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Celebrating 10 years Assessing a Decade of Regulatory Cooperation

Energy Regulators Regional Association Celebrating 10 Years! Assessing a Decade of Regulatory Cooperation

Written by Michael LaBelleLimax Energy Consulting

Copyright ©, April 2011 by Energy Regulators Regional Association

All rights reserved

Energy Regulators Regional AssociationBudapest, Hungary, H-1081, Köztársaság tér 7Secretariat@erranet.orgwww.erranet.org

Printed in Budapest, Hungary and St. Petersburg, Russia

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FOREWORD

Commemorating more than a Decade of Cooperation among Energy Regulators in Central/Eastern Europe, Eurasiaand the United States

The members of the National Association of Regulatory Utility Commissioners (NARUC) of the United States are pleased tocongratulate the members of the Energy Regulators Regional Association (ERRA) on their 10th anniversary!

It is with great pride that we review the extraordinary accomplishments of ERRA during the past decade. In 1999, under theauspices of a cooperative agreement with the U.S. Agency for International Development (USAID), NARUC began a peer-to-

peer program to provide support to regulators in the Central/East European and Eurasian region as they sought to develop their own association to promoteprofessional development and training. NARUC leadership was committed to the success of ERRA from the beginning, with significant involvement from ourcommissioners in the Steering Committee, which evolved into the Presidium after adoption of a Constitution in 2001, and the Standing Committees.

Over the course of the 10 year NARUC/USAID cooperative agreement, U.S. commissioners and senior commission staff volunteered their time in order to sharetechnical information with ERRA members to promote enhanced regulatory practices. More than half of the State commissions have participated in ERRA activities,providing exposure to 25+ different regulatory structures. We hope that we have helped ERRA members to take advantage of the long tradition of regulation in theU.S. and leapfrog ahead in their adoption of best practices. U.S. regulators have repeatedly emphasized that they view these exchanges as two-way learningopportunities. Many have revised their regulatory practices after learning about other countries’ procedures.

In addition to watching the evolution of the ERRA Standing Committees as they focus on increasingly sophisticated regulatory concepts, NARUC is tremendouslyimpressed with ERRA’s creation of a full spectrum in-house training program. In fact, following involvement in the creation of ERRA’s New Commissioner Training,NARUC decided to organize a similar program for its own members. Furthermore, NARUC has worked with members of the Regional Electricity Regulators Association(RERA) of Southern Africa to co-organize a commissioner-only training for their members.

NARUC views ERRA as one of the most advanced regulatory associations around the world. Its members embrace a spirit of cooperation that rises above individualpolitical situations. ERRA members demonstrate their commitment to sustaining and evolving their association to meet increasingly complex regulatory, reform, andinfrastructure challenges.

NARUC is proud to stand side by side with ERRA as it continues to build a strong community of regulators to enhance improvements at the international, regional, andnational levels. NARUC pledges to continue its friendship and support to ERRA, as U.S. State regulators seek to maintain their strong relationships with the energyregulators in the Central/Eastern Europe and Eurasia regions and beyond. Warmest congratulations!

The Honorable Tony ClarkPresident, NARUC (2011)

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ERRA

FOREWORD

The last ten years have witnessed dramatic changes in the energy sector in Europe. The process has been mainlyguided by the successive packages of legislative measures adopted by the European Parliament and the Council.

These have had direct effects on EU Member States, but, inevitably, they have also affected other European countries -especially in South East Europe - which look at the EU as a reference in energy sector regulation. Over this period ERRA hasprovided an essential contribution in bridging the gap in energy regulatory practices in Central and Eastern Europe: thispublication steps back to analyse the way in which ERRA has played this unifying role.

Liberalisation, third party access and efficient cross-border capacity allocation and congestion management have been the main ingredients of the EU policy to promoteregional energy markets to empower consumers with greater choice and to mitigate any dominant market position held by incumbents, with the ultimate goal ofcreating a competitive, secure and sustainable Internal Energy Market. In the achievement of all these goals, regulation plays an increasingly important role. Goodregulation and the sharing of the best regulatory practices are essential.

The evolution of energy regulation compels regulators to work together even more. The Second Legislative Package, in 2003, required all EU Member States toestablish a National Regulatory Authority for the energy sector; the Third Package is now granting these authorities greater powers and stronger independence. Theseare necessary factors for good regulation, but the enhancing of practices and the sharing of the best ones require much more: on the one hand, training and thedissemination of the regulatory culture and techniques; on the other hand, close cooperation among regulators at the regional level and beyond. This is where ERRAhas made a key contribution over its 10 years of operation: it has an established track record of fostering cooperation between regulators and facilitating the processof market liberalisation and integration.

The Third Package addresses regulatory cooperation as well by providing an institutional framework for the cooperation of national energy sector regulators withinthe European Union, with the establishment of the new Agency for the Cooperation of Energy Regulators. It is a recognition of the importance of regulators workingtogether to fill the regulatory gap on cross-border issues, but also of the fact that voluntary cooperation has proved so far very valuable, but insufficiently effectiveto support the wider energy market integration process.

The establishment of the Agency should not and does not mean the demise of an important role for voluntary associations. In particular, ERRA should continue to playits part in promoting cooperation and the exchange of experiences on a wider spectrum of issues than those covered by the Agency, including on a wider geographicalarea, which strands across the EU borders, to ensure consistency of the regulatory approach, of the highest quality, throughout the entire European energy market.This is a renewed challenge for ERRA for which it deserves the support of all stakeholders in the sector.

Alberto Pototschnig Director, Agency for the Cooperation of Energy Regulators

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CONTENTS

Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6Background and History of Cooperation in ERRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Forming ERRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7The Constitution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8Diverse membership and geographic growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10Building ERRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12ERRA and NARUC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12ERRA and CEER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Energy Investment and Regulation Conference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13ERRA Secretariat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15ERRA Presidium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15Working Together . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17Participation in committees and working groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17Output . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Development of Topics for the Licensing/Competition Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Building knowledge pyramids through interaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21ERRA diversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21Technical exchanges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21ERRA and INOGATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22Peer Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23Role of women in ERRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24ERRA Website: Facilitating communication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24ERRA Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27Evolution of ERRA’s Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27Online Courses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28ERRA Certified Energy Regulator Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29ENEL Scholarship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29Professional success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30ERRA Accomplishments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

OVERVIEW

The Energy Regulators Regional Association (ERRA) was founded on the premise of sharing regulatory experiences and identifying best practices. This processbegan in 1997 and was formalized in 2001 when ERRA began operating with 15 members. There are now 24 full members, 4 associate and 5 affiliate members

working together in ERRA.

The geographic reach of ERRA includes members on four continents covering 37 million square kilometres. Members stretch contiguously from the Adriatic Sea to the BeringSea; they also include the United States and countries in Africa and Middle East. Almost one billion people live and rely on properly functioning energy markets that areinformed by ERRA’s activities.

In the beginning, participation in ERRA was financed by the United States Agency for International Development (USAID), which ensured member regulators had the financialsupport to participate, along with significant financial support for the operation of ERRA. The National Association of Regulatory Utility Commissioners of the United States(NARUC) worked closely with USAID and ERRA providing professional regulatory assistance to the association. In 2004, ERRA members began to shoulder more of thefinancing of the organization, covering their participation costs and gradually increasing membership dues. By 2009, ERRA became financially self-sufficient, demonstratingthe successful implementation of strong financial and operational policies by the management, Secretariat and members.

The close ties between ERRA and NARUC reflect the successful sharing of experiences by peers. External cooperation is an established part of how ERRA operates. ERRA hasalso sought to reach out to the energy industry. The launch of the ERRA Energy Investment and Regulation Conference in 2002 was the start of a dialogue with the sector.The purpose of the conference is to provide greater access and interaction between regulators and professionals working in the energy industry.

The inner workings of ERRA are characterized by high levels of technical discussions between members in committees and working groups. These result in meaningfulsuggestions for altering regulatory practices, which can impact national and regional energy markets. It is through this interaction and development of trust betweenregulators that enables solutions to be jointly explored that can be implemented in diverse legal systems.

