Experience of multisectoral regulation: succeeded and achievable yet

Experience of multisectoral regulation: succeeded and achievable yet

Experience of multisectoral regulation: succeeded and achievable yet

Experience of multisectoral regulation: succeeded and achievable yet electricity natural gas post electronic communications water district heating waste management Prof. Edvins Karnitis Public Utilities Commission railway

Experience of multisectoral regulation: succeeded and achievable yet

Policy of the EU related to SGEI: too soft aiming at unified approach White Paper on services of general interest; COM(2004)374; Services of general interest, including social services of general interest: a new European commitment; COM(2007)725; sectoral Directives – the first steps only: electricity and gas; electronic communications and post; Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community; Protocol on services of general interest; 2007; Multisectoral problems: too little coordination and consistency in European Commission; the result – inconsistency on national scale

Experience of multisectoral regulation: succeeded and achievable yet

Treaty of Lisbon amending the Treaty on EU and the Treaty establishing the European Community Protocol on services of general interest The shared values of the Union in respect of services of general economic interest … include in particular: the essential role and the wide discretion of national, regional and local authorities in providing, commissioning and organising services of general economic interest as closely as possible to the needs of the users; a high level of quality, safety and affordability, equal treatment and the promotion of universal access and of user rights.

Experience of multisectoral regulation: succeeded and achievable yet

Advantages of the multi-sectoral model: harmonized regulation component of the national strategic issues: consistence with economy, state intervention level, social policy, etc.; unified essence: provision of services of general economic interest; partial transition to competition; service providers – multi-utility companies; technological convergence of services; consumers – users of various services; small country factor: analogous environment on whole territory, effective resource utilization – strong independent regulatory body; knowledge management: unified strategy, methodology, principles and instruments, adoption of methods and experience considering sectoral peculiarities.

Experience of multisectoral regulation: succeeded and achievable yet

EU countries: looking for efficient regulatory model historical experience – state regulators in USA; Luxembourg – mechanical composition of sectoral regulation; UK – merging various subsectoral regulators; Latvia – real multisectoral regulator; Germany – joining energy and railways regulation to electronic services regulator; Estonia – joining all sectoral regulators with competition authority; Lithuania, Hungary – merge planning; Spain – united decision making board; Stochastic changes or advanced trend?

Experience of multisectoral regulation: succeeded and achievable yet

Similar trend vs different level of sectors liberalization sectoral Hirschmann-Hirfendal Indexes 3861 2405 4815 4962 9828 10000 1783 3283 3802 4443 7727 10000 0 2000 4000 6000 8000 10000 Electronic communications – unified Electronic communications – fixed Electronic communications – mobile Post Electricity Natural gas 2006 2010p Monopoly Concentrated market Moderately concentrated market Competitive market Source: PUC

Experience of multisectoral regulation: succeeded and achievable yet

Regulations on issuing licenses for provision of services and general authorisation; Regulations on information submission by service providers; Provisions on cooperation and consultation with service providers and consumers; Unified methodological principles for determination of tariffs for services; Procedure for acquaintance with tariff projects; Future tasks: Regulations on dispute solving; Regulations on documents to submit for tariff approval; Regulations on administrative costs that are included in tariffs; Quality of regulation: unified microlevel regulatory procedures coupled with observation of sectoral individualities

Experience of multisectoral regulation: succeeded and achievable yet

Harmonisation problems or intersectoral benefits unbundling in energetics (generation, transmission, distribution) – structural separation (electronic services); critical infrastructure, transmission and distribution networks (wires and pipelines) – frequencies, secondary trading; market analysis – energy supply, postal services; universal service – unification of models and algorithms (electronic communications, postal services, energy supply); Coordination problems of multisectoral regulation are much lower than those with lot of sectoral regulations

100% 71% 100% 82% 100% 100% 71% 65% 5,3% 5,3% 3,6% 1,8% 1,9% 6,2% 6,1% 2,7% 50% 60% 70% 80% 90% 100% All hou- seholds 1st quintile All hou- seholds 1st quintile All hou- seholds 1st quintile All hou- seholds 1st quintile Electronic communications Electricity supply Natural gas supply District heating 1,0% 2,0% 3,0% 4,0% 5,0% 6,0% 7,0% Comparative average usage of services by household Payment for used services, % from household budget Usage of SGEI and payments for them (2009) Average – 15,1% 1st quintile – 17,8% Source: CSB Latvia

Electronic services Electricity Post Government (budget) Standard customers Service provider 1 Service provider 2 Service provider 3 US provider Combined financing: providers > 90% budget < 10% Unified: principles, methodology, procedures, management Sector specific: services, indicators, financing US customer Obligations have to be put on all providers: equality and solidarity US fund P P P P Natural gas District heating Advanced approach to set of services Unified innovative universal service model

