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Electricity - Industry Structure and Market
Traditionally, the electricity sector in Cyprus was regulated on the basis of two principal pieces of legislation, namely, the Electricity Law, Cap 170, adopted on 1 May 19411 and the Electricity Development Law, Cap 171, adopted on 27 October 1952.
Cap 170 allows for any company or person to be authorised by the Council of Ministers for the purpose of generating, transmitting or supplying electricity for any public and private purposes. Cap 170, therewith, in theory allows for competition. Cap 171, however, established the Electricity Authority of Cyprus (EAC), which, since its establishment has held the monopoly in the production, transmission and distribution of electric power within the Republic of Cyprus. As a result, while Cap 170 permitted anyone authorized by the Council of Ministers to generate, transmit or supply electricity for any public and private purposes, the terms of Cap 171 effectively meant that these rights were, with some minor exceptions relating to autogenerators, effectively exercised only by EAC.
Harmonization with the acquis communautaire
In order to meet the target date of 1st May 2004 for accession to the European Union, the Republic of Cyprus had, among other things, to comply with the Electricity Directive 96/92 EC on the Common Rules for the Internal Market in Electricity (the Electricity Directive).2 The harmonisation of Cyprus’ electricity sector with the EU internal energy market required certain changes in sector structure and electricity market arrangements, including the adoption of brand new legislation. This meant that by that date, the Republic of Cyprus had an obligation, at the very least to:
(a)transpose, the minimum requirements of the Electricity Directive in its legislation;
(b)to liberalise at least 33% of the electricity market;
(c)put in place the technical and commercial arrangements for use of the electricity network; and
(d)establish new electricity market rules.
Liberalization of the market included the restructuring of the sector, the establishment of a regulator, the development of legal and regulatory instruments (codes, licences etc) and the systems for running an open market.
With the purpose of initiating this process, in September 2001 the Attorney General’s Office, on behalf of the Ministry of Commerce Industry and Tourism, instructed a team of consultants to prepare some of the documentation that would be required to implement the Electricity Directive. This included the drafting of new primary legislation and new electricity market rules.
The primary legislation included the Law Regulating the Electricity Market of 2003 (Law 122(I) of 2003) (the Electricity Liberalization Law) as amended by Law 239(I) of 2004 which was enacted in order to transpose Directive 2003/54/EC concerning common rules for the internal market in electricity which repealed Directive 96/92/EC.3 The Law was later amended by Law Νo. 143(I)/2005 and Νo. 173(I)/2006.
Notes:
1. As amended by Law 2 of 1976, 26 of 1979, 141 of 1990 and 42(I) of 2002.
2. Directive 96/92/EC of the European Parliament and of the Council of 19 December 1996 concerning common rules for the internal market in electricity Official Journal L 027 , 30/01/1997 P. 20 – 29.
The Electricity Authority of Cyprus (EAC)
By virtue of Cap. 171, EAC is a non-profit making, semi-Governmental organization. It is governed by a board of directors consisting of one chairman, one vice chairman and six members. The board of directors is directly appointed by the Council of Ministers and is drawn largely from the business community of the Republic of Cyprus. The chief executive of EAC is the chief engineer and general manager who is appointed by the members of EAC and approved by the Council of Ministers. The EAC employs nearly 2,000 people and serves 360,000 customers. The Ministry supervises the activities of EAC on behalf of the Government of the Republic of Cyprus.
As Cyprus has no significant indigenous primary energy resources and EAC currently relies exclusively on imported fuels, mainly heavy fuel oil and, to a lesser degree, diesel oil to meet its customers’ demand for electricity. At present, the power system comprises three power stations at Vasilikos, Dhekelia and Moni.
II.Regulatory and Licensing
The Electricity Liberalisation Law provides for the regulation of the electricity market of the Republic and, among other things,
(a)Establishes the Regulatory Authority of Energy of Cyprus (CERA);
(b)Provides for the creation of a new licensing regime in respect of the generation, transmission, distribution and supply of electricity;
(c)Establishes the framework for the arrangements between the Transmission System Owner and the Transmission System Operator;
(d)Regulates access to the transmission system and the distribution system;
(e)Allows for provision to be made in respect of Public Service Obligations and
(f)Regulates issues concerning consumer protection.
