Law on Electricity and Natural Gas of 1997 (2019 Ed.)

Meta Data

Title in national language:

საქართველოს კანონი ელექტროენერგეტიკისა და ბუნებრივი გაზის შესახებ

Draft:

Revision of previous policy?:

Yes

Draft Year:

1997

Effective Start Year:

2019

Effective End Year:

2019

Scope:

National

Document Type:

Law

Economic Sector:

Energy, Power

Energy Types:

Power, Gas, Other

Issued by:

Office of the President of the Republic of Georgia

Notes:

Unofficial translation

Source:

Legislative Herald of Georgia (GE)

Legislative Herald of Georgia (EN)

File:

Law on Electricity and Natural Gas (GE)

Law on Electricity and Natural Gas (EN)

Overall Summary:

The present law regulates relations and activities in the areas of electricity generation, transmission, dispatch, distribution, import, export and consumption, as well as in the areas of natural gas supply, transportation and distribution. The policy promotes the development of electricity and natural gas sectors in Georgia on the basis of market economy principles. The present law shall not apply to activities related to exploration, production, purification, processing, storage of natural gas, to relations between the producer of natural gas and supply licensee, to the transit of electricity and natural gas through the territory of Georgia. The policy focuses on a number of critical objectives, including: 1) enabling a competitive environment and regulation of existing non-competitive markets for establishing wholesale electricity and natural gas tariff systems that accurately reflect economically justified costs of electricity generation, transmission, dispatch, distribution, export, import, and consumption, as well as costs associated with natural gas transportation, distribution, supply and consumption; 2) provision of the legal basis for reliable electricity and natural gas supply for all categories of consumers; 3) encouraging domestic and foreign investments in rehabilitation and development of electricity and natural gas sectors; 4) encouraging the use of domestic gas resources.

Efficiency

EE priorities:

Promote growth of efficiency in the areas of electricity generation, transmission, dispatch, distribution, import, export and consumption, as well as in the areas of natural gas supply, transportation, distribution and consumption.

EE standards for appliances:

Licensees shall measure the quantity of electricity by the use of metering equipment and procedures that satisfy rules, standards, and other requirements and shall make this information available. Inspections of metering equipment can be carried out.

Pricing

Energy pricing:

The National Electricity Regulatory Commission sets and regulates wholesale and retail tariffs for electricity generation, transmission, dispatch and distribution. Same applies to tariff setting for supply, transportation, distribution and consumption of natural gas. ----Tariffs set by the Commission shall: protect consumers from monopolistic activities; provide licensees with an opportunity to recover costs, including prudently incurred fuel, operating, and maintenance costs, the principle and interest costs of money borrowed for prudent investments and working capital. At same time, tariffs shall imply just and reasonable profit on invested equity sufficient to attract financing for the development of the sector; encourage economic efficiency within the electricity and natural gas sectors by setting a short-run and long-run marginal costs and by sending price signals regarding the relative abundance or scarcity of the supply of electric power services; allow the licensees to cover all economically reasonable expenses, including expenses for acquiring licenses on relevant services and covering regulatory fees, as well as expenses associated with tariff setting fee and wholesale market membership; take into account state policy with regard to categories of electricity and natural gas consumers, provided, that it shall not prevent a licensee from exercising any rights granted in its license to disconnect any customer for failure to meet payment obligations; take into account state subsidization policy. --- Tariff differentiation classifies consumers into categories and reflects the quantity of peak, average, or overall usage, the season, the time of day, the types of services purchased, or similar parameters. Performance-based tariffs, including revenue indexing, price indexing, and other innovative tariff methodologies may also be used, if the Commission finds the use of such methodologies to be in the interest of licensees and consumers.

Energy Supply and Infrastructure

Infrastructure development priorities:

Develop safe, reliable, and non-discriminatory interconnection and operation of the transmission network and connected facilities.

Trade

Energy trade priorities:

The policy highlights national priorities in the field of energy and places an emphasis on licensing of export and import activities.

Investment

Energy sector investment priorities:

Encourage domestic and foreign investment participation in rehabilitation and development of electricity and natural gas sectors.

Electricity wholesale markets:

Based on a development of the competition and through the regulation of existing non competitive market, provide establishment of the Wholesale Electricity and Natural Gas Markets and tariff systems, which shall accurately reflect economically justified electricity generation, transmission, dispatch, distribution, export, import, and consumption costs, as well as costs associated with Natural Gas transportation, distribution, supply and consumption.---The Georgian Wholesale Electricity Market is a legal person of private justice, created with a purpose of governing the wholesale electricity (capacity) trading activities and gradual development of the competition within the electricity sector. Its organizational-legislative form shall be a Union (Association) of licensees and direct customers.[...] Wholesale Electricity Market shall conform in its activity with the main principles of the State Energy Policy and State Energy Security.[...] The main principles of the Wholesale Electricity Market's operations are as follows: independence; Economic Viability and Soundness; Guaranteed and timely financial settlement; Equality of Market Members; Transparency.

Investment climate development:

Encourage domestic and foreign investment participation in rehabilitation and development of electricity and natural gas sectors.

