Secretariat's Compliance Notes

In this Compliance Note, the Secretariat reviewed the legislative and regulatory framework, as well as the activities undertaken by the Albanian DSO, OSSH, on unbundling from generation and supply. It takes into account the European Commission’s Interpretative Note on the Unbundling Regime from 2010, the Secretariat’s toolbox and guidelines, as well as checklist of functional unbundling of DSOs.

The lack of DSO unbundling in Albania is subject to an open dispute settlement procedure in Case ECS-4/17.

Unbundling of the DSO remains work in process and should be monitored continuously by the Energy Regulatory Entity (“ERE”). The Secretariat’s assessment does not aim at replacing such monitoring and is without prejudice to ERE’s assessment and measures that it might take. This report reflects the status of DSO’s unbundling in November 2021, and outlines some areas where further improvements are necessary or recommended, always under close monitoring by ERE.  

In this Compliance Note, the Secretariat reviewed:

• The Order for establishment (formation) of tariffs for services on distribution of electric energy No 1175 issued by NEURC on 5 October 2018, amended by Resolution No 356 issued by NEURC on 7 February 2020, amended by Resolution No 1610 issued by NEURC on 26 August 2020 and amended by Resolution No 1936 issued by NEURC on 21 October 2020 (hereinafter referred to as: Tariff Methodology);
• The Procedure for determining the regulatory assets base of subjects of natural monopolies in the power sector No 899 issued by NEURC on 11 July 2013, amended by Resolution No 2562 issued by NEURC on 8 October 2015, amended by Resolution No 1607 issued by NEURC on 26 August 2020 and amended by Resolution No1833 issued by NEURC on 7 October 2020 (hereinafter referred to as: RAB Procedure);
• The Decree on setting regulatory parameters with a long-term period of validity for the purpose of incentive regulation” No 1009 issued by NEURC on 23 July 2013, amended by Resolution No 1405 issued by NEURC on 5 November 2013, amended by Resolution No 2561 issued by NEURC on 8 October 2015, amended by Resolution No 972 issued by NEURC on 27 July 2017 and amended by Resolution No 1608 issued by NEURC on 26 August 2020 (hereinafter referred to as: Decree on Parameters);
• The Resolution on application of incentive regulation in the conduct of economic activities for the distribution of electricity No 1029 issued by NEURC on 26 July 2013, amended by Resolution No 2020 issued by NEURC on 24 November 2016 and amended by Resolution No 1609 issued by NEURC on 26 August 2020;
• The Resolution On approval of the Methodology (procedure) for forming fees for connection to the transmission system and distribution system No 1965 issued by NEURC on 18 December 2018 and amended by Resolution No 2161 issued by NEURC on 25 November 2020;

This Compliance Note investigates to which extent and how the distribution tariff methodology adopted by the National Energy and Utilities Regulatory Commission of Ukraine (NEURC) in August 2020 is compliant with the key principles of sound tariff regulation of network operators. The Compliance Note further analyses the impact of this distribution tariff methodology and other legislative documents relevant for tariff setting, and examines how they can contribute to creating a fair, predictable and stable regulatory framework. The draft assessment was presented to NEURC for review. NEURC’s comments and explanations are taken into account in the final text.

In this Compliance Note, the Secretariat reviewed:

• The Cabinet of Ministers Resolution No. 483 of 5 June 2019 “On approval of the Regulations on imposition of specific duties of ensuring availability of electricity for household consumers on electricity market entities to ensure general public interests in the course of the electricity market operation” as amended in 2020.

In this Compliance Note, the Secretariat reviewed:

• Article 53, paragraph 5 of the Georgian Law on Energy and Water Supply.

In this Compliance Note, the Secretariat reviewed: 

• NEURC Resolution No. 585 of 22.04.2019 “On approval of the procedure for establishment (formation) of the tariff for electricity transmission services”
• NEURC Resolution No. 586 of 22.04.2019 “On approval of the procedure for forming the tariff for dispatch (operational and technological) control services”

In this Compliance Note, the Secretariat reviewed:

• “Procedure for determining the regulatory asset base of subjects of natural monopolies in the power sector” No 899 of 2013 issued by NEURC;
•  “Decree on setting regulatory parameters with a long-term period of validity for the purpose of incentive regulation” No 1009 of 2013, issued by NEURC;
• “Procedure for determining the revenue requirement for activities such as transmission of electricity through local power networks in case incentive regulation is applied” No 1032 of 2013 issued by NEURC; and
• “Methodology for valuation of assets of subjects of natural monopolies, subject to management of adjacent markets in the field of combined production of electric and thermal energy” No 293 of 2013 and No 1929 of 2016 issued by the State Property Fund.

In 2013, Ukraine initiated the process of reforming its distribution tariff setting methodology in order to move towards an incentive based calculation methodology. Despite these initial efforts, the methodology was never applied in practice. The main challenge for incentive-based regulation is to strike a balance between seemingly conflicting objectives, namely improving cost efficiency against improving and maintaining quality standards.

The present report was prepared as a compliance check of the tariff methodology as provided by the above-mentioned secondary legal acts, with the requirements of the energy acquis and international best practice. It analyses the above-mentioned secondary legislation against the principles of predictability, fairness, non-discrimination and cost recovery.