The geographic and membership overlap of ERRA brings together members of both the Council of European Energy Regulators (CEER) and the Commonwealth of IndependentStates (CIS). This overlap is beneficial as it has enabled ERRA to work with the European Commission to facilitate the INOGATE Programme, serving to promote energycooperation and education in most CIS and many neighbouring countries.

A key pillar to implementing effective energy regulation is the on-going education of energy commissioners and their staff.Providing professional support for ERRA’s training is the Regional Centre for Energy Policy Research (REKK) at Corvinus Universityof Budapest. Over the past seven years, ERRA has developed a comprehensive package of training courses, including anintroductory summer course, six intermediate-advanced courses, one training course for new commissioners, and five on-linecourses. Most recently in 2010, ERRA developed the Certified Energy Regulator training certificate to indicate that participants inERRA courses have achieved a set level of fluency in the energy regulatory field.

The accomplishments of ERRA are significant. In 10 years it has firmly established a sustainable association focused on energyregulation. The tasks that ERRA has taken on represent not just sharing regulatory practices, but providing the necessaryframework for members to learn how to regulate. By all accounts ERRA, through its many activities, has accomplished this goal.

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BACKGROUND AND HISTORY OF COOPERATION IN ERRA

Forming ERRA

The many successes of the Energy Regulators RegionalAssociation are the outcome of national regulators workingtogether for 10 years. This commitment is marked bycooperation to identify best regulatory practices, staff trainingsand fostering a dialogue with the energy industry. Theseactions, tailored to local conditions, contribute to a clear andtransparent regulatory environment. ERRA membership nowextends beyond Europe and Central Asia, into the Middle Eastand Africa.

The formation of ERRA stems from the common effort to shareand learn from the experiences of energy regulators. Thisproject began in 1997 and was formalized in 2001 when ERRAbegan operating. Since then ERRA has doubled in size – anindication of the desire among member countries for regulatorycooperation and the effectiveness of ERRA management,Secretariat and members.

Since the founding of ERRA the impact of the association’sactivities have proved to be significant and special, according toJean-Michel Glachant, Director of the Florence School ofRegulation. “ERRA provides something unique: an opendialogue between several continents, each having differentenergy industries and regulatory regimes.” The ability of ERRAto foster learning between EU and non-EU members serves anessential purpose. “ERRA has a special expertise inside the EUon how to construct energy markets and regulatoryframeworks in countries that created market economies twentyyears ago. ERRA is a pioneer and at the vanguard. Without ERRAacting as a bridge between EU and the non-EU countries, thisexpertise could be lost and could disappear.”

The common task of continually increasing knowledge aboutenergy regulation, identifying best practices and updating skills

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ERRAERRA FULL MEMBERSAlbania*: Albanian Energy Regulator

Armenia*: Public Services Regulatory Commission of Armenia

Azerbaijan: Tariff (Price) Council of the Republic of Azerbaijan (joined in 2007)

Bosnia and Herzegovina: State Electricity Regulatory Commission (joined in 2004)

Bulgaria*: State Energy and Water Regulatory Commission

Croatia: Croatian Energy Regulatory Agency (joined in 2002)

Estonia*: Energy Regulatory Division of the Estonian Competition Authority

Georgia*: Georgian National Energy and Water Supply Regulatory Commission

Hungary*: Hungarian Energy Office

Kazakhstan*: Agency of the Republic of Kazakhstan for Regulation of NaturalMonopolies

Kyrgyz Republic*: State Department of Fuel and Energy Regulation at the Ministry ofIndustry, Energy and Fuel Resources of the Kyrgyz Republic

Latvia*: Public Utilities Commission

Lithuania*: National Control Commission for Prices and Energy in Lithuania

Macedonia: Energy Regulatory Commission of the Republic of Macedonia(joined in 2004)

Moldova*: National Energy Regulatory Agency

Mongolia: Energy Regulatory Authority (joined in 2001)

Montenegro: Energy Regulatory Agency of the Republic Montenegro (joined in2005)

Poland*: Energy Regulatory Office

Romania*: Romanian Energy Regulatory Authority

Russian Federation*: Federal Tariff Service

Serbia: Energy Agency of the Republic of Serbia (joined in 2006)

Slovakia: Regulatory Office for Network Industries (joined in 2002)

Turkey: Energy Market Regulatory Authority (joined in 2002)

Ukraine*: National Electricity Regulatory Commission of Ukraine

* Founding member

requires the active participation of individuals within all ERRA member regulators. In the 10 years of ERRA’s operations, standing committees and workinggroups, along with training courses, have each served to transfer knowledge of energy regulation. Through this strategy regulators continue to discussand identify best regulatory practices applicable to their local conditions.

Reaching this point of success required the efforts of dedicated individuals in international and national organizations. Elshan Asadov, the Secretary for theSecretariat of Tariff (price) Council of the Republic of Azerbaijan, underscores the contribution that individuals make in realizing ERRA’s specialized role. “ERRA is a

unique international platform that facilitates the work of regulatory authorities in carrying out effective work for the public interest. Thanks to the expertise ofnumerous professionals and reputable international experts, each ERRA member has the opportunity to receive qualified support.” Fostering cooperation betweenregulators to work in the public interest by identifying effective regulatory practices can be traced to the roots of ERRA.

The history of ERRA begins in November 1997 at a regulatory conference, hosted by the Hungarian Energy Office. The United States Agency for InternationalDevelopment (USAID) and the United States Energy Association (USEA) helped coordinate the conference. The 15 countries in attendance were guided in their

discussion by two themes: 1) core principles of regulators focused on independence, transparency and public participationand 2) the importance of stable and consistent regulation to attract and foster investment.

Participants of the conference exchanged their regulatory experiences, providing an important influence on the directionof a future regulatory organization. Participants also established ERRA's two ad hoc committees: the Tariff/PricingCommittee and the Licensing Committee (later expanded to include competition). These became the formal ERRA standingcommittees in 2001. The significant output by these committees, demonstrates that pooling technical knowledge can helpidentify effective regulatory approaches.

The Constitution

The need to foster professional relations between the relatively new energy regulators, develop best practices, and establish a regional association required support.The National Association of Regulatory Utility Commissioners of the United States (NARUC) began formal involvement in 1999 when it signed a cooperative agreementwith the U.S. Agency for International Development (USAID). Founded in 1889, NARUC is a non-profit organization dedicated to representing state public servicecommissions in the U.S. that regulate America’s energy, telecommunications, water, and transportation utilities. NARUC’s involvement enabled ERRA members toreceive professional regulatory assistance from their American peers. NARUC also served as a model of how to build a single organization that representsgeographically and institutionally diverse regulatory commissions.

Remarking on the time period, Gábor Szörényi,current ERRA Chairman and Director of theHungarian Energy Office stated, “Every country wasfacing restructuring of its energy industry and mostwere planning for the introduction of competition.The new regulators realized there was no commonregulatory manual or rulebook from which to learn.It became evident that we needed to learn from

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ASSOCIATE MEMBERS

Bosnia and Herzegovina: Regulatory Commission for Energy of Republika Srpska (joined in 2010)Bosnia and Herzegovina: Regulatory Commission for Electricity in Federation BIH (FERK) (joined in 2010)Romania: National Regulatory Authority for Municipal Services (joined in 2004)UNMIK: Energy Regulatory Office of UNMIK (joined in 2005)

NARUC and from each other.” This cooperativelearning approach represents the driverbehind ERRA's success.

In December 1999, 15 energy regulators agreed onthe founding principles for ERRA. The next step was to writethe association’s constitution. In 2000, two constitutionalcommittee meetings were held to allow full participation bythe chairs of these 15 regulators. Participants recount long

sessions during which they debated and decided upon appropriate language. On December 11, 2000, 15 members signed ERRA’s new Constitution.

NARUC hired the Head of ERRA’s Secretariat in June 2000 and ERRA hired additional staff after gaining legal non-profit association status in Budapest in April 2001.The Secretariat staff began work immediately to implement regulatory cooperation that the members’ had identified in the founding documents. Now, in its tenthyear of operation, ERRA has proven that cooperation by regulators can result in effective and increasingly sophisticated energy regulations, benefiting thegeographically and economically diverse members, their economies and consumers.

