1. 1 Märt Ots Energy Market Inspectorate Vilnius 9.02.2007 Energy regulation in Estonia

2. 2 Estonian regulator Energy Market Inspection (EMI). Established on 1. January 1998. Independent state agency under the Ministry of Economic Affairs and Communications (MoEAC). 11 employees.

3. 3 Independence Independent in decision making process. The decisions can be appealed by the administrative court. The decisions can not be amended or revoked by the government, minister, etc. Head of the agency: director general. Appointed and dismissed by the minister of economic affairs and communications. No fixed time period.

4. 4 Independence (cont.) Financed by the state budget. Annual budget for 2007 385,000 EUR. The budget shall be approved by the MoEAC. Independent in spending since the budget is approved by the parliament.

5. 5 Functions Typical inspectorate, watchdog of energy markets. Controlling whether the legislation is fulfilled. Not preparing any legal acts. The legal acts are prepared by the ministry, or by the parliament. EMI-s task is to comment the drafts of the legal acts only. On the same position with the energy companies.

6. 6 Structure and administration Simple structure One tire administrative structure, no departments or divisions. A number of outsourced activities IT Book-keeping Legal service PR; etc. 95% of signatures are electronic

7. 7 Sectors regulated Electricity number of price regulated companies 45 Natural gas number of price regulated companies 25 District heating number of price regulated companies 40

8. 8 Responsibilities Pricing Licensing Quality control Disputes settlement Security of supply – surveillance only. Preparation of annual report on security of supply.

9. 9 Price regulation Wide responsibilities in price regulation. From the electricity market act The size of network charges shall enable network operators to perform the obligations arising from legislation and the conditions of the licence and to ensure justified profitability of the invested capital. EMI shall prepare and publish uniform methods for the calculation of justified network charges.

10. 10 Price regulation From the district heating and natural gas acts The cap on heat price shall be set such that: 1) the necessary operating expenses, including the expenses incurred upon the production, distribution and sale of heat, are covered; 2) necessary investments for the performance of operational and development obligations are made; 3) environmental requirements are met; 4) quality and safety requirements are met; 5) justified profitability is ensured.

11. 11 Price regulation EMI has to decide on important issues of price regulation. The type of price regulation model (RPI-x, cost+) The length of the regulatory period. Calculation on WACC (rate on return) Depreciation norms Efficiency factors Cost savings obligations, etc.

12. 12 Electricity market opening Transitional period for market opening

13. 13 Price regulation electricity Price cap regulation Oil shale production Power generation to non-eligible customers Power sales to non-eligible customers RPI-x regulation Network tariffs Connection fees Ex-ante regulation. Approval of methodology prior its entry into force

14. 14 Price regulation gas Price cap regulation Network tariffs Gas sales to household customers Connection fees Ex-ante regulation. Approval of methodology prior its entry into force

15. 15 Price regulation district heating Price cap regulation End-consumer price regulation for larger utilities, if the annual sales exceeds 50 000 MWh. For smaller utilities the local communities are the price regulators.

16. 16 Licensing Strict rules defined by the legal acts for issuing and revoking of licences. For example to revoke a licence is rather complicated Right for issuing of licence conditions. For example development or costs savings obligations.

17. 17 Grid code, quality norms The grid code is issued as the degree of the cabinet of ministers. EMI’s role is the control of the fulfilling. The quality norms are issued as the degree of MoEAC. EMI’s role is the control.

18. 18 Congratulations to the Lithuanian regulator!