and other operational events influencing the transmission of electric energy. If needed, they will make the related data available to a third Party but:  One supplier  One DSO  One TSMO  Only two Eligible customers

42. www.ero-ks.org 42 Consumption

43. www.ero-ks.org 43

44. www.ero-ks.org 44 New Generation Capacity Authorization Procedure, Tender Role of ERO in the Kosovo C Project Nysret Avdiu Board Member

45. www.ero-ks.org 45 Chapter 8 LER  New generating Capacity: 0.1 – 5 MW (no license requirement) and > 5 MW  Gas Networks  Direct Lines  Direct Pipelines AUTHORITY OF ERO Law of Energy Regulatory: Chapter 3 Article 15 and Chapter 8

46. www.ero-ks.org 46 New Generating Capacity Authorization/Tendering Procedure Authorization procedure  Article 38, LER Tendering Procedure  Article 39-44, LER By application Call for Biding Objective: Ensure security of supply meet environmental target Tendering Procedure shall be launched only if the Authorization procedure failed Outcome: PERMIT FOR CONSTRUCTION OF FACILITIES – IMPLEMENTATION AGREEMENT Outcome: Contract Agreement

47. www.ero-ks.org 47 KOSOVO C PROJECT DEVELOPMENT OF NEW GENERATING CAPACITY AND ASSOCIATED MINE The World Bank Lignite Power Technical Assistance Project - LPTAP

48. www.ero-ks.org 48 Renewables Ardian Berisha Price & Cost Analyst, Prices and Tariffs Department

49. www.ero-ks.org 49 Renewable Energy in Kosovo Legislation  Administrative Instruction 06/2007 Consistent to the obligations of the Energy Community Treaty, where Kosovo is a signatory party, it is required to implement Directive 2001/77/EC on Indicative Targets for the consumption of electricity from renewable resources. The indicative targets currently in place are the following: Currently there are 2 HPPs in Kosovo, generating about 104 GWh annually.

50. www.ero-ks.org 50 Renewable Energy in Kosovo Future Developments Small Scale Hydro Power Plants (up to 10MW capacity)  The Ministry of Energy and Mining (MEM) conducted a study which estimated Kosovo’s total Small Hydro Power Plant (sHPP) Capacity at 64MW, generating approximately 291 GWh annually.  ERO is currently in the process of setting a Feed-In tariff for these sites.  Feed-in Tariff Methodology for RES will be developed with help of World Bank Consultants during the beginning of next year. Large Scale Hydro Power Plants  HPP Zhur (298 MW capacity generating approximately 391 GWh annually Wind, Solar, Biomass and other Resources  Tariff Methodology will also be developed with the help of WB consultants

51. www.ero-ks.org 51 Reliability and Security of Supply Naim Bujupi Power System Analyst

52. www.ero-ks.org 52 Load shedding according to ABC plan; Unplanned reductions (system failures) increased consumption and lack of investments The highest consumption increase happened in 2001 (10%), 2002 (8%) and 2005 (7.3%); Difficulties in demand forecast

53. www.ero-ks.org 53 Energy produced from generation units We have only consumption increase Installing capacities remain the same A small change in 2005, HP Lumëbardhi 8.4 MW

54. www.ero-ks.org 54 Power supply and generation  The electrical power is generated in relatively large power-plants: Kosova A and Kosova B  There are some small hydro-plants:

55. www.ero-ks.org 55 Power generation forecast (2009 –2018)  Studies recommend construction of the TPP Kosova C=2000 MW with four blocks of 500MW each;  First phase 500-1000 MW is projected to be functional in 2014-2016, other to be finished in 2018-2020  Potential sites may exist for construction of 18 small hydro-plants with a total capacity of 65 MW; Forecast of Energy and Installed Capacity

56. www.ero-ks.org 56 Reliability and Security of the Transmission Network (1) Current situation of transmission network GJILANI PRISHTINA Ujmani Valac Deçani Vushtrria Burimi Klina Lipjan Ferizaji 2 Drenasi 1 3 A B 1 3 4 Theranda 1 2 2 PEJA 1 GJAKOVA Trepça Feronikeli Bardh Vitia Butel N.Pazari PEJA 2 1 2 5 Berivojca Podujeva Rahoveci Macedonia Albania Montenegro SERBIA Western and south-eastern zones operate in low power voltage; Many 110 kV lines are congested and have high losses Some lines and transformers are very old at the end of their lifetime