Governance

Energy management principles:

Provide the legal basis for reliable electricity and natural gas supply for all categories of consumers.---Encourage the use of indigenous gas resources.---Promote competition in Georgia's electricity and natural gas markets.---The National Regulatory Commission on Energy may issue licenses to exercise the right to engage in export / import of electricity, supply, transportation and distribution of natural gas.

Energy institutional structures:

[T]he Ministry of Fuel and Energy shall elaborate and implement the state policy on electricity and natural gas. --- The Ministry of Fuel and Energy shall be responsible under the Laws of Georgia for granting permits regarding the siting of generation facilities and granting all licenses and permits for electricity or natural gas transit facilities, which are not to be connected to the Transmission Grid and to natural gas transportation system. ---The National Electricity Regulatory Commission is established as a permanent independent national body which does not conduct economic activities and has the status of a legal entity of public justice. The Commission is not subordinated in any way to any other government agency or institution. The Commission carries out its program of work and activities based on the Constitution of the Republic of Georgia, international treaties, the present Law, the Charter of the Commission, and other regulatory documents.

Technology

Natural gas transportation technology:

The National Regulatory Commission on Energy may issue licenses to exercise the right to engage in export / import of electricity, supply, transportation and distribution of natural gas.

Full Document Text

LAW OF GEORGIA

ON ELECTRICITY AND NATURAL GAS

Law of Georgia No 1934 of 30 April 1999 - LHG I, No 15(22), 14.5.1999, Art. 63

Chapter I - General Provisions

Article 1 - Scope, purpose and objectives of the Law

1. This Law regulates activities and relations of individual entrepreneurs, natural and legal persons in the areas of water supply, electric power system management, wholesale electricity (capacity) trading, power generation, transmission, dispatching and distribution, supply of electricity by electricity wholesale supplier, import, export and consumption, as well as in the areas of supply, import, export, transportation, distribution and consumption of natural gas. This Law ensures the functioning and development of water supply, electricity and natural gas sectors in compliance with the principles of a market-oriented economy.

1¹) This Law shall not apply to:

a)Pumping and/or extracting water from surface-water or groundwater bodies;

b)Exploration, extraction, processing and collection of natural gas; to relations between natural gas producers and suppliers, as well as to transiting natural gas through the territory of Georgia.

12) Only those provisions of this Law that directly and immediately refer to and regulate transit of electricity and issues related thereto shall apply to the transit of electricity through the territory of Georgia and issues related thereto.

13) provisions of this Law that solely apply to generation of power by a micro power plant owned by a retail consumer, and to its delivery to the distribution network shall be those that directly and immediately regulate these issues and the relations connected thereto.

2. The purpose of the Law is to:

a) ensure the creation of markets for electricity and natural gas and tariff systems in Georgia by developing competition and using existing mechanisms for regulating a non-competitive market and on that basis, to accurately reflect in tariff systems those economically justifiable costs that have been incurred for water supply, power generation, transmission, dispatching, distribution, import, export and consumption, as well as for supply, import, export, transportation, distribution and consumption of natural gas;

b)Create the legal basis necessary for the supply of electricity, natural gas and water to all categories of consumers;

c) Encourage domestic and foreign investments in order to rehabilitate and develop the electricity, natural gas and water supply sectors;

d)Support predominant use of local hydropower and other renewable, alternative and natural gas resources.

3. The objective of the Law is to:

a) task the Ministry of Economy and Sustainable Development of Georgia with developing the main areas of national policy in the energy sector, including the electricity and natural gas sectors, with ensuring implementation of those areas, and creation and adoption of a legal and regulatory framework;

b)determine basic principles for regulating generation, transmission, dispatching and distribution, supply of electricity by electricity wholesale supplier, import and export of electricity, as well as supply, import, export, transportation and distribution of natural gas; also, basic principles for regulating consumer relations and activities based on publicity and equality, and, for this purpose, establish legal basis for setting up an independent energy sector regulatory system;

c) promote the increase in efficiency of generation, transmission, dispatching and distribution, supply of electricity by electricity wholesale supplier, import, export and consumption of electricity, as well as supply, import, export, transportation, distribution and consumption of natural gas;

d)Promote the development of competition in electricity and natural gas markets of Georgia;

e) ensure the formation of electricity and natural gas markets and tariff systems in Georgia and, on their basis, the establishment of a legal basis for tariff regulation that will protect consumers from monopoly tariffs and at the same time promote long-term financial stability and development of the energy sector;

f) Assign the Georgian National Energy and Water Supply Regulatory Commission the task of regulating tariffs in the area of drinking water supply, drainage and treatment of sewage liquors.

