Experts: The new law on energy regulator (NKREKP) does not solve the problems of regulating the industry, but gives more control mechanisms


Kyiv, September 27, 2016. Adoption of the law on new energy regulator is a positive step for reforms. However, the ambiguity of certain provisions still poses a lot of questions. This opinion was expressed by energy experts at a discussion held at Ukraine Crisis Media Center. The law has not been submitted to the president yet, but in case it enters into force, the president will lose the opportunity to change the Commission members immediately. Although the process of rotation of new Commission members takes a long time, and the president’s influence remains, the Commission’s work may become more open.

The main positive thing – “The law now provides a platform that is spelled out in legislation and determines the mechanism and certain standards of the regulator. There was no such mechanism before,” said Dmytro Naumenko, Senior Analyst, information campaign” Stronger together “. However, according to Andriy Gerus, ex-member of the National Commission for state regulation of energy and public utilities, the law had not introduced any fundamental changes and had not created a clear pattern for the regulator. “If the law does not provide an independent regulator, and, consequently, the right decisions, it is wrong,” said the expert.

Currently, a lot depends on the secondary legislation, the adoption of which depends directly on the regulator. The key to real reform, stressed the experts is establishing clear and understandable mechanisms. “The main task for this institution is to restore the lost confidence. […] It is necessary to create such conditions and protections that even chemistry teacher [as a NKREKP member] could make the right, balanced decision within 2 months. The role of civil society is extremely important in these conditions,” stressed Tetyana Boiko, NGO “OPORA”, coordinator of housing, communal services and energy programs.


The main public expectation – greater transparency and openness of regulatory decisions

The main public expectation is greater transparency of regulatory decisions and the opportunity to engage in discussions, noted Roman Nitsovych, project & program director, DiXi Group. It concerns, firstly, information on tariffs with relevant arguments and calculations. “Currently, we have open calculation methodology, but there is no pattern for reaching the amount specified in the commission’s decision according to the methodology,” explained the expert. Secondly, it is assumed that decisions regarding local development can be considered on the grounds. Another positive prospect is the fact that the regulator will not only control the market, but also monitor key performance indicators, which will potentially allow getting a new layer of information on the state of market competition.

Experts also hope that under the new law the regulator will consider consumer complaints and respond to them playing the role of the Ombudsman in the energy sector. They also expect NKREKP to consider a wider range of options when making decisions to avoid mass discontent like the one that developed around the decision to install a gas meter for the whole building. Such decisions should be submitted for open discussion, said Tetyana Boiko.


Adoption of the law was not transparent  enough

The experts stated that the process of enactment was not transparent enough: some changes were made in secret and at the last moment. “This is the first time in the history of the Verkhovna Rada Committee on fuel and energy complex, nuclear policy and nuclear safety when amendments to a draft law were voted in the “Any Other Business” part,” said Mr. Gerus.


Key risks: “confidential information”, details of the rotation of NKREKP members and selected methods

Most of the comments are related to the fact that the law requires coordinating the disclosure of confidential information with the participants. The law does not clearly spell out what kind of NKREKP information can be considered confidential, so it leaves space for manipulation. “In our opinion, no indicator of tariff structures can be considered confidential. This information should be made public and published on the website so that it does not require lots of effort to get it from monopolistic enterprises or the National Commission,” said Tetyana Boiko.

Another controversial issue is the requirements for NKREKP members whose term ended due to rotation. In particular, whether the provision of the law that they cannot work with companies whose activities they regulated over 2 years will be applied. The next issue is the procedure for electing a new chairman. “The law says he should be elected every 2 years after the date of approval of the 1st commission. It is unclear what day can be considered the day of approval of the 1st commission: after the first rotation or complete rotation?” noted Roman Nitsovych. He reminded that the law approved the formula of 6, 12, 18 months – “meaning that 3 commission members change during the first stage, and 2 members during each subsequent stage”. Yulia Usenko, expert of the Reanimation Package of Reforms, noted that RPR suggested a full reset of NKREKP to restore confidence in the regulator.


The main concern of the “Naftogaz” is the chosen methodology of natural gas distribution. “Our leadership expressed our concerns about this method because it is calculated starting from the connected capacity indicators that does not always meet the consumers’ needs and the principle of justice,” stated Yelyzaveta Badanova, senior lawyer of the NJSC “Nafrogaz.”
She reminded that the methodology will determine a method of distribution to each consumer connected to the gas distribution network – that is, all domestic customers and will calculate the rate of a gas transport system operator at the output. “This, in our opinion, is one of the controversial points, since the gas distribution networks will receive revenues of the gas transport system operator, which belongs to the state vertical structure. It is unfair and leaves space for manipulations,” she explained.

Andriy Gerus expressed his concerns about the fact that now the Commission is not to adjust regulations, resulting in the increased risk of mistakes, which subsequently will be difficult to eliminate. In his view, a collective responsibility of the regulator for the taken decisions carries the risks. It can cause more flippant attitude of each individual member. It is also unclear how with the current budget to ensure the remuneration of labour of the regulator members provided by the law. “It is obvious that either these regulations in the current budget should be suspended until the budget is formed according to the new rules, or they should be adjusted in a different way,” added Roman Nitsovych.


During the election of the contest commission problems may arise identical to those with the  NAPC commission

“There is a political risk that certain subjects will not propose their candidates, or that these people will break up the quorum. The only way is that these meetings should be public and there should be reporting on a place of the commission meetings, taken decisions and so on,” stated Roman Nitsovych. However, Dmytro Naumenko reminded, that the contest commission will include the European experts. “If someone believes that the voice of these organizations is not important and does not influence the selection procedure, he is mistaken,” he said. Julia Usenko added that public experts should start to choose candidates whom they will recommend as members of the contest commission. “Thus decent people with an impeccable reputation can be included in the commission,” she noted.


The main question is whether the public will be able to use control mechanisms in practice According to Andriy Gerus, the effective mechanisms of public control have not been built into the law. According to Dmytro Naumenko, on paper, the mechanism has been specified well enough, but there is no guarantee that it will show positive results in practice, as has already happened with NAPC.

Tetyana Boiko and Olexiy Orzhel, head of “Energy” sector at Effective Regulation Office (BRDO), noted that at this stage the most important thing is to ensure the participation of public experts in the development of secondary legislation, because it specifies the provisions set out in the law. Olexiy Orzhel emphasized that now it is not always possible to keep track of all meetings and decisions because the information about them is out of the public eye.