57. www.ero-ks.org 57 Reliability and Security of the Transmission Network (2) Effect of planned improvements on reliability and security of the transmission network : Reduction of technical losses: Actual configuration Peak 970MW Configuration 2009 Peak 1150MW Losses 250GWh Losses 200GWh Network capacity 1650-1700MW Losses 224GWh Network capacity 1400-1450MW Network capacity 850-900MW Configuration 2013 Peak 1250MW

58. www.ero-ks.org 58 Reliability and Security of the Transmission Network (3) Effect of planned improvements on reliability and security of the transmission network: The congestion of system elements Configuration 2006 Peak 970MW 4 lines 3 transformers 0 lines 0 transformers 0 lines 0 transformers Configuration 2009 peak1150MW Configuration 2013 peak 1250MW Criterion N-1 15 elements do not meet criterion N-1 2 elements do not meet criterion N-1 1 element does not meet criterion N-1 Configuration 2006 peak 970MW Configuration 2009 peak 1150MW Configuaration 2013 peak1250MW

59. www.ero-ks.org 59 Regional development, energy Community Process and Harmonization Prepare: Nysret Avdiu Member of the board

60. www.ero-ks.org 60 KOSOVA SOUTH EAST ENERGY COMMUNITY TREATY/ 8 REGION -2008 (Kosovo parliament has ratified the treaty)

61. www.ero-ks.org 61 Governance Bodies & Institutions by ECSEE Treaty MINISTERIAL COUNCIL (MC) SEE ELECTRICITY REGULATORS WG (SEEER) TECHNICAL ASSISTANCE (DONORS) SEE ELECTRICITY TSOs WG (SETSO) SOUTH EAST EUROPE ELECTRICITY REGULATION FORA ATHENS (Electricity)/ISTANBUL (NG) HIGH LEVEL GROUP (PHLG) CEER UCTE - ETSO - SUDEL ENERGY COMMUNITY REGULATORY BOARD (ECRB)

62. www.ero-ks.org 62 OBJECTIVES of ECSEE Treaty  Optimization of energy usage & infrastructure  Attract private capital investments in Generation & Networks ($ 20 bil – 2020)  Enhance the Security of Supply  Establishment of an “Energy Bridge” based on free market principles between the rich energy resources of the east and the “short” energy customers of the west  Improve the environmental situation & foster the use of RES  develop competition on a broader geographic scale  co-ordination & co-operation (in overcoming political issues, regulatory, investments, statistical & market etc.)  Create a Regional Market (the 8 th region in Europe) that will be easier to be integrated with EU Market

63. www.ero-ks.org 63 What is it provisioned by the Treaty  The implementation of “Acquis Communautaire” in energy, environment, competition and renewables to the country of SEE  The power to implement measures & legally binding decisions, particularly in the areas of:  Cross-Border Trading  Security of Supply, “uniform right of supply” of all energy customers  the harmonisation and compliance of the regional market rules  the mutual recognition of Licenses  Renewable Energy Sources  No VAT or other form of Taxes on energy exchanges between EU and SEE  Harmonisation of imports/exports to and from third countries which are not participants in the Treaty  Mutual Assistance in case of Power Outages

64. www.ero-ks.org 64 Difficulties  Small size of Energy Markets  High political uncertainty & instability because of recent historical circumstances  Big differences in the economic development between the countries of SEE:   Low Income   Low and subsidised energy prices   Low quality, poorly maintained or even destroyed energy infrastructure   Uneven economic and legal frameworks   Emphatic difference between eastern and western Balkans

65. www.ero-ks.org 65 National Obligation imposed by Treaty National Markets  Unbundling utilities & market opening – phased approach  Regulated TPA and development of transparent and unbundled transmission & distribution tariffs  Development & Monitoring of licenses for facilities and Market Participants  Preparation of grid codes based on non-discriminatory access  Adoption of competition legislation for energy sector  Elimination of cross subsidies in Tariffs National Institution  Independent Institution for:  Independent DSOs a) policy b) regulation c) system operation (TSOs) Market opening 1 st January 2015 for all customers 1 st January 2008 for all non-household customers

66. www.ero-ks.org 66 Regional & other commitments of the Signatory Parties Regional Markets  Harmonisation of Market Rules (ECRB?)  Transmission Access Framework (ITC & CM) - SETSO  Publication of Market Information / Transparency  Application of CEER (ERGEG) and ETSO guidelines for cross- border trade, transmission tariffs & congestion management  Dispute Resolution mechanisms at regional level  Transparent Authorization Procedures for the new infrastructure  Establishment of common rules for the transmission, distribution, supply and storage of natural gas  to create a regionally integrated energy market → integration into the EU wider market