Law of Georgia No 1934 of 30 April 1999 - LHG I, No 15(22), 14.5.1999, Art. 63

Law of Georgia No 1124 of 22 March 2005 - LHG I, No 13, 12.4.2005, Art. 77

Law of Georgia No 2537 of 27 December 2005 - LHG I, No 59, 31.12.2005, Art. 448

Law of Georgia No 3292 of 9 June 2006 - LHG I, No 21, 15.6.2006, Art. 179

Law of Georgia No 5466 of 20 November 2007 - LHG I, No 40, 3.12.2007, Art. 378 Law of Georgia No 92 of 5 July 2008 - LHG I, No 13, 16.7.2008, Art. 104

Law of Georgia No 4395 of 11 March 2011 - website, 17.3.2011

Law of Georgia No 452 of 25 March 2013 - website, 5.4.2013

Law of Georgia No 1902 of 27 December 2013 - website, 31.12.2013

Law of Georgia No 4797 of 2 March 2016 - website, 14.3.2016

Law of Georgia No 4025 of 22 December 2018 - website, 25.12.2018

Article 2 - Definitions

The terms used in this Law have the following meanings:

a) electricity transmission activity - operation of a transmission network in order to transfer electricity (capacity) from the point of receipt to the point of delivery by means of a transmission network.

b) transmission network - an electricity (capacity) transmission facility connecting points of receipt to points of delivery. A transmission network includes high voltage transmission facilities transmitting over 110 kV, including substations and transmission lines, as well as transmission networks and corresponding substations with different voltage levels that are expressly specified in the transmission licence and are used for the system and/or inter- system transit of electricity. The Ministry of Economy and Sustainable Development of Georgia shall approve the list of transmission lines intended for system and inter-system transit of electricity. It is mandatory to transfer transmission network, all parts of a transmission network to the transmission system operator with the right to operate by signing the appropriate agreement, except for the cases, when the electricity transmission licensee and electricity dispatch licensee is one and the same person;

c) distribution network - an electricity (capacity) distribution facility that connects points of delivery with consumers. A distribution network comprises 0.4 - 3.3 – 6 – 10 – 35 - 110 kV grids, except for the exceptions referred to in sub-paragraph (b) of this article. The same term shall be used to denote a natural gas distribution network, which includes 1.2 - 0.6 - 0.3 - 0.005 MPa gas pipelines;

d) electricity distribution activity - receipt of electricity (capacity) from two or more independent points of delivery (from two or more substations owned by a transmission licensee and electricity generator), operation of the distribution network and sale (distribution) of received electricity to retail consumers, as well as wheeling of electricity;

e) electricity dispatching activity- technical management of licensees and consumers to ensure stable supply and consumption regime, and parallel operation of electricity systems of Georgia and of another country (other countries). Only one dispatch license shall be issued in Georgia;

f) Commission - the Georgian National Energy and Water Supply Regulatory Commission;

g) licence - a right granted under a resolution of the Georgian National Energy and Water Supply Regulatory Commission to a person who meets the requirements determined by law to carry out the activities defined in this Law;

h) licence holder (licensee) - a person who has been granted the right under a resolution of the Georgian National Energy and Water Supply Regulatory

Commission to carry out the activity specified in the license;

i) point of receipt - a point where a transmission and/or distribution licensee receives electric power and energy into the transmission and/or distribution network from the network of a generation licensee and/or another transmission licensee and/or another distribution licensee, including import of electricity from the network of small power plants and from the energy systems of other countries; or a point where a natural gas transportation licensee receives natural gas into the transportation system, including import;

j) point of delivery - a point where a transmission and/or a generation licensee supplies electric power and energy from the transmission and/or generation network to a distribution licensee, electricity direct customer and/or the energy system of another country; or a point where a natural gas transportation licensee supplies natural gas from the transportation system to a natural gas distribution licensee, natural gas direct customer and/or transportation systems of other countries;

j¹) consumer - a direct or retail consumer, as well as a person, who consumes drinking water from the water supply system for his/her personal needs;

k) direct customer – electricity direct customer and natural gas direct customer;

k¹) Direct customer of Electricity:

k¹.a) The customer, who meets compulsory criteria defined for direct customers of electricity by the decree of the Government of Georgia;

k¹.b) Any other customer besides the one defined by subparagraph “k¹.a” of this Article, who meets the requirements established by the Electricity (Capacity) Market Rules and is voluntarily registered as a wholesale trade participant direct consumer of electricity.

Note:

Registration as a direct customer has an irreversible character.Accordingly, the person registered as a direct consumer has no right to request registration as a retail customer.

Direct customer created as a result of change of ownership/possession right on the object (objects) or its part (parts) owned/possessed by direct customer is new direct customer, despite the change of the scheme of joining the network.

K²) natural gas direct customer – person/entity who is connected to the transportation system and receives natural gas on this way, consumes it only for its own needs and is not distribution licensee;

l) regulation fee - a fee defined by the Law of Georgia on Regulation Fees;

m)electricity generation activity - connecting a generation facility to transmission, distribution, and/or consumer electric networks and supplying electricity (or ensuring readiness for its supply) within transmission, distribution, or consumer electric networks; also, selling this electricity, except as provided for in Article 23⁵of this Law;

n) exporter - a person, who sells electricity (capacity) at the point of delivery outside Georgia;

o) importer - a person, who receives and sells, and/or consumes electricity (capacity) from outside of Georgia at one or more points of receipt;

p) (deleted)

q) (deleted)

r) (deleted)

s) Electricity (Capacity) Market Rules - a document that regulates:

s.a) operation of the electricity market;

s.b) activities of an electricity market operator and a dispatch licensee;

s.c) technical, commercial and legal relations connected with the purchase and sale of electricity on the basis of direct contracts and/or through an electricity market operator;

