The Law Amending the Ukrainian Regulator’s Status Entered into Force

Please be informed that on 29 December 2019 Law of Ukraine dated 19 December 2019 No. 394-IX (the “Law”) On Introduction of Changes to Law of Ukraine as to Ensuring Constitutional Principles in the Sphere of Energy and Utilities addressing the issue of constitutionality of on National Commission On State Regulation in the Sphere of Energy and Utilities (the “Regulator”) entered into force after its signing by the President of Ukraine and official publication. As informed earlier on 19 December 2019 the Ukrainian parliament adopted in the second hearing and in its entirety Draft Law No. 2490-1 dated 25.11.2019 to address the decision rendered by the Constitutional Court of Ukraine (the “CCU”) on 13 June 2019 (certain provisions of Law on Regulator have been declared unconstitutional by the CCU and would become invalid beginning on 31 December 2019 in the absence of the relevant amendments). The Law (a Ukrainian text) is available at https://zakon.rada.gov.ua/laws/main/394-IX).

Certain key points of the Law:

1.     New status

1.1.  The Regulator is a permanent body of central authorities of the executive power with a special status which is formed by the Cabinet of Ministers of Ukraine (the “CMU”) while the former version of the Law of Ukraine on the Regulator envisaged that it is a permanent independent agency (basically this one of the legislative provision which was rendered unconstitutional by the CCU).

1.2.  Special status shall be determined by laws and mean, inter alia, that there should be a special procedure for its organization, operation, special procedure for appointment of its members and dismissal, special procedural principles and guarantees for passing decisions, etc.

1.3.  The Regulator and its members shall act in accordance with Ukrainian laws as other state authorities. At the same time, any types of instructions from state authorities, parties, civic organizations, etc. shall be deemed as unlawful influence.

1.4.  The Regulator has obtained the status of the central authority of the executive power after the entry into force by the Law.

2.     Changes in powers of the Regulator

2.1.  The Law specifies that the Regulator regulates, monitors and controls certain activities in the power market, such as sales in day-ahead and intraday markets, securing purchase under “green” tariff and trading activity. The Regulator has obtained a power to establish the procedure for investigation of electricity and gas markets and procedure for licensing and certain other adjustments re its powers and their scope have been introduced.

2.2.  The Regulator is expressly authorized to set price caps at the day-ahead, intraday and balancing markets.

2.3.  The check of the accuracy of information provided in the reports and other documents submitted to the Regulator is a ground for an extraordinary inspection at the location of the regulated company and certain new grounds are for the inspection of the companies at the location of the Regulator.

2.4.  The Chairman of the Regulator approves the budget for the following year. The budget is no longer subject to approval or review by the Ukrainian parliament.

2.5.  The cap on the amount on the contribution to finance the Regulator has increased from 0.1% to 0.15% of the net income of the respective business entity. The Regulator is entitled to collect the respective contribution via court proceedings.

3.     Changes in the decision making process

3.1.  Decisions of the Regulator will enter into force after its official publication at its website unless later term is established by the decision and shall be published within 5 business days after their adoption (there will be no need to wait until their publication at an official newspaper).

3.2.  The minimal term for placing draft regulations by the Regulator at its website has been decreased from 1 month to 10 days. The term for publication at the Regulator’s website of comments and proposals and results of their review by the Regulator has decreased from 5 business days to 3 business days before possible the respective regulation. The Regulator will have a right at the request of the penalized company to defer the payment of the fine.

3.3.  Public hearings on the draft regulations on setting tariffs initiated by the Regulator are carried out at the Regulator’s location.

4.     Procedure for establishment of the Regulator

4.1.  The contest committee for appointment of the Regulator’s members shall be formed by the CMU and is composed of 5 members (4 members shall be appointed to make the committee competent):

4.1.1.3 persons suggested based on the submission from the parliamentary energy committee;

4.1.2.1 person based on a submission from the central authority in the sphere of energy (currently, the Ministry of Energy and Environmental Protection);

4.1.3.1 person based on a submission from the central authority in the sphere of regional development and utilities (currently, the Ministry of Regional Development, Building and Housing and Communal Services of Ukraine).

4.2.  The term of the contest committee’s operation is 3 years and the Law establishes detailed procedure for selection and operation of the contest committee.

4.3.  The procedure and conditions for the contest to select members of the Regulator shall be approved by the CMU.

4.4.  The contest committee shall provide for review of the CMU the list of candidates who have obtained the highest ranking (the Law determines the number of such candidates depending on the number of vacancies).

4.5.  The CMU shall appoint members of the Regulator from the list of candidates within 10 business days from the date of the receipt of the respective submission with the list of candidates from the contest committee.

4.6.  The term of powers of members of the Regulator is 6 years and in case of early dismissal, the new appointment shall be made via the contest procedures for the term of not less than 2 years.

4.7.  The Chairman of the Regulator is approved for 2 years and there is a possibility to dismiss him based on the voting of the Regulator at the request of at least 4 members of the Regulator.

4.8.  The current members of the Regulator shall remain at their positions within tenors they were appointed before the entry into force by the Law.

4.9.  The current members of the Regulator shall be replaced according to the schedule of their re-election provided by the Law (the first one shall be replaced by 1 July 2020 and 2 last members shall be replaced by 1 July 2025).

5.     Changes in the liability provisions

5.1.  There will 5-year statute of limitations for imposing sanctions by the Regulator (shall be calculated from the date of the relevant breach or its completion) instead of 3-year statute of limitation.

5.2.  The term for imposing the sanctions have been increased from 5 business days to 30 days from the breach discovery (relevant protocol).

6.     Miscellaneous

6.1.  The following provisional remedies may not apply by administrative courts

6.1.1.suspension of the Regulator’s 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);

6.1.2.suspension of the Contest Commission’s decision, prohibition of the CMU to appoint Regulator’s members.

6.2.  The new grounds are introduced for imposing of fines under Law of Ukraine On Natural Gas Market

6.2.1.failure to comply or untimely execution of the Regulator’s decision;

6.2.2.non-compliance with regulatory requirements governing the functioning of the natural gas market.

6.3.  Fines for restrictions by members of the Regulator after their dismissal.

This information does not constitute legal advice and is merely the author’s opinion.

Best regards,

Maksym