A. The regulators
1. CERA
CERA, was established by virtue of section 4 of the Electricity Liberalization Law, consists of three members, the President, the Vice President and a member. It is appointed by the Council of Ministers following deliberations with the House Committee on European Affairs of the House of Representatives. CERA’s operations are regulated by Regulations which prescribe the manner in which CERA makes decisions. CERA is assisted by the Office of CERA.
Duties
In performing the duties conferred to it under the Law, CERA has an obligation to:4
(a)safeguard effective competition in the electricity market and avoid undue discrimination between both authorisation holders and applicants for authorisations;
(b)protect the interests of consumers;
(c)secure that all reasonable demands and needs for electricity are satisfied;
(d)secure that authorisation holders operating efficiently are capable of financing the undertaking of the activities which they are licensed to undertake;
(e)promote the development of an economic and efficient electricity industry;
(f)promote the security, safety, continuity, quality, and reliability of supplies of electricity;
(g)take account of the protection of the environment;
(h)encourage the efficient use and production of electricity;
(i)take account of the needs of rural customers, the disadvantaged consumers and the elderly;
(j)encourage research and development into the generation transmission, distribution, and use of electricity; and
(k)promote the use of renewable forms of energy.
Notes:
3. Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in electricity and repealing Directive 96/92/EC (O.J L 176, 15/07/2003, p. 37).
4. Section 24 of the Law.
Powers
CERA has the following powers:5
(a)to grant, monitor, enforce, modify or revoke authorisations, including where necessary invite the submission of applications for authorisations issued under this Law;
(b)to ensure the correct preparation and approval of the Trading and Settlement Rules and Trading Rules;
(c)to secure that all reasonable needs and demands for electricity are satisfied;
(d)regulate tariffs, charges and other terms and conditions applied by licensees for any services provided under the terms of their authorisations;
(e)to set out, publish and enforce quality standards to be complied with by authorisation holders;
(f)to determine rules or procedures under which complaints concerning the services provided by licensees will be dealt with, including where it considers it appropriate, investigation and resolution of such complaints;
(g)to investigate and resolve disputes arising between authorisation holders in accordance with the Arbitration Law;
(h)to act in accordance with the instructions of the Council of Ministers in an event involving national security or the defence of the Republic;
(i)to issue Regulations, take decisions and regulatory decisions.
Decision making
In performing its duties and exercising its functions and powers, CERA may take regulatory decisions setting out how it shall regulate the electricity market and which authorisation holders shall be bound by such regulatory decision.
Investigation of infringements
CERA may, on its own initiative or, after receiving a complaint, investigate whether a license holder, or holder of a prior permit or holder of an exemption, is infringing or omitting to comply with any authorisation condition or condition of an exemption or any Regulatory Decision or other decision issued by CERA. Where CERA issues a decision, in the event that any of the aforementioned persons fails to remedy the infringement within one month from being notified of the decision or within a reasonable period of time as CERA may prescribe by its decision, CERA may:
(a)impose an administrative fine on such person depending on the nature, seriousness and duration of the infringement or omission; and/or
(b)decide that an administrative fine depending on the seriousness of the case, shall be owed for each day on which the infringement or omission is continuing as referred to above; and/or
(c)revoke an authorisation, exemption, Order or prior permit issued by CERA.
Note:
5. Section 25.
2. Transmission System Operator (TSO Operator)
The Transmission System Operations Unit is a division that was created by virtue of the Electricity Liberalisation Law. Its members emanate from the EAC.6 The TSO Operator is independent from EAC (the TSO Owner) and does not engage in the generation, distribution or supply of electricity in the Republic.
