Energy Regulators Regional Association Possible Water Regulatory Activities

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Danube Water Program Annual EventMay 7, 2014

Vienna, Austria

Krisztina KaszaProgram DirectorERRA Secretariat

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Voluntary, not-for-profit organization of independent energy regulatory bodies of the Central Eastern Europe (CEE), South East Europe (SEE), the Commonwealth of Independent States (CIS), Baltic States (Estonia, Latvia, Lithuania) and Affiliate members from Jordan, United Arab Emirates, Africa, Saudi Arabia and USA.

What is ERRA:

About ERRAAbout ERRA

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To improve national energy regulation in member countries and foster development of stable energy regulators with autonomy and authority → stable investment climate

To improve cooperation among Energy Regulators and facilitate the exchange of information, research, training and experience among members and other regulators around the world → harmonized regulatory framework → more chance for regional market building


Objectives:

Currently24 Full Members: Albania, Armenia, Azerbaijan, Bosnia & Herzegovina, Bulgaria, Croatia, Estonia,

Georgia, Hungary, Kazakhstan, Kyrgyz Republic, Latvia, Lithuania, Macedonia, Moldova, Mongolia, Montenegro, Poland, Romania, Russia, Serbia, Slovakia, Turkey, Ukraine

5 Associate Members:Regulatory Commission for Electricty in BiH, Regulatory Commission for Energy of Republik of Srpska (BiH) National Commission for Regulation in the Sphere of Communal Services of Ukraine, Energy Regulatory Office (ERO) of UNMIK, Energy Regulatory Commission of the City of Moscow

7 Affiliate Members:Electricity Regulatory Commission of Jordan, Regulation and Supervision Bureau of United Arab Emirates, Electricity & Co-Generation Regulatory Authority of Saudi Arabia, NARUC (USA), Nigerian Electricity Regulatory Commission (NERC), Ecowas Regional Electricity Regulatory Authority (Africa), Electricity Sector Regulatory Agency of Cameroon

ERRA Members:


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Full Members: Energy Regulators with primary responsibility for electricity regulation. Only one Energy Regulator from each country may be a Full Member of the Association.

Associate Members: Additional Energy Regulators (with primary responsibility for natural gas, district heating or other energy areas) from countries located within the Region.Associations of Energy Regulators from countries located within the Region.

Affiliate Members: Energy Regulators and Associations of Energy Regulators from countries located outside the Region.Other state authorities within the Region who are not Energy Regulators but who have responsibilities related to Energy Regulation. Organizations that qualify as Associate Members but choose Affiliate Membership status.

CONSTITUTIONArticle III/Section 2-4.

Membership


ERRA Members - MapERRA Members - Map


ERRA in NumbersERRA in Numbers :

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ERRA's Structure:

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The supreme body of the organization is the General Assembly, comprised of all Full Members.

The representative and executive body of the association is the 7-member Presidium. The ERRA Secretariat provides administrative assistance to the Members, the General Assembly, the Presidium, the Standing Committees and Working Groups of the Association.


Main ActivitiesMain Activities

Standing Committees with detailed work plan and deliverables: Licensing/Competition Committee Tariff/Pricing Committee Working Group on Customers and Retail Markets Chairmen meetings

Deliverables: discussion papers, case studies, issue papers Energy Investment & Regulation Conference (since 2001) Technical Exchange Programs Peer Reviews Website (library – issue papers as background material for training

and self-development!) Tariff Database Newsletter Training programs


ERRA TariffDataBaseERRA TariffDataBasePremier data source on the official electricity and gas tariffs

of the ERRA member-countries (2008 – 2012 Quarter 2)

Highlights:- Quarterly Electricity Prices for Residential and Non-residential Consumers; - User friendly format, option to export data into Excel sheets for application in Power Point Presentations and energy industry analyses; - Producer, Wholesale and End-user prices for Electricity; Wholesale and End-user Prices for Natural Gas; - Per capita Electricity Consumption; - Composition of Tariffs (Wholesale/Retail Margins, Taxes).

Subscription Fee for 1 year online subscription: €1,300 + VAT

Payment fee for RENEWING subscription within 1 year from the expiry date of subscription: €500 + VAT

Subscription for ERRA members: Free of charge

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Tariff DatabaseTariff Database

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Tariff DatabaseTariff Database

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Tariff Database

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Tariff Database

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Residential Natural Gas Prices with taxes Residential Natural Gas Prices with taxes in USD/GJ from Q3 of 2009 to Q2 of 2012 for in USD/GJ from Q3 of 2009 to Q2 of 2012 for

the Baltic Statesthe Baltic States

BackgroundAs our association evolved and members faced staffing issues (recruitment of qualified staff, staff changes etc.) it became clear that there was a strong need for formal, structured training programs to augment the best practices transfer exercised in ERRA meetings and other activities of the association.