ERRA’s Purpose and Objectives

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AFFILIATE MEMBERS

Jordan: Electricity Regulatory Commission (joined in 2007)Nigeria: Nigerian Electricity Regulatory Commission (joined in 2010)Saudi Arabia: Electricity and Co-generation Regulatory Authority (ECRA) (joined in 2008)United Arab Emirates: Regulation and Supervision Bureau of United Arab Emirates (joined in 2008)USA: National Association of Regulatory Utility Commissioners (NARUC) joined in 2001

Purpose of the

Association

• To improve national energy regulation in member countries (including enhancing regulatory methods and practices);

• To foster development of stable energy regulators with autonomy and authority;

• To improve cooperation among energy regulators.

Objectivesof the

Association

• Increase communication, and the exchange of information, research and experience among Members;

• Increase access to energy regulatory information and experiences around the world and promote opportunities for training;

• Provide educational and training programs related to the purpose of the Association.

Diverse membership and geographic growth

ERRA Membership

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The sheer geographic size that ERRA represents is impressive, covering four continentsand measuring more than 37 million square kilometres. Members stretch contiguouslyfrom the Adriatic Sea to the Bering Sea; they also include the United States and countriesin Africa and Middle East. What is more impressive, throughout this huge geographic area,all these countries are interested in developing and implementing best regulatory practices inthe energy sector.

Almost one billion people live in the geographic area that ERRA’s members represent. The ability topromote stable regulatory policies and transparency in the energy sector provides a strong

foundation for the national economies and societies in these countries. As explained by John Gulliver, partner at the Pierce Atwood law firm in the U.S. and long timecontributor to ERRA’s work, “The public – consumers, ratepayers, taxpayers, business enterprises – need to have confidence that in a regulated environment, publiclyappointed regulators are making decisions that are free of corruption, consistent with governing laws andregulations, reasonably predictable, understandable, and done without political interference, all to the maximumextent feasible.” ERRA aids this goal by providing the necessary knowledge infrastructure to help build predictableand transparent energy regulation in member countries.

The 24 full members, 4 associate members and 5 affiliate members provide ERRA extensive geographic reach. Theacceptance of four affiliate members from the Middle East and Africa since 2007 demonstrates that the originalcontiguous geographic reach of ERRA members may have served to launch the association, but the need for peer-to-peer interaction transcends this geographic region. Fundamental to this process is the fact that ERRA conducts allof its activities in its two official languages: English and Russian. The volume of research papers, technical reports,and information contained in case studies is available in both languages on ERRA’s website, which serves as a centralsource of information for ERRA members and beyond.

Aggregated energy market profile of ERRA full members

*Data for informational purposes only11

ERRA

37 Million square kilometresThe landmass that ERRA members occupy

1 BillionAlmost 1 billion citizens live in ERRA member countries

457,996.32 MW total installed electricitygeneration capacity in ERRA full memberstates

36,420.862 MW total installedrenewable electricity generation capacityin ERRA full member states

These are approximated amounts basedon member feedback

Total amount of

installedgeneration

capacity (MW)

Installed capacity ofrenewableelectricity

(MW)

Generationcompanies, with someamount of

private ownership

Electricity distributioncompanies, with some

private ownership

Gas distributioncompanies, with some

private ownership

Gas distributioncompanies, only owned

by state

Licensed electricity

traders registered

Number of court cases

filed in 2009

Total

457 996 MW

Total

36 420 MW

Total

1 287

Total

3 311

Total

507

Total

139

Total

2 069

Total

924

Building ERRA

In the beginning, participation in ERRA was financed by USAID, which ensured that member regulators had thefinancial support to send staff to trainings and committee meetings, along with significant financial support for the

operation of ERRA. NARUC worked closely with USAID and ERRA to provide the assistance to develop the association.The USAID/NARUC support allowed ERRA members to fully engage in all activities (committee meetings, annual conferences,and trainings) as the association developed. In 2004, regulators began to shoulder more of the financing of the organization,covering their participation costs and gradually increasing membership dues. By 2009, ERRA became financially self-sufficient,due to the professional Secretariat staff, responsive Presidium and strong policies for finance and operations.

USAID believes that institutional development takes time. According to Robert Archer, USAID’s Deputy Chief of Energy andInfrastructure in the Bureau for Europe and Eurasia, over the past 10 years ERRA’s members have built an organization that matches their needs. ERRA’s successesinclude its larger membership base and the expanding regulatory authority of its member countries. The growing oversight role, from electricity to gas, water anddistrict heating indicates regulators serve a critical function in providing a stable and predictable framework for utilities and consumers.

ERRA and NARUC

The close ties between ERRA and NARUC reflect a key to the successful sharing of experiences: the peer-to-peer element. According to NARUC’s director of InternationalPrograms, Erin Skootsky, NARUC members “are coming in as volunteers to share different State practices – including their successes and mistakes so ERRA memberscan figure out how to adapt and design regulatory procedures suitable to their countries.”

Working closely with U.S. peers enables ERRA regulators to learn regulatory procedures and more informal aspects of energy regulation. The contribution made byU.S. regulators in committee meetings was seen as vital for the transfer of knowledge to the new regulators and their staff. In addition, the long history of regulatoryexperience in the U.S. allows NARUC members to convey many formal and informal lessons-learned to ERRA members. This style of learning may aid them in avoidingsome of the pitfalls experienced by U.S. colleagues. Knowledge transfer occurs in both directions for both organizations, according to Ron Eachus, the former Chairmanof the Oregon Public Utility Commission and former Chairman of NARUC Committee on International Relations. European and ERRA practices show up in testimonybefore NARUC commissions and are drawn upon for other NARUC activities such as training courses, research papers and committee agendas. According to ErinSkootsky, NARUC has also started a course drawn from ERRA’s positive experience with the New Commissioner Training course. Thus the relationship between ERRAand NARUC has proven to be beneficial for both organizations.

ERRA and CEER

ERRA members in the European Union also participate in the Council of European Energy Regulators (CEER). This brings them into contact with countries that havemore advanced energy regulatory experience. A key moment in the history of ERRA was the expansion of the European Union in 2004 when seven ERRA membersjoined. There was concern beforehand, that some of these members would join CEER and not continue their ERRA membership. However, only two countries left, withone later returning, the rest have maintained dual membership. To prepare for EU membership a working committee was established for new EU member countrieswhere relevant issues were examined like cross border capacity allocation and renewable energy regulations.

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ERRA

The continued participation in ERRA of these new EU member states indicates the association’s success of fulfilling the members’ driven agenda. ERRA andCEER coexist and complement each other, with both overlapping and different membership bases. ERRA provides a bridge between older EU member statesin CEER and the EU neighbouring countries, leading to greater sharing of regulatory knowledge and practices through countries holding dual membership.

The voluntary approach of ERRA benefits the diverse membership. According to Jozef Holjencik, the Chairman of Slovakia’s Regulatory Office of NetworkIndustries, “ERRA covers a much greater area, when compared to CEER. ERRA as such is not concerned with creating a formal platform for the development andimplementation of the national legislations. However, it provides benefits in the form of understanding the issues on energy and regulation due to its supra-Europeancharacter.” In addition, according to Chairman Holjencik, Slovakia and other ERRA members, provide those non-CEER members the necessary linkage to aid theharmonization of legislative measures for electricity and gas interconnectors required under new EU level legislation. It is the overlap that exists within ERRA thatprovides the opportunity to work together.

According to Robert Archer, of USAID, it is the shared goal of an effective and stable regulatory environment that serves to facilitate the sharing of practices in ERRA.Restructuring of the energy sector and the sharing of practices brings regulators together. Importantly, believes Peter Kaderjak, ERRA’s first chairman and a formerpresident of the Hungarian Energy Office, these shared experiences set ERRA apart from CEER and NARUC. These two latter organizations are connected to theirmembers by common legal institutions, the European Union and the Federal-State relationships within the U.S. Incontrast, ERRA membership is purely based on the concept of cooperation and the sharing of common experiences.