Sector Support principle Monthly (Ls) Yearly (Ls) Total (1000’Ls) Max rate of duty (% of turnover) El.

com. (low income) 1st quint. p.c. 7,30 87,60 7 538 1,56% El. com. (invalid) Average p.c. 10,30 123,60 1 182 0,24% Electricity (low income) Average p.c. 7,50 90,00 8 000 1,59% Nat. gas (low income) Average p.c. 4,35 52,20 2 000 0,61% Distr. heat. (low income) Average p.c. 10,90 130,80 8 140 2,61% Post (all population) Per item 0,007 700 1,52% US financing: prognoses 2014 strongly directed support; any sectoral service provider (standard of quality!) have a chance to become the US provider; individual tendering; Source: PUC

Combined structure of the PUC vs fragmented skills Board Electronic Communications and Post Department Energetics Department Municipal Services and Railway Department Economic Analysis Department Legal Department  harmonized decision making;  sectoral support; Regional branches 5 + 5 52 25 Dr. Sc. – 7 Mg. Sc. – 53 Higher ed. – 37 Others – 10

8,1 20,9 78,2 6,3 10,4 51,0 4,5 11,9 10 20 30 40 50 60 70 80 90 Dalkia E.ON Ruhrgas Gaz- prom Fortum TNT DHL Tele2 Telia- Sonera bilj. EUR GDP Latvia - 18,1 Turnover of shareholders, 2010 or the latest available Capacity of the PUC vs capacity of shareholders Sources: company reports

Quality of decisions: court verdicts on PUC’s decisions (2002–2010) Only one lost process in Latvia’s court and another one in Stockholm arbitration 10 6 1 23 11 10 10 3 12 9 1 1 0 5 10 15 20 25 30 35 40 45 50 55 District Court Regional Court Supreme Court Withdraw Won Lost Under process Complaints Source: PUC

Independence level of the PUC: relatively high but has to be improved independence of decision-makers – good; institutional independence – worse; supervision problems: PUC decisions for third parties; involvement in current activities non- related to regulation; normative initiative: long process, approach of the ME; financial independence (0,17% of utilities’ turnover + chapter in the national budget) – insufficient; autonomy problems: budgetary autonomy is not implemented in the budgetary law; lack of autonomy in spending of the allocated budget; lack of adequate financial / human resources; unachievable for sectoral regulator level of real independence; necessity of higher level – changes in the Satversme (Constitution);

Government Consumer Utility PUC Could politically approved decision makers be experts in regulated sectors? Yes, could be. Problems erected by breach of the balance: Strong balanced regulation: to keep equal distance from all involved parties municipal regulators – the major weakness of the Latvia’s regulatory system in the past; recently eliminated; composition principles for electricity basket –high tariffs, court processes; dilatory revaluation of Latvenergo infrastructure – low quality of services; overdue implementation of universal service principles – debt payments for electricity, gas and district heating;

Multi-sectoral model: functional imperfections inharmonized political and normative environment; follow-up problems: tendency in sectoral ministries: to perform regulatory functions and to be shareholder of state-owned service providers; lack of technological regulatory instruments in framework of the PUC; regular infringement proceedings against Latvia concerning regulatory procedures; tendency to decrease functionality of the PUC: planning of spectrum and numbering; setting of cogeneration tariffs; reform of railway infrastructure;

SGEI in EU and Latvia: consumers’ evaluation (2010) 75,1 79 80,2 77,1 82,9 72,6 71,4 70,8 69,9 72,6 73,6 77,3 74,4 83,4 72,9 65,4 88,6 77,9 86,8 81,1 85,6 85,3 80,7 81,7 60 65 70 75 80 85 90 Postal services & couriers Water supply Network gas Fixed telephony Electricity Mobile telephony Railways Internet service provision EU 27 Latvia The highest in EU Evaluation Fixed telephony – 2 Internet services – 7 Railways – 4 Post – 10 Network gas – 6 Electricity – 13 Mobile telephony – 6 Water – 25 Ranking of Latvia’s services: Source: EC

Services in Latvia: consumers’ evaluation (2010) 81,3 80,6 80,2 79 78,5 77,8 77,1 76,2 74,4 72,9 71,5 66,9 65,4 65,2 83,4 87 82,9 60 70 80 90 B o o k s , p e r i o d i c a l s F i x e d t e l e p h o n y R a i l w a y s F o o d - b r e a d C u l t u r a l s e r v i c e s N e t w o r k g a s P o s t a l s e r v i c e s N o n - a l k o h o l i c b e v . F u e l s M o b i l e t e l e p h o n y A l k o h o l i c b e v e r a g e s I n t e r n e t s e r v i c e s E l e c t r i c i t y F o o d - m e a t C l o t h i n g W a t e r s u p p l y R e a l e s t a t e s e r v . Source: EC

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