ERRA has developed a systematic in-house training program to reach its members in what is probably the largest geographic area covered by any single regional professional regulatory association. As ERRA’s courses have gained international recognition the association has welcomed participants from Africa and Asia.

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About ERRAAbout ERRAERRA Training CoursesERRA Training Courses

Energy Regulatory Training Programs:

Introductory level:•Summer School: Introduction to Energy Regulation

Intermediate level:•Principles of Electricity Markets •Gas and District Heating Regulation•Monitoring Activities of Energy Regulatory Commissions •Price Regulation & Tariffs•Regulatory Information & Public Participation •Renewable Energy Regulation •Energy Regulation in Emerging Countries

High-level: •Seminar for Newly Appointed Commissioners and Chairmen

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Main Characteristics of ERRA Training Programs

The guiding principles for the development of our in-house training courses have been the following:

•the courses should focus on applied, hands-on experiences of practising regulators; •consideration of members’ needs when developing new training modules; •courses are available in classroom format; •strong cooperation with researchers and academia;

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A unique feature of ERRA’s applied training programs is the use of current and former ERRA members with academic background as well as select industry experts as course instructors. This characteristic allows ERRA to design training courses that focus equally on practical applications and theoretical methodology, and include the transfer of relevant direct experience. The added value that ERRA brings to regulatory training is the real-life applied experience of its instructors as professional regulators in the transitional economy environment. The programs include: •case studies, •preparatory homeworks, •group works, simulations, practical exercises and •final tests.

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Course MaterialsParticipants receive a vast array of documentation to support the different themes and modules. These materials include:•training handbook, •powerpoint presentations of all course instructors, •list of suggested readings and •reference materials. Personalized certificates are awarded to participants who successfully complete the programs.

ERRA acknowledges participants who have successfully participated in a minimum three of the training programs organized by ERRA.The Credit System is based on credits which are earned following successful completion of the ERRA training courses. 20


Certified Energy Regulator Programme (CER)

Course Faculty Team

Most of the training programs are facilitated by the Regional Centre for Energy Policy Research (REKK). REKK provides comprehensive research, consulting and teaching in the field of electricity, gas and carbon-dioxide markets. Prof. Péter Kaderják, Director of REKK, serves as director for most of the training courses, who was the former President of the Hungarian Energy Office (HEO), former Chairman of ERRA. Currently he is a Professor at the Corvinus University and the director of a Regional Centre for Energy Policy Research (REKK). In the framework of a long-lasting partnership between ERRA and REKK, Dr. Peter Kaderjak is the Training Director of ERRA.

In addition to research associates of REKK, classes and group exercises are taught by former and practicing energy regulators, most of them representing the ERRA region and the European Union. Occasionally we invite utility representatives to join the course faculty.

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ERRA Training CoursesERRA Training Courses

Training Participants: January 2005 – April 2014

Total Number of Trained Participants from 2005 to April 2014: 1,879

• Number of employees from the ERRA Member organizations: 1,222

• Commissioners: 92

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ERRAERRA E Experience inxperience in K Knowledge nowledge TTransferransfer:: RRegulating egulating EEmerging merging MMarkets arkets

Good example:

•INOGATE project: "Capacity Building for Sustainable Energy Regulation in Eastern Europe and Central Asia „ •3 successful INOGATE projects since 2007•11 INOGATE beneficiaries: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Ukraine, Uzbekistan


• ERRA is active in the international arena of regulators.

• Close working relationship with NARUC (National Association of Regulatory Utility Commissioners) and CEER (Council of European Energy Regulators).

• Membership in ICER• Bilateral cooperation with many individual

non-member regulators24

ERRA’s International RelationsERRA’s International Relations


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ERRA Website:ERRA Website:www.erranet.orgwww.erranet.org

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ERRA WebsiteERRA Websitehttp://www.erranet.org/Library/Search

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ERRA Website /Member AreaERRA Website /Member Area

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ERRA Website/ Member AreaERRA Website/ Member Area

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Background InformationBackground Information

• Growing tendency among ERRA member regulators to assume water regulatory tasks

• In 2008 only 35% of member organisations were responsible for water regulation, in 2013: 50% of full members cover water regulation

• The current list of ERRA Members in charge with water regulation:

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Public Services Regulatory Commission of Armenia, Armenia

Tariff (Price) Council of the Republic of Azerbaijan, Azerbaijan

State Energy and Water Regulatory Commission, Bulgaria

Estonian Competition Authority, Estonia

Georgian National Energy and Water Supply Regulatory Commission, Georgia

Hungarian Energy and Public Utility Regulatory Authority , Hungary

Agency of the Republic of Kazakhstan on Regulation of Natural Monopolies, Kazakhstan Public Utilities Commission, Latvia