Energy Investment and Regulation Conference

The launch of the ERRA Energy Investment and Regulation Conference in 2002 was the start of a dialogue with theenergy industry. The purpose of the conference is to provide greater access and interaction between regulators,professionals and customers. Participants are able to have a frank exchange of views promoting betterunderstanding on both sides. For Sergey Novikov, the Head of the Russian Federal Tariff Service (FTS), the EnergyInvestment and Regulation Conference is unique because it is “organized by regulators for all stakeholders – expert,investment and banking communities, and also for various associations and consumers.” This is the shared success

of the conference. According to Erin Skootsky, of NARUC, “the Energy Investment andRegulation Conference has been a tool to reach out to the industry.” And because it is an outreach program, “I think there is an air ofopenness. Regulators are willing to listen and I think that helps build credibility with the industry.” The positions of each party are morefully expressed because they are able to speak face-to-face.

And it is this exchange of views that makes a wider impact. Elshan Asadov, from the Azerbaijan Secretariat of Tariff (price) Council,stated, “The conference is important in terms of creating a shared vision and a trend in the policies affecting investment in varioussectors of the energy market, such as in alternative energy sources, energy efficiency and the introduction of new technologies.”

The Energy Investment and Regulation Conference now hosts an average of 250 attendees including 100 regulators from 25 countries.The themes covered have expanded over the years to cover electricity, gas and sustainable development in the energy industry. Thestrength of the conference, as in ERRA, is its geographic diversity, with the focus on the investment environment in the Central Easternand Southeast Europe along with Commonwealth of Independent States (CIS) countries. Budapest, Istanbul, Warsaw and St. Petersburghave all been host cities.

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ERRA

Host Cities for the ERRA EnergyInvestment and Regulation Conference

Budapest, Hungary 2002 – 2006, 2008,2010

Istanbul, Turkey 2007

Warsaw, Poland 2009

St. Petersburg, Russia 2011

14

ERRA 253

195

230206

233262

234 229213

0

50

100

150

200

250

300

Year

2002

Year

2003

Year

2004

Year

2005

Year

2006

Year

2007

Year

2008

Year

2009

Year

2010

Number of participants at the ERRA Energy Investment and Regulation Conference 2002-2010

Composition of participants at the ERRA Energy Investment and Regulation Conference - 2010

Regulator48%

Utility27%

NGO3%

Consultant7%

Other10%

Media5%

Participants by region attending the ERRA Energy Invetsment and Regulation Conference - 2010

CEE & SEE57%

CIS18%

Western Europe10%

USA5%

Asia1%

MiddleEast6%

Africa2%

South America

1%

ERRA Secretariat

ERRA regulators developed the constitution and laid the plans for their organization. However, it has taken the ERRA Secretariat to implement the manyprograms and meet the evolving needs of members. By all accounts, the staff members of ERRA are a key component of ERRA’s success. Erin Skootsky ofNARUC explains that the professionalism displayed by ERRA staff members has enabled the organization to become self-financing and expand its activities. “TheERRA staff members have taken on a dual role of knowing the technical issues as well as being able to manage the logistic issues; all in a highly professional manner.”

The transparency that ERRA promotes for national regulators is also apparent in the work of the Secretariat. It practices financial transparency, and the developmentof its yearly workplan is open to members. ERRA’s staff smoothly produce agendas for meetings, manage logistics for trainings courses; these aspects are alsoimportant for organizing meetings for committee and working groups. The staff also must prepare for the yearly ERRA Energy Investment and Regulation Conference.

The fact that all staff members are bilingual in English and Russian enables a fast exchange of information and reduces the time that it takes for staff members toreact to member requests. “The fact that ERRA carries out its activities in two languages and presents positions, points of view, materials, programs and trainingcourses– in English and Russian – is the most important factor for performing the mission of ERRA, this fosters efficient work and cooperation,” stated Sergey Novikov,of the Russian Federal Tariff Service.

The Secretariat also works closely with other international organizations, enabling members to benefit from a wider network. The close ties ERRA and its membershold with NARUC, CEER and ERRA’s new membership in the International Confederation of Energy Regulators (ICER), represent significant and important ties to otherorganizations. The continuity of ERRA staff members has resulted in strong bonds between ERRA and these organizations, enabling ERRA to operate in a consistentand effective manner. The success that ERRA has achieved in 10 years is based on the dedicated work of the head and staff of the ERRA Secretariat and theirprofessionalism in meeting the diverse demands of members.

ERRA Presidium

The ERRA Presidium is a representative and executive body of the association that oversees the budget, work plan and operational matters of the association. ThePresidium members work closely with the Secretariat in areas like course selection, committee operations and the coordination of new initiatives. There are sevenAssembly Representatives in the Presidium. These members are elected every two years by ERRA’s General Assembly. Each full member of ERRA receives one voteand the representatives can be re-elected.

The Presidium meets four times a year to review financial decisions and other administrative matters. The Chairman of the Presidium is elected by the GeneralAssembly. The cost of the Presidium is also kept low due to members paying their own expenses to the quarterly meetings. Overall, the Presidium maintains a focusof where ERRA is headed and stays in touch with the demands of its members. This allows for greater coordination across the many educational, committee andworking group activities that ERRA has fostered over the past ten years.

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ERRA

16

ERRA

ERRA Presidium Members

Mr. Gabor Szorenyi, Hungary, ERRA Chairman, April 2008–Mr. Elshan Asadov, Azerbaijan, ERRA Presidium Member, April 2008–Mr. Fatih Dönmez, Turkey, ERRA Presidium Member, April 2008–Mr. Ljubo Macic, Serbia, ERRA Presidium Member, April 2009–Mr. Jozef Holjencik, Slovakia, ERRA Presidium Member, April 2010–Mrs. Maria Manicuta, Romania, ERRA Presidium Member, April 2009 –Mr. Mariusz Swora, Poland, ERRA Vice-Chairman, April 2008 – March 2011Mr. Slave Ivanovski, Macedonia, ERRA Presidium Member, May 2007 - April 2009Mr. Dan Ionescu, Romania, ERRA Presidium Member, May 2006 - April 2009Mr. Mart Ots, Estonia, ERRA Presidium Member, May 2006 – April 2009Mr. Yusuf Günay, Turkey, ERRA Chairman, ERRA Presidium Member, May 2007 – December 2007Mr. Sergey Novikov, Russia, ERRA Presidium Member, April 2005 – October 2007 Mr. Angel Semerdjiev, Bulgaria, ERRA Chairman from May 2004 – January 2007Mr. Valeriy Kalchenko, Ukraine, ERRA Presidium Member, April 2005 – September 2006 and Vice Chairman, April 2008-April 2010Mr. Adrian Borotea, Romania, ERRA Presidium Member, Vice Chair, April 2005 – January 2006 Ms. Inna Steinbuka, Latvia, ERRA Chairman, April 2005 – October 2005Mr. Vidmantas Jankauskas, Lithuania, ERRA Chairman, November 2003 – April 2005Mrs. Lyubov Goncharova, Ukraine, ERRA Presidium Member, 2003 – April 2005Mr. Ion Lungu, Romania, ERRA Presidium Member, December 2000 – October 2004 Mr. Yuriy Sakharnov, Russia, ERRA Presidium Member, May 2003 – June 2004 Mr. Dusan Holoubek, Slovakia, ERRA Vice-Chairman, May 2003 – November 2003 Mr. Péter Kaderják, Hungary, ERRA Chairman, December 2000 – November 2003Mr. Vardan Movsesyan, Armenia, ERRA Presidium Member, December 2000 – July 2003 Mr. Ularbek Mateev, Kyrgyzstan, ERRA Presidium Member, December 2000 – May 2003 Mr. Kirill Yankov, Russia, ERRA Presidium Member, December 2000 – 2002

WORKING TOGETHER

Participation in committees and working groups

ERRA’s members engage in high level technical discussions in committees and working groups. These exchanges result in meaningful suggestions for alteringregulatory practices, impacting national and regional energy markets. It is through this interaction and development of trust among regulators that solutions are jointlyexplored that may be implemented in diverse legal systems. Described here are the outcomes of this joint work and how the exploration of regulatory issues resultsin new forms of regional cooperation among members.