s.d) terms for concluding direct contracts and their entry into force;

s.e) technical, commercial and legal relations connected with generation, transmission, dispatching, wheeling and distribution of electricity and activity of electricity wholesale supplier; providing the unified power grid of the country with firm capacity; import and export of electricity; parallel operation of electricity systems; and consumption of electricity generated by a generation licensee and by a small power plant for their own use;

s.f) setting exclusive terms and procedures for qualified enterprises according to the principles defined by this Law for generation, supply of electricity by electricity wholesale supplier, consumption, import and export of electricity;

s.g) procedures and conditions for allocation, without holding a special auction, of the transfer capacity of a transmission line intended for inter-system transit (flow) of electricity;

s.h)a procedure for determining the principles and conditions for holding a special auction for the allocation of the transfer capacity of a transmission line intended for inter-system transit (flow) of electricity;

s.i) procedures for drawing up and implementing electricity (capacity) balances;

s.j) procedures and conditions for determining a balancing electricity price;

s.k) a procedure for determining actual losses within the electricity system, including during the transit of electricity;

s.l) grounds and criteria for granting the status of a new transmission line intended for inter-system transit (flow) of electricity and procedures for testing a new transmission line intended for inter-system transit (flow) of electricity;

s.m) a procedure for importing electricity in the case of an accident in the power grid of Georgia, and for exporting electricity in the case of an accident in the power grid of a neighbouring country;

s.n)other issues connected with relations defined in this paragraph;

t) (deleted)

u) natural gas or gas - hydrocarbons, which are in a gaseous state at pressure of 1.2 MPa and temperature of 200⁰C, and heat content of which is at least

31.8 MJ/m³(7 600 kcal/m³);

v) natural gas transportation system or transportation system - all pipelines, compressor stations, metering stations, and other facilities that are used for natural gas transportation, that operate or are designed to operate at pressures greater than 1.2 MPa, that connect a point of receipt to a point of delivery, and that are owned, managed and/or operated by a transportation licensee. A transportation system includes all pipes and facilities, operating or designed to operate at pressures greater than 1.2 MPa, including compressor stations, metering stations, and other facilities specified in the transportation licence;

w)natural gas transportation activity - operation of a transportation system in order to transport natural gas through the transportation system from the point of receipt to the point of delivery;

x) natural gas distribution activity - receipt of natural gas from one or more points of delivery, operation of a distribution network, and supply of natural gas to consumers within the limits of a specific distribution network at the request of a supplier;

y) supplier - a person, who buys natural gas and sells it to other suppliers and/or consumers;

z) the Ministry - the Ministry of Economy and Sustainable Development of Georgia;

z¹) Natural Gas Market Rules - a document that regulates technical, commercial and financial relations arising from purchase-sale, wheeling and transportation of natural gas, including the procedure for drawing up and implementing natural gas balances;

z²) parallel operation of the electricity system - a process of synchronous operation of one or more neighbouring electricity systems (or parts of electricity systems) having the same parameters, which is intended to ensure stability of the electricity system. The same term shall be used to define the process of the asynchronous operation of one or more neighbouring electricity systems (or parts of electricity systems);

z³) (deleted)

z⁴) reliability standards - the ability of a transmission or a transportation licensee to meet the requirements necessary for operating the system, irrespective of changes in operating conditions; this standard may be included in a relevant normative act, as well as in relevant licences;

z⁵) reliability standard of a contracting party - the requirement for a dispatch or transportation licensee and for the other contracting party to adequately reflect their expected load and variations in such a way as not to impose unjustified costs on the contracting parties; this standard may be reflected in the rules of the relevant market, as well as in relevant licences;

z⁶) deregulation - based on this Law and under a normative administrative-legal act, granting to a generation licensee the right to operate without setting a tariff, or granting to a small power plant the right to operate without a licence and without setting a tariff, also, granting the right to operate without setting a tariff for the supply of natural gas, as well as in the case of construction of new transportation or distribution networks granting the right to operate without setting a tariff for transportation or distribution of natural gas respectively;

z6 ¹) partial deregulation - based on this Law and under a normative administrative-legal act, granting to a generation licensee the right to operate based on a marginal tariff or granting to a small power plant the right to operate based on a marginal tariff and without a license; also, granting the right to operate based on a marginal

tariff for the supply of natural gas, as well as in the case of construction of new transportation or distribution networks granting the right to operate based on a marginal tariff for transportation or distribution of natural gas respectively;

z⁷) emergency situation - a situation defined by the Law of Georgia on State of Emergency;

z⁸) Market Rules - 'Electricity (Capacity) Market Rules' and 'Natural Gas Market Rules';

z⁹) Supply and Consumption Rules - 'Electricity (Capacity) Supply and Consumption Rules', 'Natural Gas Supply and Consumption Rules', and 'Drinking

