SESSION 9 C FIRESIDE CHAT DEVELOPMENT OF ELECTRICITY

SESSION 9 C- FIRESIDE CHAT DEVELOPMENT OF ELECTRICITY REGULATION IN THE MEDITERRANEAN: PROSPECTS FOR LEBANON by DR. NIJAZ DIZDAREVIC - SENIOR ENERGY/ELECTRICITY EXPERT CROATIA -

Focus DEVELOPMENT OF ELECTRICITY REGULATION IN THE MEDITERRANEAN: PROSPECTS FOR LEBANON Electricity regulator Electricity sector What is the impact that the creation of an energy regulator could have on the Lebanese electricity market in terms of issue management and sharing of responsibilities? How electricity regulation can develop and evolve in Lebanon? 2

Electricity and Gas Sectors Mutually connected at several places, both regulated Transmission system operation Distribution system operation Electricity generation Electricity trade Electricity transmission Electricity distribution Electricity supply Gas production Gas trade Gas transmisison Gas distribution Gas supply Transmission system operation Gas storage Storage system operation LNG facility operation Distribution system operation 3

The Electricity Market Wholesale and retail markets, regulated monopolies Electricity trader (e. g. exporter) Electricity producer Electricity trader (e. g. importer) Electricity supplier Wholesale market Competitive businesses Electricity supplier Large final customers Retail market Small final customer Competitive businesses Transmission network operator Distribution network operator Transmission system operator Electricity market operator Distribution system operator Regulated monopolies 4

Role of the National Electricity Regulator Wholesale electricity market Licensing producers and traders Regulating generation tariffs Monitoring wholesale market development Promoting transparency and ensuring level playing field Promoting regional market integration Transmission system operation Distribution system operation Licensing transmission network, system and market operator Licensing distribution network and system operator Ensuring regulated TPA Regulating transmission network, system and market operation related tariffs Regulating distribution network and system operation related tariffs Regulating transmission network, system and market operator functions Retail electricity market Licensing suppliers Regulating supply tariffs Monitoring retail market development Promoting transparency and ensuring level playing field Regulating quality of distribution network 5

Functions of the National Electricity Regulator (1/2) Issuing licenses related to regulatory functions • licensing specifies operating standards that have impacts on cost and tariffs Setting performance standards • performance standards on quality/reliability have cost/tariff implications since these involve resources Monitoring the performance of regulated firms • monitoring data on costs, revenues and performance is essential for tariff determination Establishing the level and structure of tariffs • tariffs determine revenue sufficiency for operating and capital costs such as returns, assets values, deferred loans, etc. Establishing a Uniform Accounting System • uniform accounting provides comparable cost data (generation, transmission, distribution, supply) for tariffs 6

Functions of the National Electricity Regulator (2/2) Arbitrating disputes among stakeholders • arbitration between firms and consumers is necessary to resolve disputes Performing (usually via independent consultancy) management audits on regulated firms • management audits promote cost/tariff reductions Developing human resources for the regulatory commission • human resource policies have operating cost/tariff implications Reporting sector and the regulatory commission activities to the appropriate government authority • reports on costs and tariffs emphasize current and future performance and efficiency, both for individual firms and for the sector as a whole 7

Solutions for the Electricity Regulation Preferable solution regulation by agency for electricity regulation: Independent electricity regulator: • sets tariffs, • regulates access, • monitors quality of service and supply, • monitors customer service, • handles dispute resolution, etc. 8

Relations between the Government and the Regulator Ministry’s model Advisory model Independent model Regulator Electricity Utility Regulator Government Electricity Utility Government Regulator Electricity Utility Government 9

Result 1: allocated powers within the State 10

Result 2: separated tasks within the State 11

Result 3: separated frameworks within the State 12

Result 4: exposed carrier of the regulatory framework 13

Priority 1: Licensing Adoption of a legal framework giving the regulator the power to issue licences • application forms for licenses • standard forms of licenses The first issuance of a licence Issuance of licences to all existing major sector participants Issuance of licences to all existing required sector participants Issuance of licence to a new sector participants Alteration of licences (amendment, revocation, suspension, transfer) 14

Priority 2) Reporting and Monitoring Adoption of a legal framework giving the regulator the power to ask licensees for the reports and to monitor them Establishment and use of information-gathering system Responsibilities • licensee’s: to comply with all licence conditions issued by energy regulator • energy regulator’s: to monitor licensees’ compliance with the licence conditions and to take appropriate action The aim of the Reporting Manual • to instruct the licensee on how to comply with the obligations in the license • how the licensee will be organized to give proper attention to compliance • how the licensee can make sure that it fully understands license obligations • what are licensee’s obligations for reporting on compliance to energy regulator and • what action energy regulator may take in case of good or bad levels of compliance 15

Priority 3: Tariffication 16

Priority 4: Rules Secondary Legislation of the Electricity Market Rules on TSO certification Contract on participation in the balancing market Conditions for licence and licence for TSO Contract on settlement of deviations Conditions for licence and licence for DSO Contract on ancillary services TSO compliance programme Methodology for provision of ancillary services DSO compliance programme Rules for operation of organised day-ahead market Rules for retail market and supply Conditions for licence and licence for market operator Conditions for licence and licence for supply Rules on monitoring of the electricity market Contract on supply of final customer Conditions for licence and licence for trade Contract on universal supply of final customer Rules on tendering new generation capacities Methodology for determination of price of universal supply Conditions for licence and licence for generation Methodology for determination of price for last resort supply Rules for operation of ‘guaranteed buyer‘ Conceptual frame of the wholesale market Contract on purchase of electricity at feed-in tariff Grid Code for transmission (in line with the Third Package) Grid Code for distribution (in line with the Third Package) Market Rules (rules for balancing and responsibility for deviations, provision of ancillary services, financial settlement in the wholesale market etc. ) Methodology for determination of transmission tariff Methodology for determination of distribution tariff General Conditions, Supplier switching rules, Rules on Qo. ES 17

Outcome Information on consumption Unbundling Possibility of complaints Liquid wholesale markets Same conditions for market participants NRA Monitoring Fair competition without regulated prices Effective competition on retail markets Consumer satisfaction Quality of service Security of supply 18

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