The variations in legal systems and the different energy sources, market structures and operational models inmember countries means the exchange of ideas is essential, even if they do not implement a uniform standard.According to Nikola Radovanovic, Lead Lawyer, at the Energy Agency of the Republic of Serbia (AERS) “The exchangeof experience and not via binding decisions and a heavy institutional framework is the whole idea behind theworking groups and committees.”

This flexible and collective process leads to effective results. John Gulliver, partner at the Pierce Atwood law firm,describes the advantages of this approach. “Working groups and committees leverage resources. Working groupsand committees can access broader, deeper data, retain international experts, and rely on other resources thatwould be difficult, if not impossible, for individual, and smaller, regulatory bodies to access.”

Discussion is key to the work of ERRA’s committees and working groups. Knowledge transfer occurs betweenmembers through presentations and in-depth sessions of question and answer. A variety of practices are usuallyanalyzed, ranging from those used in Europe and America, with members presenting different experiences or

practices (see charts for description). Sarah Thomas, a senior lawyer in the Legal Division of the California Public Utilities Commission and NARUC representative to theLegal Regulation working group, observed that through this type of learning, in her personal opinion, participants become more:

• Knowledgeable about real regulatory challenges and solutions• Professional and well-trained in topics that are relevant to their everyday work• Skilled in resisting pressure from industry to ‘rubber stamp’ or cut corners• Conscious of the needs of ratepayers/consumers• Worthy of respect by industry as regulators knowledgeable about the companies and industries they regulate.

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ERRA

ERRA Committees and Working Groups

Standing Committees:• Licensing/Competition - 1997• Tariff/Pricing - 1998

Special Topic Working Groups:• Export/Import - 1999• Monitoring - 2001• Regional Markets - 2001• EU Integration - 2002• Legal Regulation - 2004• Gas 2008

Output

The pursuit of common topics and solutions prompts ERRA committees and working groups to address emerging or challenging issues where new orupdated regulatory approaches are necessary. Such topics include:

• technological advances, such as smart metering and the Smart Grid• new market models and market structures • new forms price regulation, including incentive regulation • regulation of third party access in gas• regulation of cross border issues and actors • renewable energy and greenhouse gas regulation• demand side management and demand response

There is a noticeable historical evolution of topics that ERRA members have chosen to examine. In the early years of ERRA, members focused on essential precepts ofenergy regulation. As ERRA and its members have matured, the focus has expanded beyond basic tenets of regulation to new and emerging topics such as renewableenergy – including integration of renewables into the grid - energy efficiency and smart meters.

Development of Topics for the Licensing/Competition Committee

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ERRA

Analyses of the collective experience of licensing and monitoring practices and conducting comparison of market developments andcontractual agreements in the US, EU and ERRA countries. Detailed benchmarking studies provide an effective comparison of services andprocesses. This includes understanding how benchmarking studies are developed and applying these methods to benchmarking ERRAmember countries.1998 - 2003

Issue papers from this time represent the changing market structures in ERRA member countries. The increasing role of private companiesand the emergence of competition, along with some members joining the EU, these show the committee focus on competitive marketissues. This includes, evaluating supplier of last resort practices in ERRA member countries and addressing simplification of licensingprocedures for electricity traders. 2004 -2007

Examination of issues related to implementing demand side management including the use of smart metering in ERRA member countries.This is a notable shift. The committee is now focused on more advanced issues that are geared towards reducing energy consumption, andnot solely focused on analyzing transitional issues related to privatization and competition. However market structure and operationalmodels remain important issues for committee discussions.2008 - 2010

Which Committee meeting was the most memorable for you?“At each meeting there is at least one topic which interests me and whichbroadens my knowledge about a topic and in general the experience of otherERRA members.” - Response of participant at an ERRA joint Licensing/Competition andTariff/Pricing committee meeting in February 2011.

Development of Topics for the Tariff/Pricing Committee

Development of Topics for the Legal Regulation Working Group

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ERRA

Regulatory standards, such as how technical and commercial losses are accounted for and the procedures necessary for tariff reviewsand revisions. Of particularly note is the role the regulator plays in developing private generation projects, highlighting themodernization of generation and the involvement of private companies in many ERRA countries. 1999 - 2000

Pricing differentials between customer groups and generators.

2001 -2003

Experiences of some ERRA members and how they attempt to improve the operational efficiency and performance of regulatedutilities.

2004 - 2006

Re-examines current market practices, indicated by addressing the revaluation of license holders' assets and green energy pricing.

2006 - 2010

Review of legal terms and regulations in member countries. Including conducting survey to define national practices.

2004 - 2005

Status and functions of regulator. Independece of regulator from other state institutions.

2006 -2008

Balancing contracts and responsibilities between market players and responsible bodies, such as system operators and market operators.Benchmarking study.

2009 - 2010

Examining selected issues requires different approaches based on the skills and knowledge of ERRA members. To fully understand a specific study area,members may create case studies or develop discussion papers before presenting these to fellow committee members. The diagram below provides afuller explanation of the types of examination that are carried out. ERRA committees may also decide to organize separate one day workshops to discuss

particular issues at length. The workshops and the topics are proposed by members when compiling and voting on the workplan for the upcoming year.ERRA constantly monitors the outcomes and effectiveness of each meeting by having participants fill out evaluation forms, providing an effective means to

constantly improve participation and operations of the committees and working groups.

Types of Analyses Prepared by ERRA Committees and Working Groups

20

ERRA

Discussionpaper

When one or two members have experience on a topic they jointly prepare a paper. These address the daily institutional practicesand provide advanced analysis.

Issue paper Prepared when members have no experience in an area or would like to learn about a topic. Outside consultants are used toprepare report and to discuss with ERRA members the results.

Case studyWhen one to three members have experience and expertise on an issue. There is sufficient information to develop an in-depthdescription of these membersí experience. There are no consultants or NARUC involvement. The case study is used to teach othermembers how to address an issue.

Benchmarkingstudy

Comparing practices in different countries. This is used to show common practices and how issues are addressed in differentcountries. Important for teaching common practices. Comparable data needs to exist across countries. This has been used tocompare such issues as wholesale market monitoring and pricing issues.

Workshops ERRA committees may decide to organize separate one day workshops in conjunction with committee meetings. Experts andpractising regulators outside the ERRA region are also invited to join the workshops.

Building knowledge pyramids through interaction

Regulatory staff interaction in committees and working groups can have beneficial impacts on the operation of energy markets. These forums foster greaterinteraction between regulators resulting in cooperative relationships that can benefit coordinated actions in energy markets.

Maria Manicuta, Director of the Romanian Energy Regulatory Authority (ANRE), believes that direct contact amongregulators results in greater regional cooperation. “The direct contact with fellow regulators in neighbouringcountries, especially Moldova, Hungary and Bulgaria matter a lot to me and my colleagues from Romania, leadingto, for example, a project for mutual recognition of supply licenses in Romania and Hungary and the start ofdiscussions on creating regional markets in Romania, Bulgaria and Hungary.”

Committees and working groups provide the opportunity for regulatory staff to increase their professionalknowledge by intensely studying real-world regulatory issues and identifying necessary remedies. In addition,working together builds relationships between staff that facilitate important regional regulatory cooperation andharmonization. Ron Eachus, the former Chairman of the NARUC Committee on International Relations, views the role of working groups and committees as enablingthe knowledge gained to go beyond the commissioner level thereby educating staff, and “extending the base of the pyramid.” The education of staff creates a moresustainable regulatory environment that can withstand changes at the commissioner level.

ERRA diversity

The diversity of ERRA member countries’ regulatory and economic development does not preclude joint learning incommittees and working groups. All countries sit together at the table and learn regulatory methods. ERRA iscommitted to identifying effective regulatory methods that can be implemented once countries need new regulatorysolutions. It is viewed as essential that countries with varying levels of development and less competitive marketsbe involved in discussions of advanced regulatory topics. This enables such members to become ‘motors of reform’for their countries’ energy markets. According to Gábor Szörényi, ERRA’s Chairman and Director of the HungarianEnergy Office, “They should know how to introduce new methods and be able to convince the governments” toapply these methods. ERRA’s role in gathering data and reports detailing best practices enables countries, at anypoint in the future, to refer to such information when promoting energy sector advancements at the national level.

