On 23 November, the President of Ukraine signed into law the draft “On the National Energy and Utilities Regulatory Commission of Ukraine” that re-establishes the National Energy and Utilities Regulatory Commission of Ukraine (NEURC) as an independent regulatory body. The new law, which was adopted by the Ukrainian parliament on 22 September 2016, was developed with the assistance of the Energy Community Secretariat in line with Ukraine’s obligations to implement the EU’s Third Energy Package. Its adoption is a major milestone toward creating a competitive energy market in Ukraine and carrying out meaningful reform of the country’s energy sector.
Under the new law, and as required by the Third Energy Package, NEURC is to become an independent regulatory authority. Remarkably, until now the activities of NEURC have been governed by a number of legislative acts, according to which the incumbent NEURC was created, and could be dissolved, on the basis of presidential decision.
Under the new law, NEURC is to be comprised of seven members, including a chairperson. The members of NEURC will be appointed by presidential decision based on the recommendations of a selection committee nominated by the President (two members), Parliament (two members), and the Cabinet of Ministers (one member).
The law establishes appointment criteria and restrictions as to who cannot be a member of NEURC. In some cases the appointment criteria are rather vague (e.g., requirements to be of high professional and moral qualities and sufficient health condition). The law introduces legal prohibition for NEURC’s members to hold corporate rights in companies from the energy and utilities sector, including the sanction of dismissal in case of non-compliance.
Members of NEURC will be appointed for six years with the right to be reappointed once. According to the rotation scheme, which is now in place, not more than two members can be replaced each year and the chairperson is elected every two years. The incumbent members of NEURC shall be replaced within 18 months (three members within the first six months, and the remaining four – in pairs – at intervals of six months).
Within two years after termination of office, a person cannot enter into employment or civil law contract with an entity operating in the energy or utilities sector.
Starting from 2017, NEURC will be financed with contributions to be paid to a special-purpose budgetary fund by the companies active in Ukraine’s energy and utilities sector. The amount of the contribution payable by an entity will depend on its quarterly net profit attributable to regulated activities, subject to a limit of 0.1%. The exact rate will be defined by the regulator on an annual basis and reviewed quarterly.
NEURC will prepare and allocate its budget autonomously. Additionally, the new law establishes market-level salary levels for NEURC members, its chairperson and staff.
Under the new law, governmental officials, municipalities, political parties, and any other legal entities or individuals are explicitly prohibited from giving any instructions, orders or requests to the regulator, as this will be considered as illegal influence.
Decisions of NEURC will not require approvals of any governmental institutions, except for the approvals required under antimonopoly regulations. Moreover, decisions of NEURC will not be subject to registration by the Ministry of Justice. They will be binding and enforceable following the date of their publication (in case of regulatory acts or acts setting the tariffs) or once they are adopted. Any decision of NEURC can be appealed in court, but filing such an appeal does not suspend the validity of the decision.
Extended regulatory powers
In line with the Third Energy Package, the new law grants NEURC additional powers, including the right to carry out investigations and impose penalties. Generally, NEURC has regulatory and licensing authorities, is in charge of setting regulated prices and tariffs in the energy and utilities sector, and has controlling and enforcement functions. Additionally, the law removes the discrepancies between the Gas Market Law and general Licensing Law in relation to the list of activities which are subject to licensing by NEURC.
Extensive transparency obligations
Meetings of NEURC shall be open for all interested parties and shall be broadcast online via its website, except for matters containing classified information. The agenda, including draft decisions, comments to them and arguments of NEURC, shall be published on the regulator’s website in advance. Regulatory drafts and related materials shall be published on its website for open discussion, which can last for from one to three months. Draft decisions of NEURC in relation to setting prices (tariffs) and adopting investment programmes require public discussion.
Decisions of NEURC, except for those containing classified information, shall be published on its website within five business days.
Additionally, as part of its transparency obligations, NEURC shall present its annual report to Parliament and publish on its website results of its activities, including inspections, draft budgets and reports on expenditures, the results of market monitoring, etc.
The public will be able to participate in NEURC’s decision-making through a Public Council, which is a permanent consultancy-advisory body established at NEURC.