National Commission for Energy Control and Prices, Lithuania

National Energy Regulatory Agency, Moldova


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Independent water regulators in the ERRA region: Albania, Mongolia, UNMIK

Western European tendencies: the same tendency applies, e.g. the Italian regulator assumed responsibility over water regulation, strong Portugese water regulator

Federal Tariff Service, Russia

Regulatory Office for Network Industries, Slovakia

Regional Energy Commission of the City of Moscow, Russia

National Commission for Regulation Municipal Services of Ukraine, Ukraine

Electricity & Co-Generation Regulatory Authority, Saudi Arabia

Regulation and Supervision Bureau, UAE

NARUC, USA


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Publications in 2002Publications in 2002

• Monitoring Water, Sewage and District Heating Activities

• Performance Management• Price Setting and Revenue

Administration

Three educational materials produced in 2002 with funding received from the Local Government Initiative of the Soros Foundation

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Need capital invested!

Aging infrastructure

Tariff setting???

Benchmarking is key!

Investments needed!!!

Capital sensitivity

Social tariffs???

Disproportional market share

Technical/commercial

losses?

Justified cost

The role of governments?

Can remain a local issue?

Overlap with

energy?

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Water is different from energy

•You can store it•Fixed costs are much greater•Efficient cost mix varies (e.g., surface v. ground)•Seasonal v. daily peaks•Monopoly is stronger (e.g., different energy sources)•Conflict over raw material with other sectors•Much more local b/c water is heavy

Source: The manager's dilemma: How to price water for cost recovery, operational efficiency and customer satisfaction by David Zetland, Wageningen University, The Netherlands

…survey respondents considered aging

infrastructure as the most important issue facing our industry,

with managing costs, funding or availability of capital, and energy costs closely behind.

Survey results found in 2012 Strategic Directions in the Water Utility Industry, Black and Veatch

Energy costs can account for as much as 30% of most utilities’

[water and wastewater] operating

budget.

Source: by Denise Parrish, Deputy Administrator, Office of Consumer Advocate, State of Wyoming, USA, (NARUC)

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Hungarian water utility Benchmarking Club

Benchmarking Club within the Water Utility Association

Launched in 2007Voluntary and open to new entrants20-24 companies, representing• 60% of water service• 30% of wastewater serviceIndividual company data is strictly confidentialExternal experts

Source: Benchmarking in the Water Regulatory Sector by András Kis, Regional Energy Research Center (REKK)

Selected conclusionsEconomies of scale are present, and take place through:• unit consumption (cost of water, cost of sewage, labor efficiency) • and the number of customers (cost of sewage, electricity consumption)Household income:• has an indirect impact on costs through consumption• higher income equals more efficient labourHills/mountains (measured through the variation of altitude above sea level within the

service area):• contribute to higher costs for water• but not for wastewater service• higher electricity consumption, especially for waterNetwork density: • counterintuitive results for the unit costs• but higher density implied higher labor efficiencyDifferences in drinking water treatment technology significantly influenced costs


Selected conclusions

Higher water loss:• implies somewhat higher unit costs for the water serviceA higher number of settlements • increases the unit cost of sewage service• but limited impact on the cost of water serviceRatio of industrial consumption:• no significant role40-60% of differences among company values can be attributed to different operating

conditions good first result, but further work and larger sample is needed


September 25, 2008

Seawater Desalination

• A burning issue in member countries from the Middle East region (increasing share of water production from desalination plants)• Imminent need for desalination code which

• responds to the development in desalination industry to privatize the sector and increase private investment participation• standardizes procedures• provides regulation for the development of new plants and theoperation of existing plants

Source: Nasse al Quahtani, ECRA Saudi Arabia

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• Benchmarking, legal and economical issues should be discussed in detail!• Aging infrastructure is a problem from the point of view of finding the capital.• Technical losses are difficult to identify, cause it is underground.• The UN declaration on the right for water should always be considered! A

certain amount of water has to be provided to each people! • Should water really be sold below the tariff? Should the rich pay for the poor

people’s consumption?• If consumers require differentiated tariffs based on low quality, how would

you regulate that?• A water company is not a welfare company, so it is not reasonable to give the

water cheaper than the actual price. • The value of water can vary based on the quantity consumed. • In case of benchmarking less is sometimes more, meaning that having too

many indicators can result in the loss of focus. • Benchmarking should not be used to have the result as it is, but to

understand why there are differences between prices.• Burning issues in certain countries: lack of unbundling of companies based on

technological cycles; diversity of technologies; absence of private capital; great number and varying nature of regulated companies.

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• Burning issues in certain countries (cont’d): water utilities are often owned by municipalities; the difference between actual tariffs for residential consumers and economically justified costs is too high, these tariffs do not cover costs thus, particular water utilities badly need investments.