Technical exchanges

To facilitate the exchange of information and improve the exchange of daily regulatory practices, ERRA instituted Technical Regulatory Exchange Programs in 2002.This program provides a modest stipend to support visits by regulatory staff from one country to another regulatory organization; to learn the practical aspects ofimplementing regulatory procedures. ERRA has facilitated 22 exchanges of personnel since 2002. These exchanges are based on the concept that those regulatoryagencies with more experience in an area can assist others seeking to improve their own regulatory practices.

21

ERRACommittees have “fostered cooperationon cross border trade and congestionmanagement as well as harmonization ofregulatory practices.” Maria Manicuta, Director of theRomanian Energy Regulatory Authority(ANRE)

“The long-term impact of technical exchanges between regulators allows trained personnel to develop quality regulation for public services. Thiscollaboration has also provided an opportunity for a better understanding of current and upcoming challenges in the field of regulation,” stated ArmenArshakyan, the Head of the Tariff Policy Department in the Public Services Regulatory Commission, of the Republic of Armenia. Some of the topics that

have been considered and used by the Regulatory Commission of Armenia are:

• Revenue requirements of utilities• Licensing procedures and activities• Tariff methodologies• Code of conduct for commission members and staff

The facilitating role of ERRA Secretariat staff before the arrival of visiting delegates is essential for the success of each capacity building visit. From identifying theinterests of delegation members and establishing agendas, to organizing related study tours, ERRA staff enables the technical exchanges to build the institutionalcapacity of participating regulators. “We strongly believe that ERRA greatly assists in achieving maximum efficiency of cooperation,” said Armen Arshakayan.

The benefits of the exchanges are cited by Nikola Radovanovic, of Serbia’s AERS, as central to the capacity building of national regulators. “It is my strong personalview that, if nothing else, ERRA has fulfilled one of its main missions: the capacity building of the regulatory staff. This is definitely an achievement that shouldn’tbe underestimated.” Technical exchanges are a central part of ERRA’s mission in facilitating educational opportunities between regulatory institutions.

ERRA and INOGATE

The geographic and membership overlap of ERRA brings together both EU and CIS member states. In this context,ERRA works with the European Commission under the INOGATE Programme, promoting energy cooperation andtraining. Regulatory and ministerial staffs participate in the programme and cover four key areas:• Convergence of energy markets on the basis of EU principles• Enhancement of energy security• Support for sustainable energy development• Attraction of investment into energy markets

Cooperation between ERRA and the European Commission began in 2007. Given its work with other internationalenergy organizations, ERRA is naturally suited to fulfil this role in facilitating the cooperation and education that

occurs between members and international experts. “ERRA is the idealpartner to address one of the essential areas of intervention of theINOGATE Programme: Energy market regulation, and in particularconvergence of energy markets based on EU principles. In addition, theregional dimension which is the essence of both the ERRA and the INOGATEProgramme make them all the more natural partners,” stated SimoneRave, the Head of Energy Sector at the EuropeAid Co-operation Office inthe European Commission. Through the INOGATE Programme, ERRAcontributes to increasing competence in the energy regulatory sector by

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ERRA

Operational Framework of the INOGATEProgramme

The INOGATE Programme promotesenergy cooperation in the framework ofthe Baku Initiative and the EasternPartnership, the two main regionalforums for energy policy dialoguebetween the EU and the Eastern Europe,Southern Caucasus and Central Asiancountries.

The Eastern Partnership includes EnergySecurity as one of its main prioritiesthrough the establishment of an EnergySecurity Platform. This is focused onidentifying opportunities for energymarket convergence, energy efficiencyand renewable energy.

boosting the knowledge of staff of energy regulators and ministriesparticipating in INOGATE.

The regulatory training experience of ERRA enables it to provide specializedtraining to INOGATE members in Russian and English. The speciality of ERRA’stransfer of in-house knowledge is based on familiarity with transitional economiesinvolved in building energy markets. As observed by Simone Rave of EuropeAid, “TheEuropean Commission has entrusted ERRA with the important task of developing thecapacities of these energy authorities, including regulators, so as to make themfamiliar with the key characteristics of regulation.”

Trainings on energy regulations and markets began in 2007. In 2008 and 2009 ERRAworked with regulators in the INOGATE Programme partner countries to organizetraining courses and study tours to EU countries with similar experiences. The aim wasto promote effective regulatory practices in theelectricity and gas sectors. Following on thepositive outcomes a second project focused oncapacity-building for sustainable energyregulation was launched in 2010. Thisemphasises strengthening regulatory practicesin energy efficiency, renewable energy sources

and district heating in the Partner Countries of the INOGATE Programme. The projects are funded by the EuropeanNeighbourhood and Partnership Instrument.

Peer Review

The efforts of ERRA members to continually improve their regulatory frameworks and processes involve a bilateral peer review process. The Regulatory Peer Reviewprogram is practiced among ERRA members and was also supported within the INOGATE Programme. The purpose of the exercise is to have an open assessment anddiscussion among regulators regarding their legal frameworks and regulatory practices. The peer reviews take place in a confidential setting and are intended as acollaborative process based on dialogue between colleagues. The reviews enable regulators to draw from each others’ experience and knowledge. The results aremore efficient regulatory organizations and higher quality regulation. Hungary and Lithuania are leaders in this exchange process. ERRA has also provided regulatorsfrom member countries to assess the regulatory structures and procedures in Georgia and Moldova within the INOGATE Programme.

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ERRA

Cooperation between ERRA and the European Commission

“The cooperation between the Energy Regulators RegionalAssociation (ERRA), and the European Commission has gainedmomentum in the last few years. Since 2008, two projects forcapacity-building and institutional strengthening were entrusted toERRA. The target was the relatively young energy regulators of thecountries of the INOGATE programme, the EU-funded energy regionalcooperation programme with Eastern Europe, Southern Caucasus andCentral Asian countries. The INOGATE programme supports theachievement of the objectives of the Baku Initiative and the EasternPartnership, the two main regional policy dialogues on energybetween these countries and the EU. I believe ERRA has been areliable and dedicated partner in contributing to achieving theseobjectives”

Simone Rave Head of Energy Sector EuropeAid Co-operation Office, European Commission

Objectives of Regulatory Peer Review process

Role of women in ERRA

Ensuring the participation of women in ERRA has been a priority since its foundation. This can be traced back to 2000and the initiative of one of NARUC’s female presidents, Commissioner Nora Mead Brownell, of the PennsylvaniaPublic Utility Commission. She helped to begin an informal gathering of ERRA women members; it is held yearlyfollowing the ERRA Energy Investment and Regulation Conference. At the gathering, women regulators are able to“discuss their professional careers and their integration into a male dominated environment as well as children,family hobbies and other things,” said participant Maria Manicuta, Director of ANRE.

Serving by example – this is the view that women active in the energy sector can encourage more women to participate and demonstrate the importance of diversity.“Government has always been more diverse with women Commissioners an increasingly common phenomenon....Women can mentor other women, encourage theirsuccess, and advocate for their promotion – but men should join this effort,” stated Sarah Thomas, a senior lawyer of the Legal Regulation Working Group and lawyerfor the Legal Division in the California Public Utilities Commission.

ERRA Website: Facilitating communication

The ERRA website is central to the distribution of materials and promotion of interaction among ERRA members. Theuse of the internet is essential for bringing the geographically distant membership together to provide them bothnew information and the resources developed over ERRA’s 10 years. ERRA also seeks to be more environmentallyconscious by using the website as a platform to distribute information and to register course participants. This keepsmailings to a minimum, saving money and reducing the association’s carbon footprint. The website is completelysynchronized between the association’s two languages: English and Russian.

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ERRA

Assess

• Provide the host country (regulator and potential governmental authorities) with an objective review of their regulatory practice.

Discuss

• Provide key staff at the host regulator with an opportunity to discuss their practices with experts who have experience of other practices in thesame field.

