Regulatory changes with the adoption of the amended Law on Drinking Water Supply and Wastewater Management in Lithuania
In Lithuania, a significant regulatory overhaul has taken place with the adoption of the amended Law on Drinking Water Supply and Wastewater Management, which entered into force on 16 November 2022. The remit of the tasks for the National Energy Regulatory Council (NERC), the country’s multi-sectoral regulator responsible for technical regulatory functions together with economic market regulation in a number of sectors, including water supply and wastewater management, were expanded following the entry into force of the amended legislation. Previously, water and wastewater tariffs were assessed by the NERC and then approved by municipalities. With the amended legislation, prices are now exclusively set by the NERC, with base prices having a 5-year period (previously 3-years), subject to annual review according to the criteria set out in the methodology.
The changes come in response to the energy market turmoil experienced over the previous year when sharp increases in energy prices accounted for 30-40% of Lithuania’s water and wastewater tariffs. This put a lot of pressure on service providers, some of which have started to delay already planned investments. As a consequence, one of the main changes in the legislation involves the introduction of an extraordinary review mechanism so that when the purchase price of energy changes by more than 30% compared to the price used to calculate the current water and wastewater tariffs, operators can request an extraordinary review each time when energy prices increase or decrease on this scale. Between November and December 2022, 30 companies were subject to a price revision by the NERC due to an increase of more than 30% in electricity and gas tariffs.
The amended legislation also stipulates that if suppliers that ensure the provision of drinking water supply and wastewater management lack the funds for the investments necessary to provide drinking water supply and wastewater management services, an additional component of the price of drinking water supply and wastewater management services may be set. Drinking water suppliers must justify the lack of funds for these investments and coordinate them with the NERC in accordance with the NERC’s approved procedures for the assessment and coordination of investments.
Additionally, with the new revision, the NERC was granted the competency of setting the guarantee suppliers. As of November 2022, the NERC is tasked with selecting 10 guarantee suppliers in each region according to the criteria set out in the Law, reviewing each year whether the appointed guarantee supplier meets the criteria, if not, give a period of time to improve the indicators, and in the event that they fail to do so appoint a different guarantee supplier from the same or another region. The public water suppliers pay a contribution to the guarantor, which is calculated by NERC.
Incentives for consolidation
The law also sets out incentives for regional water suppliers in case of voluntary mergers, including a transitional price for drinking water supply and wastewater management for the regional suppliers, set for a maximum of 3 years from the establishment of the regional supplier, where consumers and subscribers of the same category pay a different price for the services than the price set for the reorganised public water suppliers prior to the establishment of the regional public water supplier, pending the implementation of efficiency measures.
An additional return on investment may also be granted to a regional supplier by the NERC if the funds allocated for the renewal of the connected public supplier’s drinking water supply and wastewater management infrastructure exceed the funds available to the connected public supplier from its own sources of financing prior to the connection (the average of the 3 most recent years of funds allocated for investments).
In the case that the regional supplier achieves cost savings through investments in the infrastructure, the benefits are shared between the supplier and the consumers and subscribers receiving its drinking water supply and wastewater management services.
Overall, the revised Law on Drinking Water Supply and Wastewater Management in Lithuania has brought considerable changes to the regulatory framework for water and wastewater management in the country. The aim of which is to ensure the safety and quality of water and wastewater services, as well as to promote efficiency and investment in the sector while responding to the challenges posed by the recent energy market turmoil.