Water Supply and Consumption Rules';

z¹⁰) Electricity (Capacity) Supply and Consumption Rules - a document regulating relations between distribution licensees, small power plants on the one hand, and retail consumers on the other hand, during the sale, purchase, distribution, wheeling and/or consumption of electricity through the distribution network; also a procedure for delivery of electricity to a distribution licensee by a retail consumer owning a micro power plant, deduction of the electricity delivered, and/or payment of the fee for excess electricity;

z¹¹) Natural Gas Supply and Consumption Rules - a document that regulates relations between suppliers, distribution licensees and/or retail consumers during the sale, purchase, distribution, wheeling and/or consumption of natural gas through the distribution network;

z¹²) small power plant - a power plant, the design capacity of which does not exceed 13 MW; also, this term shall denote, based on the context, a person who owns and operates such power plant.

z¹³) retail consumer -A customer who is not a direct customer of electricity and direct customer of natural gas which receives natural gas from the distribution licensee network and consumes only for its own needs;

z¹⁴) direct contract - a bilateral power purchase agreement between a wholesale buyer and a seller of electricity (a qualified enterprise) that defines the amount, price, term, conditions, and quality parameters of the electricity and capacity to be purchased, and that is duly registered by a dispatch licensee;

z¹⁵) balancing electricity - electricity (capacity) purchased and/or sold by qualified enterprises, which is used to meet actual needs of buyers and sellers, and to balance the contracted amount of the electricity stipulated in direct contracts;

z¹⁶) firm capacity - capacity provided by sources of firm capacity, that contributes to the stability and safe and reliable operation of the country’s unified power grid, and the amount of which for each firm capacity source is defined by the Government of Georgia;

z¹⁷) qualified enterprise - generation and distribution licensees, electricity wholesale supplier, direct customers, importers, exporters, electricity market operator, and small power plants, which are eligible to participate in electricity (capacity) wholesale trade under this Law and the Electricity

(Capacity) Market Rules, and persons in cases provided for under Article 24¹(2) of this Law;

z¹⁸) electricity market operator ('the market operator') - the Joint Stock Company ‘Electricity System Commercial Operator' (‘ESCO’) (identification code No 205170036) or its legal successor that buys and sells balancing electricity and firm capacity to satisfy (to balance) the demand of qualified enterprises. It also performs the duties provided for by this Law according to the legislation of Georgia;

z¹⁹) long-term tariff – a pre-defined fixed or marginal price set for not less than three years;

z²⁰) firm capacity source – a power plant or power plants (a generation licensee or generation licensees) determined by the Government of Georgia to ensure safe operation of the national power grid and to provide it with the required minimum firm capacity, which is (are) able in an idle state to synchronise with the electricity system within not later than 24 hours, and develop capacity within not later than the next 12 hours. The Government of Georgia shall also define the period during which the relevant source will provide the country's unified power grid with firm capacity. Further, in case of a thermal power plant built after 2010, the Government of Georgia may define the percentage of constant (fixed) expenses that are determined by the Commission, which must be paid for by the firm capacity fee;

z²¹) wheeling - except for transmission services, transfer of electricity (capacity) owned by a third person to the electrical grid owned by a pre-defined person through the network of a distribution or a generation licensee, of a small power plant or electricity direct customer; also, transferring of natural gas owned by another person through the network of a natural gas distribution licensee;

z²²) water supply activity - operation of a drinking water supply system, supplying drinking water to customers and/or sewage services within the limits of a specific water supply system/systems;

z²³) drinking water - water of an appropriate quality as defined by technical regulations for drinking water;

z²⁴) sewage – drainage of waste waters and its treatment in treatment facilities until it reaches permissible standards;

z²⁵) drinking water supply system – an aggregation of water receipt, transportation, and distribution networks (pipelines, reservoirs, open and closed canals, pumping stations if necessary, etc.) used for supplying drinking water to water consumers;

z²⁶) drinking water supply - supplying drinking water to water consumers by means of a drinking water supply system;

z²⁷) Drinking Water Supply and Consumption Rules - a document that regulates relations between a supplier and a consumer when buying, selling, supplying, and consuming drinking water through a drinking water supply system;

z²⁸) drinking water consumption rate - a rate of drinking water per capita defined during calculation of a water supply tariff by the Georgian National

Energy and Water Supply Regulatory Commission individually for each water supply licensee, which shall be reflected in the water supply tariff;

z²⁹) renewable energy sources- all non-fossil and sustainable energy sources that are generated by, but not limited to: bio- and hydro powers, geothermal, solar, wind, and marine (including tidal, wave and thermal) energies;

z³⁰) Network Rules -”Electricity Network Rules” and “Natural gas Network Rules”;

z³¹) transit ordering party - a person who has concluded with an electricity dispatch licensee an agreement provided for in Article 41⁴(1) of this Law;

z³²) transmission system operator – an electricity dispatch licensee that has concluded an appropriate agreement with electricity transmission licensees on transferring their authority of operation and development planning of their transmission network to the electricity dispatch licensee, and that performs the functions provided for by the above agreement, in accordance with the procedure provided for by the legislation of Georgia;

z³³) micro power plant – a renewable source of power owned by a retail consumer, which is connected to the electricity distribution network in the point of electricity consumption by the retail consumer, and whose power capacity does not exceed 100 kW;

z³⁴) “Electricity Network Rules” - a normative document approved by the Commission, which combines transmission network and distribution network managing and using (including, connection) procedures, conditions and principles (Except for the issues envisaged by the Technical Regulations approved by the Government of Georgia) for managing and using transmission and distribution networks, and define relations in that area between relevant licensees and subjects that use their services;

z³⁵) “Natural Gas Network Rules” – a normative document approved by the Commision, which combines transportation system and distribution network managing and using (including, connection) procedures, conditions and principles (Except for the issues envisaged by the Technical Regulations approved by the Government of Georgia) for managing and using transmission and distribution networks, and define relations in that area between relevant licensees and subjects that use their services.

