Sergey NovikovHead of the Federal Tariff Service

(FTS of Russia)

Energy regulation: common goals and challenges

07.02.2012Florence

“The Great Transformation – Shaping New Models”(World Economic Forum 2012)

The challenges that energy regulators face:1.Spreading financial crisis.

2.Widening markets interconnection & interdependence (technological & geographical).

3. Economy decarbonization, clean energy and energy efficiency.

4. Modernization of energy sector.

5. Consumer protection.

1

G8+ Energy Regulators StatementRome, 24 may 2009

“The financial crisis also places a special obligation on energy Regulators to take into account the impact of regulatory policies and market activities on vulnerable energy consumers, as well as the social responsibilities of regulated undertakings. This obligation requires that proposals for new investment, are carefully reviewed to ensure adequate and reliable resources at appropriate rates; that markets are closely monitored to detect potential manipulation harming consumers, and the impact of harmful tariff setting on consumer welfare.

“Given the central role of energy markets for economic development, security and sustainability, it is essential to support: i)energy Regulators with appropriate, independent and accountable powers and clear mandates that enable them to safeguard market integrity, stimulate timely, adequate and affordable infrastructure investments and promote technological innovation; ii)coordination, collaboration and cooperation among Regulators at regional and global level.”

2

Energy regulators’ developments

The challenges mentioned above require existing regulatory tools to be reconsidered and modified.

Energy regulators remedy shortages and gaps of market mechanisms while aiming at carefully satisfying the needs of energy sector and consumers.

Vulnerable customers’ protection remains an important task for energy regulators.

Energy sector and economy itself become smarter and more complicated, therefore regulatory tools should be adequate to the situation.

3

Ensuring the right balance

Energy sector

Customer

Balance

Existingrelaible

functioning

Modernization,Investments

Customer Needs & Rights

Balance

4

Regulatory “pie”

Political decisions

Regulatory decisions:common methodology;coordination;additional tools.

“Pure” regulation

Investors

The other view:

Domestic tasks

Regional(international)

development

5

What tools do we have now to make energy market more effective and predictable?

(The Case of Russia)

The regulatory tools additional to “pure” regulatory instruments are:

Wholesale and retail prices monitoring.

Powers to fine the market players and regional regulatory authorities (independent from federal regulators) in case of law violation.

Powers to repeal regional regulatory authorities’ decisions in case of law violation.

Information disclosure standards (setting up the forms and terms of disclosure, penalties for non-publication).

Setting up the requirements on energy efficiency programs for regulated organizations.

But the main question persists - “Whether these tools are sufficient?”

6

We need:

Upbringing/fostering consumers to be more energy market educated and responsible.

Creating specialized flexible training system for existing and newly hired energy regulators’ employees since the market structure is getting ever more complicated.

Supporting/launching specialized new research studies, forecasts and foresights to face market (structural & technological) changes.

7

Effective and productive communication in current and new forms:

- Specialized energy working groups within the framework of EU-Russia Energy Dialogue;

- World Forum on Energy Regulation;

- ERRA annual Energy regulation and investment Conference;

- FST of Russia – CEER bilateral interaction.

- ….

The Conference held for the second time has all the chances to become a sustainable platform for Russian & EU energy market participants and regulators to be heard in order to continue effective communication and cooperation.

It’s very important to continue

8

THANK YOU FOR YOUR ATTENTION!