The TSO Operator is entrusted with the following exclusive functions:7
(a)To operate an efficient, co-ordinated, safe, secure, reliable and economical transmission system;
(b)To ensure the development and ensure the maintenance of a safe, secure reliable, economical and efficient transmission system;
(c)To explore and develop any possibility for interconnection of the transmission system with other systems following directions of the Minister;
(d)To ensure the availability of all generating and other services which are necessary to carry out its functions outlined in paragraph (a);
(e)To establish protocols with the Distribution System Operator furthering the operation of a co-ordinated transmission system and distribution system;
(f)To operate a system of dispatch and use of the transmission system on objective, non-discriminatory, economical and technical criteria in accordance with:
(g)To operate and administer the electricity trading arrangements in accordance with the Electricity Trading Rules;
(h)Should the opportunity arise, to develop, and publish procedures for the use of interconnectors with other transmission and distribution systems;
(i)To charge for the connection to and use of the transmission system in accordance with section 85;
(j)to offer terms and enter into protocols or agreements for connection to and use of the transmission system with all those using and seeking to use the transmission system.
In discharging its functions, the TSO Operator takes into account the objective of minimising the overall costs of the generation, transmission, distribution and supply of electricity to consumers.
For the purpose of exercising its functions, the TSO Operator and the TS Owner are required by the Law to enter into a Transmission System Protocol, approved by CERA.8 The Protocol includes the following:
(a)a specification of which assets of the Transmission System Owner shall constitute the transmission system, including the technical operating limits of such assets, and how this specification may change over time;
(b)provisions for maintenance and development of the transmission system;
(c)provisions regarding construction, connection to and use of the transmission system by third parties;
(d)arrangements for the transfer of information between the Transmission System Owner and the Transmission System Operator in relation to the development plan, its implementation and costs thereof;
(e)provisions regarding rights and responsibilities for de-energisation and disconnection;
(f)provisions relating to the insurance cover to be carried by the Transmission System Owner and Transmission System Operator;
(g)provisions regarding the term, expiry and renewal of the Transmission System Protocol;
(h)provisions regarding review of the TSO Operator’s and TSO Owner’s performance of the Transmission System Protocol
Notes:
6. Section 57.
7. Section 61.
8. Section 66.
3. The Competition Commission
Although CERA has been granted extensive powers for the purpose of taking measures to protect competition, it must not act in a manner that is contrary to the provisions of the Law for the Protection of Competition of 1989 to 2000 which establishes the Commission for the Protection of Competition (Commission).
The Commission has the power of prohibiting, declaring invalid or granting an exemption to any concentration between electricity undertakings. It may also prohibit the acts of abusive exploitation of dominant position or concentrations which have been concluded or carried out for the purpose of obstructing, limiting or falsifying competition within the meaning of the Law for the Protection of Competition.
On 6 December 2005, the Commission announced on its website that a case concerning ‘ex-officcio investigation against the Electricity Authority of Cyprus (EAC)’, for possible infringement of section 6 of the Law for the Protection of Competition, Law 207/89, had been concluded.
The investigation against EAC began in February 2004 whereby it was discovered that EAC had accumulated excess profits by overcharging electricity consumers from 1997 to 2003. Following this investigation, a Statement of Objections was issued against EAC, citing the imposition of unfair prices and cross-subsidization on the part of EAC as infringements of the Law for the Protection of Competition. Legal counsel for EAC submitted EAC’s final positions and additional clarifications by filing written submissions on the case. They did not contest the objections of the CPC. Nevertheless, they put emphasis on EAC’s contribution to the society and economy of Cyprus as part of the mitigating factors that the CPC should consider in reaching its decision. The Commission has reserved the delivery of its decision, which is expected to be published sometime in the New Year.
Due to the fact that EAC’s abusive behavior lasted a long period of time, namely 6 years, it can be expected that CPC’s decision will require that EAC return millions of Cyprus pounds to consumers. The fine to be imposed may be up to 22 million pounds because, according to the Law, the Commission may impose fines of up to 10% of CPC’s, calculated with reference to its proceeds of the previous year.