Recommend

• Provide the host regulator with recommendations and suggestions for improvement in areas where their organization or performance falls shortof internationally accepted practices.

27% of regulatory commissioners in theUnited States are women.

15% of regulatory commissioners inERRA member countries are women.

WEBSITE: www.erranet.org

Daily visits: 127Monthly visits: 1590Monthly page downloads: 4179

Resource materials available in ERRAlibrary: 5,913

The extensive online library ERRA has built up contains a wide variety ofcommittee and working group papers, as well as country profiles that listrelevant national legislation, regulation, codes and methodologies for theenergy sector. In addition, the site has a large range of presentations withinformation stemming from conferences, trainings, working groups and committees aswell as the INOGATE Programme. The integrated search engine allows ERRA membersand outsiders to easily access technical documents on a variety of subjects in bothworking languages.

The central purpose of the ERRA website is to reduce the geographic barriers amongmembers and facilitate the easy exchange of information. The consistent downloadingof ERRA reports and presentations along with the use of the Tariff Database,demonstrate the popularity and broad use of the site.

The ERRA Message Board, hosted onthe ERRA website, facilitates theexchange of information amongnational regulators. In this onlineenvironment, committee and

working group members ask questions and learn from the experience and suggestions of other members. This onlineforum is also used for the INOGATE Programme with participants engaging in discussions before and after organizedtrainings and workshops.

The sharing of information is central to the mission of ERRA and its website. This is displayed effectively in theMembership Profiles section of the ERRA website. Essential information on many technical areas of national energymarkets is posted here. This includes: national energy statistics, historical summaries of the regulatory authorities,legal and technical documents on each authority, such as laws related to the regulatory agency, annual reports, tariffmethodologies, sample licenses and information on the industry and market structure in each country.

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ERRA

Popular ERRA Issue Papers and Presentation Topics

• ERRA Tariff Database• Determination of Regulatory Asset Base (RAB) After Revaluation of

License Holder's Assets. Chart of Accounts (2009)• Smart Metering (2010)• Licensing procedures papers and presentations• Renewable issue papers and presentations• Presentations: Analysis of tariff diferentiation in the ERRA countries,

(2009)• Mutual Recognition of Licenses –Potential Simplification of Licensing

Procedure of the Trading Activity (2006)• Supplier of Last Resort: An Overview of its Implementation in ERRA

Member States and representative Countries in the EU, (2005) • Methodology for tariff setting for transportation of the natural gas

main and distribution pipelines in the EU countries (2010)MESSAGE BOARDS

Special events:• INOGATE workshop on Regulatory

Implications of District Heating, Kiev2010

• INOGATE Training course, Istanbul 2010

Permanent:• Tariff/Pricing Committee• Licensing/Competition Committee• Legal Regulation Working Group

The ERRA Tariff Database is a popular, interactive subscription service that is available on the ERRA website. It aggregates tariff information from membercountries and presents the information on a country or regional basis. It contains data from 1998 to the present and is used by members and non-

members alike. Subscribers range from large regional electricity companies, TSOs, financial investors, research institutes, non-ERRA member regulators andconsulting companies. In a survey of ERRA members, the database ranks high as a useful source of information.

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ERRAOnline Electricity & Natural Gas Tariff Data Base

1998 - 2010 Q2

• Official electricity and natural gas data of the ERRA member countriesfrom 1998 until present in US Dollars and in EUR (as of 3-4 Quarters of2007) updated every six months;

• Statistical data on 28 countries and 4 Country Groups (Commonwealthof Independent States (CIS); Central Eastern Europe (CEE), South EastEurope (SEE) Other

• Electricity price categories include Producer, Wholesale, End-user(Residential, Non-residential) Prices, and Electricity Consumption;

• Natural Gas price categories are Wholesale, End-user (Residential, Non-residential) Prices. Definitions for all price categories are provided here

Highlights:

• Quarterly electricity prices for residential and non-residential consumers; • Producer, Wholesale and End-user prices for Electricity; Wholesale and

End-user Prices for Natural Gas; • Composition of Tariffs (Wholesale/Retail Margins, Taxes).

The ERRA Tariff Database, due to evolving needs of its members and users,will be updated to provide a new format for data submission and analysis.This will provide more effective analysis of the data, particularly in relationto key price components such as energy; network (transmission anddistribution) and taxes of the electricity and gas tariffs.

Information from the ERRA Tariff Database

Natural Gas Residental Prices (Total price) – 2009/4

ERRA EDUCATION

A key pillar to implementing effective energy regulation is the ongoing education of energy commissioners and their staff. Over its ten years, ERRA hasdeveloped a range of course offerings, from introductory courses to advanced regulatory techniques. The majority of ERRA’s course instructors are current orformer regulators, creating a strong link between applied knowledge and the theoretical concepts that guide regulation. ERRA educates participants through a varietyof methods, including group exercises, mock simulations, participant case studies, on-site visits and self-testing; providing them a foundation to adapt regulatoryprocedures to their own national legal and regulatory frameworks.

Evolution of ERRA’s Training

At the core of ERRA’s training is the Regional Centre for Energy Policy Research (REKK) at Corvinus University inBudapest. The development of classroom and online courses is coordinated closely between ERRA and REKK. Director,Peter Kaderjak, himself a former president of the Hungarian Energy Office and the first chairman of ERRA, believesformalized regulatory trainings provide a “more systematic exchange of information for staff.” The trainings helpensure those staff members not actively involved in the committees or working groups share in the knowledge transfer that is at the centre of ERRA’s mission. A keycharacteristic of ERRA’s training has been the extensive use of current and former regulators from ERRA and CEER in particular. This brings both regulatory principlesand practice into the training.

The first course offered by ERRA, was a training course for electricity regulators from EU accessioncountries, held in February 2003. This was a joint effort of CEER and ERRA. This introductory coursewas subsequently expanded to include all ERRA member countries. In the summer of 2003, ERRAheld its first Introduction to Energy Regulation course (referred to as the summer school course),in conjunction with the Central European University (CEU). This course continues today. Over thepast seven years, ERRA has developed a comprehensive package of training courses, whichincludes six intermediate-advanced courses, one training course for new commissioners, and fiveonline courses (see diagram). The trainings were prompted by a desire to reach out to more staff.It was felt by members of ERRA, that courses focused on key issues could provide an effectivemethod of educating staff members in topics relevant to the ERRA membership base.

The steady andp r o g r e s s i v e

evolution of trainings over ten years stems from ERRA’s practice of systematicallysurveying member needs and then developing trainings that meet these requirements.For Peter Kaderjak, of REKK, to expand the course offerings “always require reflecting onwhat are the real needs.” The ERRA Secretariat regularly seeks member input for newcourse offerings. The diversity of students on these courses is a reflection of the highdemand for relevant education. Students from affiliated member countries, such as SaudiArabia and Nigeria now regularly attend ERRA’s trainings because of the relevancy of thetopic to their own markets. In 2007, the courses were opened, in a dual-track manner,

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ERRA

Students trained (2003-2010)

• Students trained: 1,340• Total number of training courses

(including online): 41 • Online students trained: 288

Number of students trained by course (2003-2010):

Introduction to Energy Regulation: 474Price Regulation & Tariffs: 145Monitoring Activities of Energy Regulatory Commissions: 70Principles of Natural Gas and District Heating Regulation: 65New Commissioner Training: 58Principles of Electricity Markets: 50Renewable Energy Regulation: 35Regulatory Information and Public Participation: 22

Online training courses

Renewable Energy Regulation (2010)Principles of Natural Gas & District Heating Regulation (2009)Regulatory Information & Public Participation (2008)Principles of Electricity Markets (2008)Price Regulation & Tariffs (2007)Monitoring Activities of Energy Regulatory Commissions (2006 and 2009)Introduction to Energy Regulation (2005)

to non-regulators (the introductory summer course was always open to non-regulators). Now approximately 40 percent of course participants are fromutilities, consultancies, law firms and other companies that are involved in the energy sector.

