individual tariff methodologies required for the unbundled (and in some cases soon to be privatized) components of KESH.
3.
MARKET MODEL
USAID, through Pierce Atwood and other consultants, has provided ongoing support to the Albanians on their market model (beginning as early as December 2002). Utilizing the local task force (or working group) approach, whereby representatives of the regulatory commission, the utility, the TSO, and the Ministry of Economy, Trade and Energy are responsible for developing, reviewing, and commenting on, and informing their constituents about, the various proposals and revisions, has helped keep the process moving even through political disruptions, of which there were many. Work continues today on implementation of the market model which, if completed, promises to assist Albania’s integration into the Energy Community. Development of the initial Transitional Market Model (“TMM”) began in 2004, when Pierce Atwood, at USAID’s request, drafted a Concept Paper for the TMM that provided for power sales governed by a series of bilateral contracts of up to one year in duration among the major market players. The principal transacting party was the Transmission System and Market Operator, which already existed as a separate entity from KESH and was expected to be operational and functional by the middle of this year. The design process for the Albania TMM was characterized by three core driving principles: •
Collaborative. The TMM became a consensus model, and one that was ultimately adopted by the Albania Council of Ministers, as a result of an intense, collaborative process that engaged all of the relevant stakeholders in Albania. Albania had prior experience with the success of such an approach and the production in adoption of its Action Plan for the energy sector, in 2002.
•
Albania specific. It was agreed at the outset that the market model had to be Albania specific and had to reflect the facts and circumstances existing in Albania at this time (i.e., that KESH reform was ongoing, but not complete, and KESH was not yet financially strong; legal unbundling had yet to occur; Albania relied almost entirely on hydro resources for supply; imports were constrained; and Albania could not afford extensive investment).
•
Intended to Promote Government Policies. The TMM also had to promote specific government policies that had been previously established for the sector in the Action Plan and in other government decisions.
In addition, the TMM needed to incorporate and promote key goals of the Government of Albania, including compliance with Policy Statements and harmonization with EU Directives and the goals of the Athens Forum process, transparent design, a goal of prompt cash settlements, ability to attract IPP development private investment, and participation of commercially viable market participants. The TMM ultimately adopted met all of these requirements. It unbundled generation and distribution and operated through a combined Transmission System and Market Operator. Key features included preserving domestic hydro capacity at regulated prices to benefit tariff customers; allowing a series of regulated annual bilateral contracts with only limited market rate contracts; developing a strong, independent regulator; providing prompt and transparent settlement functions; allowing an opportunity
24
{W0916618.1}