B. Laws, licensing of operators and infrastructure
1. Laws
As already mentioned, there are three main pieces of legislation that are interrelated, namely the Electricity Law, Cap 170, the Electricity Development Law, Cap 171 and most recently, the Electricity Liberalisation Law which brought about the repeal or amendment of a great number of sections of the two previous pieces of legislation.
2. Secondary Legislation
Secondary legislation pursuant to Cap. 170 consists mainly of the Basic Electricity Regulations of 1941 as amended. They concern the manner in which electrical installations are to be carried out, the quality, voltage and other standards to be adhered to and the certification of persons carrying them out who must be eligible to get a certificate of competency by a Licensing Authority based on their qualifications. They also refer to the supervision of employees and the carrying out of tests before carrying out any electrical work.
Secondary legislation issued pursuant to Cap. 171 consists of the Basic Electricity Development Regulations of 1952 as amended. These Regulations concern, inter alia, various types of tariffs charged by EAC (broken down into domestic use, commercial use, industrial use and lighting of streets tariffs) and the manner for calculating same as well as the modifications, disconnections, moving to apparatus within the consumer’s premises.
Other secondary legislation pursuant to Cap. 171 consists of:
(a)The Schemes of Service Regulations9 which deal with the structure of EAC, the classification of placements, service plans, appointments and promotions, qualifications, promotions, salaries, etc.
(b)the EAC Retirement and benefit scheme for EAC Employees and Dependants;10
(c)The EAC Disciplinary Code Regulations;11
(d)The Electricity Loans Regulations;12 and
(e)General Conditions for the Supply of Electrical Power Regulations.
Secondary legislation issued on the basis of the Electricity Liberalisation Law is as follows:
(a)The Granting of Licences Regulations;13
(b)Te CERA Regulations (Hiring, Promotion, Terms of Service and Disciplinary Control of Staff);14
(c)The Carrying out of Investigations Regulations;15
(d)The License Fees Regulations;16
(e)The Registry of Licenses Regulations;17
(f)The Administrative Fines Regulations;18
(g)The Procedures for Charging Electricity Fluctuations Regulations;19
(h)The Eligible Consumer Order;20
Notes:
9. Regulation 291/86.
10. Regulation 110/85
11. Regulation 109/85.
12. Regulation 187/76.
13. Regulation 538/2004.
14. Regulation 528/2004.
15. Regulation 465/2004.
16. Regulation 467/2004.
17. Regulation 466/2004.
18. Regulation 468/2004.
19. Regulation 472/2004.
20. Order 340/2004.
3 .Licensing
Part VI of the Electricity Liberalisation Law concerns the issuing of authorizations and the provision of exemptions. More particularly, section 34 et seq. provides for the requirement to hold an authorization by CERA for carrying out any of the following activities:
(a)Constructing a generating plant or generating electricity;
(b)Supplying electricity to eligible consumers;
(c)Supplying electricity to non-eligible consumers;
(d)Discharging any of the functions of the Transmission System Operator;
(e)Discharging any of the functions of the Transmission System Owner; or
(f)Discharging any of the functions of the Distribution System Owner.
A person who has been granted an authorisation to supply electricity must have available sufficient generating capacity installed in the Republic.
On the basis of an application submitted to CERA for the granting of an exemption, CERA may grant an exemption from the requirement to hold an authorisation for the activities of constructing a generating plant or generating electricity or supplying electricity to eligible consumers, subject to such terms and conditions as it may specify. An exemption may be granted for:
(a)The self generation of electricity of power not exceeding 1MW capacity by any person or persons of a particular class;
(b)The generation of electricity from renewable sources of energy not exceeding 5MW capacity; or
(c)The supply of electricity by a particular person the total capacity of which does not exceed 0,5 MW for each generating station.