Online Courses

Expanding the reach of ERRA’s training efforts through online courses enables participants to learn and develop an understanding of effective regulatory practice whileremaining at their jobs. Online courses enable students to learn a range of topics while also earning credits for the ERRA Certified Energy Regulator program. ERRAhas offered eight courses since its first pilot course on Energy Regulation in 2005. This learning process has provided education to 288 students, both regulators andnon-regulators. Importantly, online offerings have proved to be appealing beyond ERRA’s membership, with students from outside ERRA countries participating. Aswith all trainings, ERRA’s online courses are offered in English and Russian.

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ERRANumber of implemented training courses

0 2 4 6 8 10 12

Renewable Energy Regulation (since 2009)

Regulatory Information & Public Participation (since 2006)

Principles of Natural Gas & District Heating Regulation (since 2008)

Principles of Electricity Markets (since 2008)

Monitoring Activities of Energy Regulatory Commissions (since 2005)

Price Regulation & Tariffs (since 2006)

New Commissioner Training (since 2005)

Introduction to Energy Regulation (since 2003)

ERRA Certified Energy Regulator Program

Most recently in 2010, ERRA developed the Certified Energy Regulator training certificate toindicate that participants in ERRA courses have achieved a set level of fluency in the regulatory field(see box insert). The feedback from participants has been positive and provides them with a recognizedcertificate that enables them and others to know of their regulatory competency.

Two of the first students to become certified were staff members Doris Carcani and Erind Kraja from theEnergy Regulatory Authority of Albania. Doris Carcani believes, “the most important benefit that you getbeing a CER is the knowledge youreceive and the skills youdevelop, enabling you to moveto the next level in your career.”

For Erind Kraja, the trainings he went through for the CER certificate provides him with theability to prepare analysis and recommendations based on both the instructors’ experienceand the material provided on the courses.

According to Peter Kaderjak, training of staff, “can increase regulator’s confidence and knowledge,” helpingthe regulator withstand pressure from politicians and investors who scrutinize and criticize regulatorydecisions. Students are able to ensure their decisions match international standards; they may also consultwith fellow regulatory students in other countries and refer to ERRA’s materials to verify theappropriateness of their actions. Importantly, for Dr. Kaderjak, good training helps regulators avoid makingmistakes, and prevent regulators from being undermined. While training is not a precondition to a strongand independent regulator, fundamentally sound regulatory decisions can help regulatory institutionswithstand strong criticism.

ENEL Scholarship

The respect for ERRA trainings is represented by the perspective of the energy industry itself. In addition tosending their own staff to ERRA’s trainings, the Italian energy company, ENEL, which operates in ERRAcountries, has established a scholarship to pay for regulatory staff to attend the courses. ENEL representativesunderstand the importance of continuing education for energy regulators, particularly on tariff and pricingissues. The chance for regulatory staff to learn from ERRA’s instructors and apply best practices in their owncountries is viewed as a valuable experience. In November 2010, the ENEL Scholarship was utilized by tworegulatory offices. ENEL made available the scholarship, but did not participate in the staff selection process.Each regulator nominated its own employees to attend the training on Price Regulation and Tariffs.

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ERRA

ERRA On-Site Custom Trainings

The uniqueness of the topics involved in energyregulation requires a range of professionals toteach the core competencies. ERRA has providedon-site custom trainings in the past to educateregulatory staff members in the many aspects ofutility regulation. These have included providingtrainings to regulatory staff in Nigeria and UNMIK.

Results of Scholarship Opportunity

“The course was helpful because in the nextregulatory period starting in 2012, a newregulatory policy and methodology is to be set,therefore the materials and presentations ofthe course can be the theoretical basis for thiswork.”

- Enel Scholarship student on Price Regulationand Tariffs training course

ERRA Certified Energy Regulator

This is based on earning 30 credits over threeyears, through classroom trainings and/or ERRAE-Learning.• Completion of ERRA Summer School• Completion of ERRA modular classroom

training courses• Completion of any of the ERRA online courses

Professional success

The long-term involvement in ERRA of Aigul Sultankulova, demonstrates the benefits of ERRA’s educational mission and identification of best practices.In October 2010, she became the Director of the Kyrgyz Republic’s energy regulator, the State Department of Fuel and Energy Regulation at the Ministry of

Industry, Energy and Fuel Resources. She started as a chief specialist in the tariff department in February 1998. She credits the training that she received inERRA's training courses and her involvement in ERRA’s technical committees for giving her knowledge she applies in her job at the Kyrgyz regulator. For her, learningthe roles and functions of regulators, understanding how to settle disputes, and receiving training on licensing procedures have all contributed to her work as aregulator. She has sought to develop a regulatory agency using ERRA best practices by involving the public and working with the legislative branch to update regulatorypractices.

The powers of the Kyrgyz's energy regulator were recently expanded by legislation approved in November2010. In order to find areas for improvement, Director Sultankulova and her staff conducted a benchmarkingstudy of other ERRA member countries. Working with the legislature, the laws were updated to extend theregulator's authority and stabilize financing. The regulator now has the authority to have a neutral partyconduct a cost of service analysis of utility distribution companies. This independent audit enables theregulator to determine the reasonableness of the utility’s claimed costs. Another change in the legislation thatDirector Sultankulova says is the biggest achievement since the founding of the regulator is that the operatingbudget is now supported from fees paid by the energy sector and salaries are connected to those in theutilities. Both of these measures enhance the autonomy of the regulator and its ability to attract and retainhighly qualified staff.

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ERRA

The regulatory practices learned throughparticipation in the ERRA Legal Working Groupand ERRA training courses has influenced howthe public participates with the Kyrgyz regulator.“There is now a supervisory group, withrepresentatives of the public, they guaranteetransparency, this is very important and a bigstep forward.”

- Aigul Sultankulova, Director of Kyrgyz energyregulatory authority

ERRA ACCOMPLISHMENTS

The accomplishments of ERRA are significant. In 10 years it has firmly established a sustainable association focused on energy regulation. Almost 1 billion peoplenow receive energy services from companies regulated by ERRA members. For President Hasan Köktas, of the Turkish Energy Market Regulatory Authority (EMRA),“ERRA itself is a success story. Bringing countries from different regions, different cultures and different levels of development under the same umbrella is testament of thissuccess.” For this reason, celebrating 10 years of work provides ERRA the chance to reflect on these accomplishments.

The widespread impact of ERRA’s educational efforts are important to consider particularly when the remarks of Director of Markets and Regulation for KEMA, Konstantin Petrov,are taken into account. While in Western Europe there was a tradition of teaching regulatory economics in universities, in ERRA member states this academic tradition did notexist. The formation of ERRA resulted in the establishment of a formal and informal educational system. Learning occurs from ERRA courses and in committees and workinggroups. This continues to be important as there are currently no formal training courses in member countries where regulatory personnel can be trained in the many diverseaspects of energy regulation. This niche in education provides the chance for regulatory staff to learn the many technical aspects of the energy industry. It is also clear thatthe training provided to regulatory staff is recognized by companies and other organizations involved in the energy sector that regularly send staff to training sessions.

The personal networks and joint committee work, represents more than working through best regulatory practices; they become forums for learning. “ERRA fosters sustainablepersonal networks. This leads to knowledge sharing in targeted areas,” involving common specialized project knowledge, stated Konstantin Petrov. Creating an educationaland training system from scratch, in a highly complex sector, requires dedicated staff and effective leadership and organizational support that USAID and NARUC provided.

The sharing of knowledge was necessitated by the market based developments occurring at the time of ERRA’s formation. Confronting these changes required regulatory skillto keep pace. The privatization of energy companies, such as in Hungary in the mid- 1990s, required regulators to oversee private companies and balance business, politicaland social interests. As one of the first European regulators, Vidmantas Jankauskas, former Lithuanian Chairman of the National Control Commission for Prices and Energy, anda founding member of ERRA stated, “the movement of private capital into the sector made it necessary to have regulators.” The tasks that ERRA has taken on, provide thenecessary framework for members to learn how to regulate. By all accounts ERRA, through its many activities, has fostered an effective learning environment for regulatorsand their staff.

It is these early efforts to attract private capital that required regulators to increase transparency and respond to new demands by in