Experience of multisectoral regulation: succeeded and achievable yet

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

2. 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

3. Treaty of Lisbon amending the Treaty on EU and the Treaty establishing the European CommunityProtocol 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.

4. 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.

5. 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?

6. Similar trend vs different level of sectors liberalization sectoral Hirschmann-Hirfendal Indexes Source: PUC

7. Quality of regulation: unified microlevel regulatory procedures coupled with observation of sectoral individualities • 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;

8. 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

9. Usage of SGEI and payments for them (2009) Average – 15,1% 1st quintile – 17,8% Source: CSB Latvia

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

11. 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

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

13. Capacity of the PUC vs capacity of shareholders Sources: company reports

14. 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 Source: PUC

15. 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 notimplemented 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 ofhigher level – changes in the Satversme (Constitution);

16. Strong balanced regulation: to keep equal distance from all involved parties • Problems erected by breach of the balance: • 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; Could politically approved decision makers be experts in regulated sectors?Yes, could be.

17. 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;

18. SGEI in EU and Latvia: consumers’ evaluation (2010) Ranking of Latvia’s services: Source: EC

19. Services in Latvia: consumers’ evaluation (2010) Source: EC