Authorization Conditions
An authorisation granted under the Electricity Liberalisation Law may contain such terms, conditions and limitations as CERA considers necessary under the circumstances and provided they do not create or allow for undue discrimination between authorisation holders. More specifically, the terms of an authorisation may be to the effect that the authorisation shall be subject to modification for the purposes of compliance with any amendment or review of the legislation or that the authorisation holder shall pay such fee as specified in relevant Regulations on authorisation fees;
Applications for the granting of Authorisations
A person may submit an application only if he is a natural person, he is a citizen of a member state and resides in a member state or if he is a legal person, established in a member state. In the case of a company, it must have been incorporated in accordance with the legislation of a member state and has its statutory place of establishment, its central management or its main place of establishment within the European Community.
CERA shall grant an authorisation, after taking into consideration the following criteria:
(a)the safety and security of the electricity system, installations for generating electricity and electricity lines;
(b)the protection of the environment including the limitation of emissions to the atmosphere, water or land;
(c)the siting of electricity generating stations and associated land use;
(d)the efficient use of energy,
(e)the nature of the primary source of energy to be used by a generating station,
(f)the qualifications of an applicant, including the technical and financial qualifications of the applicant for carrying out the activity.
Orders and prior permits
Any person who has been granted an Order or prior permit under the Electricity Law on or before the date on which the Electricity Liberalisation Law entered into force had an obligation to submit an application for the granting of an authorisation or exemption within 6 months or such other period as may be decided by CERA from the entry into force of the Law.
III.Industry Codes and Agreements
1. The Trading and Settlement Rules
The Trading and Settlement Rules have been drafted by the in accordance with the Electricity Liberalisation Law,21 for the purpose of regulating the means by which s may trade , to allow the calculation and settlement of payments in respect of and s and in order to specify the way in which settlement and billing is to be carried out.
More particularly, the Trading and Settlement Rules:
(a)govern the mechanisms, prices, and other terms and conditions that will apply wherever authorisation holders purchase or sell electricity through arrangements operated by the Transmission System Operator;
(b)ensure that all authorisation holders who are required to participate in the purchase or sale of electricity through such arrangements are not subject to undue discrimination;
(c)foster efficiency, economy, and competition in the purchase and sale of electricity through such arrangements;
The Trading and Settlement Rules must be observed by all authorisation holders or persons who have been granted exemptions.
2. The Trading and Settlement Framework Agreement
An electricity undertaking may submit an application to the Transmission System Operator for entering into an agreement or protocol governing connection to or use of the transmission system, in accordance with the Trading and Settlement Rules. An application may also be filed to the Distribution System Owner by any person for the purpose of entering into an agreement for connection to or use of the distribution system.
The Trading and Settlement Framework Agreement that is approved by CERA may provide for:
(a)the methods for determining the proportion of the costs to be borne by the person making the application for connection to the transmission or distribution system and the Transmission System Owner or Distribution System Owner being costs which are directly or indirectly incurred in carrying out works under an agreement or protocol for a connection or modification of an existing connection;
(b)the terms and conditions upon which applications for an agreement or protocol governing connection to and use of the transmission distribution system are to be made and the period of time within which an offer or refusal pursuant to such an application is to be made by the Transmission System Operator or the Distribution System Owner; and
3. Transmission System Protocol
According to the Electricity Liberalisation Law,22 the Transmission System Operator and the Transmission System Owner have an obligation, subject to the approval of CERA, to enter into a Transmission System Protocol for the purpose of enabling the Transmission System Operator to fully and effectively to discharge its functions, to ensure that the Transmission System Owner will facilitate the discharge by the Transmission System Operator of its functions; and to ensure the performance of the Transmission System Owner of its own duties and functions.
Note:
21. Section 79.
22. Section 66.
IV. The Industry Functions
In accordance with the requirements of the Electricity Directive, EAC has been designated, by virtue of section 100 of the Electricity Liberalisation Law, as the universal electricity service provider with respect to the generation, distribution and supply of electricity for the whole of the territory of the Republic of Cyprus, as described below.