• Who is responsible for taking the final tariff? The Parliament or the Regulator?

• Is the Commission financially independent or financed from the national budget?

• Growing need for transparency and public hearings!• Is the capital intensive characteristic of the industry a rather political or

regulatory question?• Does the water regulator usually regulate resources and the quality of

water? Or is this rather the responsibility of environmental authorities?• How is it possible to measure security of supply?• Need to think more about the customers!• Stop using block tariffs for policy proposal!• Balance between consumer protection and sustainability of operator is

very important.

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• The workshop was very successful, with a very topical agenda, good and lively discussion and with a clear request from the participants to continue organizing similar workshops on an annual basis

• Suggestion: to evaluate the possibility of organizing a water regulatory training course

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What other topics would be suggested?•Process of measuring water consumption•Processing meter values•Quality of supply•“Philosophy” of water sector (natural resource, consumers – their way of thinking)•Incentive regulation, improving water efficiency•Political intervene

Other suggestions:•Should be longer•Need treatment plant visits!•Pricing topic should be divided from the rest as it is time consuming•Calculations would be appreciated

• The Danube Water Program –sponsored by The World Bank

• ERSAR (Portugese regulator) launched a panEuropean initiative for water regulators and will organize a large-scale conference involving many water regulators in September 2014 in Lisbon

• As of 2012 AEEG (Italian regulator) has competencies in water regulation and recently has started intensive dialogues with other water regulatory organizations in order to promote cooperation.

International Outreach of ERRAInternational Outreach of ERRA

ERRA participates in international fora dedicated to water regulatory issues in order to maintain and to possibly increase its role in water regulation.

ERRA undertakes a formal regulatory training course designed for water regulators.

ERRA continues to offer a meeting platform for water regulators.

Future Initiatives in Water RegulationFuture Initiatives in Water Regulation

The pilot training course on The pilot training course on water regulation:water regulation:

Possibly launch: February 2015 in Budapest

Professional content provided by REKK

Participants are primarily ERRA member regulators but the program is open to non-member organisations and to the general public as well.

ERRA is currently in the process of seeking partners for co-funding the project.

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The regulator, water utility economics and regulatory models•Fundamentals of water utility economics•Regulatory models•Exercise: setting up a regulator from scratch

Price regulation; Benchmarking•Price setting•Special considerations•Modelling exercise•Asset management•Performance benchmarking – Introduction and Group exercise

Preliminary Agenda topics


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Preliminary Agenda topics (cont’d)

• Water utilities within the larger water management context• Water markets with active utility participation• Voluntary and negotiated agreement between the water

utility and farmers• Innovative developments within the water utility sector.• Good regulatory practices

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Course outline:The regulatorThe purpose of regulation.Authority, autonomy, and accountability of a water regulator. Organizational structure and management of a regulatory body.Leadership.

Fundamentals of water utility economics The economics of natural monopolies.Supply and demand characteristics, customer profiles. Elasticity of demand. Seasonality. The role of precipitation. Non-payment and disconnectability.Economies of scale. Fixed and variable costs and revenues.Room for competition within the industry.

Regulatory modelsLicensing, tariffs, service quality.Models of ownership and operation.Different levels of regulation (EU, national, local).Handling uncertainty and asymmetric information faced by the regulator.

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Course outline (cont’d):

Price regulation I – Price settingEconomic principles of price regulation.Cost of capital, expected rate of return considerations.Tariff designs.Incentive regulations.Periodic reviews. Appeal mechanisms.

Price regulation II – Special considerationsDemand management.Smart metering.Low income consumers, affordability, social considerations.Revenue and tariff consequences of non-payment and late payment.

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Asset managementValuing the asset base. Depreciation policy. Length of asset cycles.Financing long term asset replacement and new investments. Divestitures, definition of the core activity profile.Room for outsourcing.


Performance benchmarkingUtility initiated vs. regulatory benchmarking.Data collection and data verification, quality control.Types of indicators and their utilisation.Statistical analysis of benchmarking data to aid regulation.

Water utilities within the larger water management contextGlobal trends. Climate change and where it leads.Management of scarce water resources.

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Innovative developments within the water utility sectorSmart water metering. Smart networks.Leakage reduction programs and their economics.Risk management.Synergies with the regulation of other network services.Desalination.Reuse of grey water.New methods to curb non-payment.

Good regulatory practicesWorldwide advances in water utility regulation.Synergies between energy and water regulation.

ERRA UPCOMING ACTIVITIES

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Thank you for your attention!

ERRA Secretariat

[email protected]

Energy Regulators Regional Association Possible Water Regulatory Activities

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Transcript of Energy Regulators Regional Association Possible Water Regulatory Activities