z³⁶) "Service Quality Rules" - the normative administrative-legal act, approved by the Commission, which sets for the electricity and natural gas distributor licensees, water supply licensees and naturel gas suppliers (who provide the retail consumers with the natural gas) the minimum level of standards of services related to informing the consumer about the timely elimination of interruption and reduction of supply, interruption of supply as well as respond to the consumer’s request, the conditions of real time control of this service process, the target indicators of performance standards and the rule of issuance of compensation to the consumer;

z³⁷) “Investment Evaluation Rule” - the normative administrative-legal act, approved by the Commission, which sets the rule and conditions of submission to the Commission and approval by the Commission of the investment plans and their constituent projects to be carried out by the licensees, who are subject to the tariff regulations and also the rule and conditions of introducing changes to the agreed investment plans and/or projects and implementing those changes;

z³⁸) "Rule of Energy Markets Monitoring" - the normative administrative-legal act, approved by the Commission, that establishes the forms and data of reports to be submitted to the Commission by the enterprises that are subject to regulation in the energy sector as well as their means of submission and periodicity, principles of protecting confidentiality and transparency, also periodicity, rule and terms of publication of the results of monitoring of energy markets Conditions by the Commission;

z³⁹) "Electricity Wholesale Supplier” – enterprise, which supplies electricity wholesale supply activity in accordance with this Law and “Electricity

(Capacity) Market Rules”.

Law of Georgia No 1934 of 30 April 1999 - LHG I, No 15(22), 14.5.1999, Art. 63

Law of Georgia No 2537 of 27 December 2005 - LHG I, No 59, 31.12.2005, Art. 448

Law of Georgia No 3292 of 9 June 2006 - LHG I, No 21, 15.6.2006, Art. 179

Law of Georgia No 4911 of 8 June 2007 - LHG I, No 22, 19.6.2007, Art. 195

Law of Georgia No 5466 of 20 November 2007 - LHG I, No 40, 3.12.2007, Art. 378

Law of Georgia No 5803 of 7 March 2008 - LHG I, No 6, 25.3.2008, Art. 15

Law of Georgia No 92 of 5 July 2008 - LHG I, No 13, 16.7.2008, Art. 104

Law of Georgia No 1558 of 31 July 2009 - LHG I, No 24, 13.8.2009, Art. 138

Law of Georgia No 3162 of 28 June 2010 - LHG I, No 35, 12.7.2010, Art. 208

Law of Georgia No 3349 of 6 July 2010 - LHG I, No 35, 12.7.2010, Art. 213

Law of Georgia No 3295 of 2 July 2010 - LHG I, No 37, 14.7.2010, Art. 226

Law of Georgia No 4065 of 15 December 2010 - LHG I, No 72, 22.12.2010, Art. 437

Law of Georgia No 4395 of 11 March 2011 - website, 17.3.2011

Law of Georgia No 4865 of 21 June 2011 - website, 6.7.2011

Law of Georgia No 452 of 25 March 2013 - website, 5.4.2013

Law of Georgia No 1902 of 27 December 2013 - website, 31.12.2013

Law of Georgia No 2933 of 12 December 2014 – website, 23.12.2014

Law of Georgia No 4587 of 10 December 2015 – website, 22.12.2015

Law of Georgia No 4797 of 2 March 2016 - website, 14.3.2016

Law of Georgia No 5499 of 22 June 2016 - website, 29.6.2016

Law of Georgia No 1187 of 30 June 2017 - website,13.7.2017

Law of Georgia No 1651 of 07 December 2017 - website,14.12.2017

Law of Georgia No 2326 of 04 May 2018 – website, 11.05.2018

Law of Georgia No 4025 of 22 December 2018 - website, 25.12.2018

Chapter II - National Policy in Electricity and Natural Gas Sectors

Law of Georgia No 1934 of 30 April 1999 - LHG I, No 15(22), 14.5.1999, Art. 63

Article 3 - Developing and implementing national policy in electricity and natural gas sectors