1. Generation (including sustainable energy)
One of the main changes brought about by the Electricity Liberalisation Law has been the introduction of competition in the generation sector due to the fact that, as generation costs are the main component in the cost of electricity, competition in generation allows for the reduction of the costs. To allow prospective new entrants to construct new generating capacity, the Law has introduced the authorization system, as described above, whereby any company may build and operate a generating plant, provided the planning, environmental and energy supply criteria are met.
In addition, a tendering procedure for new generating capacity has also been introduced under which whenever CERA estimates that at any time, the electricity generating capacity being built is not sufficient to ensure security of supply of electricity in the Republic, it has an obligation to notify the Minister of Industry and Commerce. Thereafter, the Minister, following consultations with CERA and the Transmission System Operator, has an obligation to issue an order establishing the procedure for submitting tenders, the necessary generation, as well as the manner and terms for making this new capacity available.23
2. Transmission
EAC, in its capacity as TS Owner, has the duty of constructing and maintaining an efficient, co-ordinated, safe, secure, reliable and economical transmission system, having due regard for the protection of the environment.24
With regards to the manner of operation of the transmission system, the Electricity Liberalisation provides for the establishment of the Transmission and Distribution Rules25 which:
(a)govern the technical requirements and constraints that will apply wherever authorisation holders wish to connect to the transmission system and/or distribution system or use the transmission system or distribution system for the transportation of electricity;
(b)ensure that the technical conditions that apply to authorisation holders who wish to connect to or use the transmission system or distribution system do not result in them being subject to undue discrimination;
(c)foster efficiency, reliability, and economy in the use and development of the transmission system and the distribution system; and
The provisions of the Transmission and Distribution Rules must be observed by all authorisation holders or persons who have been granted exemptions, respectively, to the extent that their authorisations or exemptions require respectively.
Note:
23. Section 42.
24. Section 45.
25. Section 72.
3. Distribution
The Electricity Authority of Cyprus also acts as the Distribution System Owner (DS Owner) and has the duty of developing and maintaining an efficient, co-ordinated, safe, secure, reliable and economical distribution system, with a view to ensuring that all reasonable demands for electricity are met and having due regard and care to the protection of the environment.26 The functions of the DS Owner include the following:
(a)Operating a safe, secure, reliable and economical and efficient distribution system;
(b)Establishing protocols with the Transmission System Operator furthering the operation of a co-ordinated transmission system and distribution system;
(c)Offering terms and enter into connection agreements or protocols with electricity undertakings seeking to connect to or use the distribution system.
The DS Owner is responsible for drafting and issuing technical rules, subject to the approval of CERA, relating to the distribution system which form part of the Transmission and Distribution Rules referred to above.27
4. Supply
Competition
The Electricity Liberalisation Law has introduced competition in supply for eligible customers. This was one of the requirements of the Electricity Directive which required that approximately 33% of Cyprus’ national electricity market (on average, consumption in Cyprus is more than 0.5 of a Giga-Watt hour) must be able to chose from whom they buy their electricity.
Eligible consumers
Eligible consumers may enter into contracts for the purchase of electricity from any person holding an authorisation for the supply of electricity. The Minister of Industry and Commerce is responsible for prescribing the manner of and criteria by which the consumption of electricity is to be calculated for the purpose of establishing whether a consumer is an eligible consumer or not. The Minister also sets out the manner of and criteria by which the consumption of electricity is to be calculated, as well as the electricity consumption threshold, in GWh, measured over a twelve-month period, for the purpose of defining whether a consumer is an eligible consumer or a non-eligible consumer.28
Security of supply
Where, at any time, CERA considers that the electricity generating capacity being built is not sufficient to ensure security of supply of electricity in the Republic29 CERA may impose Public Service Obligations on any authorisation holder in relation to the security of supply as well as the regularity, quality and price of electricity supply. Finally, the Electricity Development Law provides for the preparation of a Development Plan for the transmission system in order to guarantee the security of supply of electricity.30
Note:
26. Section 52.
27. Section 72.
28. Sections 43 and 44.
29. Section 42.
30.Section 62.
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