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23 December 2019

The Verkhovna Rada of Ukraine has updated the status of the NEURC

Introduction

On 19 December 2019, the Verkhovna Rada of Ukraine (the “Parliament”) adopted the Law of Ukraine “On Amendments to Some Legislative Acts of Ukraine on Ensuring Constitutional Principles in the Fields of Energy and Utilities” (the “Law”), which concerns amendments to the laws of Ukraine regulating the activity of the National Energy and Utility Regulatory Commission (the “NEURC”).

The Law has been adopted by the Parliament in line with the requirements of the Constitutional Court of Ukraine decision No. 5-р/2019 dd. June 13, 2019, which declared the following:

– certain provisions of the Law of Ukraine “On the National Energy and Utility Regulatory Commission” (the “Law about NEURC”) are not in compliance with the Constitution of Ukraine (are unconstitutional);
– these provisions of the Law about NEURC will expire on 31 December 2019.

I. Amendments to the Law of Ukraine “On the National Energy and Utility Regulatory Commission”.

What are the major amendments?

1. Instead of an independent state body, the NEURC will become a permanent central executive body with special status created by the Cabinet of Ministers of Ukraine. Accordingly, all the powers of the President of Ukraine and most of the relevant powers of the Parliament regarding the NEURC are transferred to the Cabinet of Ministers of Ukraine. In particular, the following powers will belong to the Cabinet of Ministers of Ukraine:

– powers governing determination of the composition of Competitive Commission for the selection of candidates for the positions of NEURC members (the “Competitive Commission”);
– organization of the Competitive Commission’s activity and the process of selecting NEURC members including information disclosure, power to appoint NEURC members and terminate their authorities, and others.

2. The basis of transparency of the NEURC activity is changed:

– the draft NEURC budget no longer requires public discussion. NEURC approves its budget independently, and the NEURC used funds report is no longer submitted to the Parliament, whether published on the NEURC website;
– minimum time period for submitting comments and suggestions to NEURC draft acts reduced from 1 month to 10 days;
– NEURC decisions with the features of regulatory acts no longer require publishing in official media; they take effect after publishing on the NEURC website;
– the live broadcast of the Competition Commission meeting on official websites (as it was prescribed in the previous edition) is no longer provided by the Law about NEURC.

3. Amended rules regarding the process of selection of NEURC members:

– one and the same person cannot be elected NEURC Chairman for two consecutive terms;
– the Law about NEURC was supplemented by a list of grounds for termination of powers of the NEURC Chairman ahead of schedule;
– rules governing the periodic rotation of NEURC members, rotation scheme, and on the prohibition of one person from being a member of NEURC for more than two terms, are excluded from the Law about NEURC.

4. NEURC functions and rights have been clarified and supplemented. Some rights are brought in line with existing legislation on licensing, electricity and natural gas markets. Among other amendments:

– NEURC can change the prices (tariffs) it sets based on the results of inspection/monitoring;
– NEURC can determine conditions, procedure and amount of compensation to consumers applicable in cases of non-compliance with established standards and requirements for the quality of customer service;
– NEURC can investigate breaches regarding the functioning of electricity and natural gas markets and set cap prices on electricity market segments.

5. The maximum regulatory contribution rate has been increased from 0.1 to 0.15 percent of the contribution payer’s net income.

6. NEURC powers to conduct inspections of business entities are expanded. The Law about NEURC is supplemented by the following basis for conducting unscheduled inspection:

– verification of the accuracy of information and data provided to NEURC;
– substantiated appeal of an individual, legal entity on violation of his legal rights;
– substantiated appeal of business entity or consumer on violation of the law on access to networks, violation of license conditions;
– identification of misuse of funds provided for by the established tariff structure and/or approved investment program.

A 30-day period has been set from the day a breach was discovered for NEURC to impose sanctions for breach of license conditions, energy and utilities legislation. The statute of limitations for liability for violation of licensing conditions, energy and utilities legislation is 5 years from the date of the breach, and in the case of a continuing breach, from the day the breach is completed. Additionally, the Law about NEURC is supplemented by NEURC’s right to take decisions on deferred or instalment payment of a fine imposed on the business entity based on its application.

II. The Law has also amended other legislative acts, in particular:

1. The Code on Administrative Offences of Ukraine is supplemented by a new article on liability (a fine of 8 500 UAH to 17 000 UAH) for breach of restrictions after termination of powers of the NEURC member.

2. In the Code of Administrative Proceedings of Ukraine the list of means by which the claim cannot be secured is supplemented by the following: suspension of the NEURC decision on setting of state regulated prices (tariffs) on the electric energy and gas market, and the approval of methods (procedures) for their setting (calculation); suspension of the Competition Commission’s decision, prohibition of the Cabinet of Ministers of Ukraine to appoint NEURC members.

3. In The Law of Ukraine “On the Natural Gas Market”, the list of grounds for imposing a fine of 51 000 – 850 000 UAH on natural gas market entities (except consumers) was supplemented, namely for failure to comply or untimely implementation of NEURC decisions; for non-compliance with regulatory requirements governing the functioning of the natural gas market.

4. In connection with the amendments made to the Law on the NEURC, the relevant amendments were made to the following legislative acts: the Laws of Ukraine “On the Committees of the Verkhovna Rada of Ukraine”, “On the Verkhovna Rada of Ukraine Regulations”, “On Basic Principles of the State Supervision (Control) in the Sphere of Business Activity”, “On State Regulation in the Field of Utilities”, “On Central Executive Authorities”, “On Licensing of Types of Business Activity”, “On the Electricity Market”, “On Amending Certain Laws of Ukraine Concerning the Reloading of Power”.

Conclusions

The purpose of the Law to a greater extent is to prevent the NEURC from blocking work from 31 December 2019 according to the relevant decision of the Constitutional Court of Ukraine, but given the procedure for its preparation, discussion and adoption, this law is temporary and situational, since it does not solve the main issue – namely the problem of NEURC independence.

If you would like to discuss the issues raised in this paper in more detail, please contact the SK Energy practice team.

Information contained in this legal alert is for general information purposes only, does not constitute legal or other professional advice, and should not be relied upon as a substitute for specific professional advice tailored to particular circumstances.

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