1. The Ministry shall develop principal areas of national policy in the energy sector and ensure its implementation after their approval by the Parliament of Georgia. In the process of attaining this objective, the Ministry shall have the following main functions:

a)developing short-, medium-, and long-term development strategies and priorities in the energy sector, as well as developing and coordinating energy sector programmes based on these strategies and priorities;

b)supporting the attraction of short-, medium-, and long-term investments and credit resources, as well as injecting state investments in order to rehabilitate and develop the energy sector;

c)supporting the optimisation of restructuring and privatisation processes in state-owned enterprises in the energy sector and promoting the development of competition in electricity and natural gas markets; also, developing procedures and strategies for conservation and liquidation of facilities in these sectors;

d)participating in the establishment and development of a legislative and regulatory framework; monitoring technical and economic situations in the energy sector;

e)coordinating the development and implementation of a unified state programme of measures for increasing the efficiency of generation, transmission, dispatch and distribution, providing of electricity by electricity wholesale provider, import, export and consumption of electricity, as well as supply, import, export, transportation, distribution and consumptionof natural gas;

f)promoting the development of research, design, and educational programmes in the energy sector, including supporting the attraction of investments and credit resources, and injecting state investments;

g)promoting environmental protection in the energy sector, and optimal consideration of environmental aspects when developing and implementing programmes;

h) promoting establishment of relationships between licensees, importers, exporters, suppliers and foreign energy enterprises; also, supporting transit and import-export relations in electricity and natural gas sectors;

i)developing a national strategy for emergency situations in the energy sector;

j) determining a safety strategy for the energy sector, developing recommendations, as well as studying the causes of accidents and other technical failures, and preparing appropriate reports;

k)promoting expansion of the extraction of energy resources, giving priority to the use of renewable (alternative) energy sources, and supporting energy-efficient measures related to the increase of generation efficiency;

l)(deleted)

2.The functions of the Ministry shall not include implementation of ownership, regulatory and operational-economic activities in the electricity and natural gas sectors.

3.The Ministry shall also approve the following documents by an order - a normative administrative-legal act:

a) electricity (capacity) balance b) natural gas balance

c) Electricity (Capacity) Market Rules d) Natural Gas Market Rules

e) Regulations and procedures for installation and safe operation of power facilities, equipment and installations;

f) Ten-year Transmission Network of Georgia Development Plan – based on the consent of the Government of Georgia.

4. The following power plants are deregulated:

a) The power plant, which is built after August 1, 2008 and is not a source of guaranteed capacity;

b)The power plant project capacity of which does not exceed 40 megawatts and is not a source of guaranteed capacity.

4¹. In addition to the cases envisaged by paragraph 4 of this Article, the Ministry has the right to make a decision on deregulation or partial deregulation, based on state policy.

5.(Deleted)

6.Protected zones of power facilities, corridors in forested areas and woodlands, the parameters of the roads leading to protected zones, the restrictions in place and conditions for conducting works within protected zones.

Law of Georgia No 1934 of 30 April 1999 - LHG I, No 15(22), 14.5.1999, Art. 63

Law of Georgia No 1124 of 22 March 2005 - LHG I, No 13, 12.4.2005, Art. 77

Law of Georgia No 2537 of 27 December 2005 - LHG I, No 59, 31.12.2005, Art. 448

Law of Georgia No 3292 of 9 June 2006 - LHG I, No 21, 15.6.2006, Art. 179

Law of Georgia No 4911 of 8 June 2007 - LHG I, No 22, 19.6.2007, Art. 195

Law of Georgia No 92 of 5 July 2008 - LHG I, No 13, 16.7.2008, Art. 104

Law of Georgia No 3349 of 6 July 2010 - LHG I, No 35, 12.7.2010, Art. 213

Law of Georgia No 1291 of 24 September 2013 - website, 8.10.2013

Law of Georgia No 1187 of 30 June 2017 - website,13.7.2017

Law of Georgia No 2933 of 12 December 2014 – website, 23.12.2014

Law of Georgia No 4025 of 22 December 2018 - website, 25.12.2018

Article 3¹- Unified automated management tools

The Ministry and Commission may use a piece of software and unified automated management tools for office work and to ensure access to information.

The Ministry and Commission may receive, publish, or issue any information and/or documents using unified automated management tools.

The Ministry and Commission may keep and issue an electronic copy of any document prepared or held by them.

(deleted)

Data may be entered into a document published or issued by the Ministry and Commission using mechanical and/or electronic tools.

The Commission is entitled to establish a normative administrative-legal act to establish obligation on the reporting of enterprises subject to regulation and / or the obligation to carry out the corresponding by automatic turnover between the Commission and enterprises subject to regulation and at its own expense, to ensure the proper operation of the software through its own or third party.

Law of Georgia No 5644 of 27 December 2011 - website, 9.1.2012

Law of Georgia No N651-IIს of 21 April 2017 - website, 10.05.2017

Law of Georgia No 1187 of 30 June 2017 - website,13.7.2017

Article 3²- Ten-year Transmission Network of Georgia Development Plan

1.The purpose of working out the Ten-year Transmission Network of Georgia Development Plan shall be the reliability, safety, and sustainable development of the transition network, provision of electricity of adequate quality, and raising the transit capacity of the electricity network of the country.

2.The Ten-year Transmission Network of Georgia Development Plan implies:

a) information on the present and future (forecast) electricity requirements and supply;

b) rational forecast of electricity generation, transmission, consumption, and the volume of exchange of electricity with other countries;

c) information on the transmission network infrastructure to be built or improved in the next 10 years, with the indication of concrete timeframes for implementing investment;

d) information on agreed investment and on identifying the new investment that is to be implemented in the next 3 years;

e) information on integrating new generation facilities (including, renewable energy sources) in the network;

f) information on transmission capacity of each unit of the future network for the purposes of integration of new generation facilities;

g) defining short circuit for the purposes of selecting power equipment for the units to be planned;

h) information on the development of the internal network of generation facilities.

The state agencies and organisations in the field of economy, finance and statistics, and the organisations in the field of energy, shall, within the sphere of their respective authority, provide the information, data and forecast that are to be considered in the Ten-year Transmission Network of Georgia Development Plan.

The transmission system operator shall, in agreement with electricity transmission licencees, annually, during the next 10 year, work out/update a draft Ten-year Transmission Network of Georgia Development Plan (this process shall involve carrying out all necessary research and assessment). The draft plan shall be forwarded to the Ministry and the Commission not later than 1 October of the respective year. The Commission shall consider the Ten-year Transmission Network of Georgia Development Plan within 1 month after receiving the draft, and shall present to the Ministry its Notes and Recommendations on the draft plan.

The Ministry shall consider the Ten-year Transmission Network of Georgia Development Plan and the submitted Notes and Recommendations together with the Commission, the transmission system operator, and the electricity transmission licences. The Ministry shall, based on the consent of the Government of Georgia, not later than the completion of the respective year, ensure the approval of the Ten-year Transmission Network of Georgia Development Plan.

Introducing ad hoc amendments to the Ten-year Transmission Network of Georgia Development Plan shall be possible, observing the procedures provided for by this Article. The draft ad hoc amendments to the plan may be worked out and submitted for consideration at any time during the calendar year.

The Ten-year Transmission Network of Georgia Development Plan shall be a binding act. The transmission system operator and the relevant electricity transmission licensees, as well as other legal persons, determined in the plan as responsible for the development of individual network components, shall be responsible for implementing the Plan.

All the electricity transmission licensees shall be obliged, based on the Ten-year Transmission Network of Georgia Development Plan, annually work out and submit for agreement to the transmission system operator, action programmes for the next 3 calendar years. The procedure for working out the above programme, considering and agreeing it with the transmission system operator shall be determined by the Electricity (Capacity) Market Rules.

The transmission system operator and electricity transmission licensees shall, submit for agreement to the Commission, the investments to be implemented during each next 3 calendar years, as determined by the Ten-year Transmission Network of Georgia Development Plan, approved under this Article. The Commission shall monitor the implementation of the above investments.

10 The Ministry shall control the implementation of the Ten-year Transmission Network of Georgia Development Plan.

Law of Georgia No 2933 of 12 December 2014 – website, 23.12.2014

Chapter III - Georgian National Energy and Water Supply Regulatory Commission

Law of Georgia No 1934 of 30 April 1999 - LHG I, No 15(22), 14.5.1999, Art. 63

Law of Georgia No 5466 of 20 November 2007 - LHG I, No 40, 3.12.2007, Art. 378

Article 4 - Status and functions of the Georgian National Energy and Water Supply Regulatory Commission

1.The Georgian National Energy and Water Supply Regulatory Commission ('the Commission') is an entity defined by the Law of Georgia on National Regulatory Bodies that is not set up by state-owned property.

2.The legal basis for the Commission's activity shall be the Constitution of Georgia, treaties and international agreements, this Law, the Statute of the Commission, and other legislative acts.

3.The Commission shall prepare and approve the Statute, structure, and staff list of the Commission.

4.The Commission may issue licences in the Georgian electricity and natural gas sectors, regulate activities of licensees, importers, exporters, the market operator, electricity wholesale suppliers and natural gas suppliers, as well as monitor the energy market.

5.The following shall be the main functions of the Commission:

a) to establish procedures and conditions for issuing licences for generation, transmission, dispatch, and distribution of electricity, as well as for transportation and distribution of natural gas, and for water supply; to modify and revoke licences according to the Law of Georgia on Licences and

Permits, this Law and licensing procedures;

b) under this Law and according to the principal areas of national policy in the energy sector, normative administrative-legal acts adopted on the basis of the national policy directions and in compliance with the established methodology to set and regulate tariffs for generation, transmission, dispatch, distribution, transit, import and consumption of electricity, also tariffs for services of the market operator, for transportation, transfer, distribution, supply and consumption of natural gas, for supplying drinking water, and for draining and treatment of waste waters, as well as to set and regulate firm capacity prices and tariffs for generation of electricity from a firm capacity source, except for tariffs for natural gas sold by filling stations;

c) to resolve, within the scope of its authority, disputes between licensees, small power plants, importers, exporters, electricity wholesale suppliers, natural gas suppliers, consumers and the market operator;

d) to monitor compliance with licence terms in the electricity and natural gas sectors, and implement measures provided by law in the case of violation of these terms;

e) to organize and coordinate certification activities in the energy sector;

f) (deleted)

g) (deleted)

h) to set a water supply tariff;

i) to determine drinking water consumption rates.

J) Regulation of the issues related to extinguishing fire, using the water extracted from the fire hydrants (regardless of their ownership form) by the Fire Rescue Section of the Emergency Management Agency (hereafter – Emergency Management Agency) – state institution of special purpose within the sphere of the Ministry of Internal Affairs of Georgia and accounting/reimbursement of the costs.