Energy Activity and Its Types
For the purposes of the law, energy activity covers, on the one hand, electricity sector activity, which includes the generation, transmission, distribution and supply of electricity, trading in electricity, the operation of the electricity market, the administration of a bilateral contracts platform and the operation of a closed electricity distribution system. On the other hand, natural gas activity includes the production, transmission and distribution of natural gas, the operation of a gas storage system, the operation of liquefied natural gas devices, supply, trading, market operation, the administration of a bilateral contracts platform and the operation of a closed distribution system.
An important exception is that the generation of electricity without using the transmission or distribution network, for the purpose of full personal consumption, is not regulated by the law, except where such a producer intends to sell surplus electricity to another electricity enterprise or to a customer. Thus, generation connected to the network, or surplus energy offered for sale, again falls within the scope of regulation.
The Public Service Obligation
Deriving from the general economic interest, and in order to ensure security and continuity of supply, appropriate quality and price, environmental protection, energy efficiency, energy production from renewable sources and climate protection, an energy enterprise may be charged with the obligation to provide public service. This obligation is imposed by the Government of Georgia after consultation with the competent state bodies, the regulatory commission and the Secretariat of the Energy Community. The public service obligation is a temporary measure and must be subject to regular review.
The imposition and performance of the public service obligation must be transparent, non-discriminatory and easily verifiable; it must be proportionate and must not restrict competition on the markets more than necessary. Compensation in financial or other form, or the granting of any exclusive right for performing the obligation, is carried out in a transparent and non-discriminatory way, and the benefit granted by the state must not exceed the costs of performing the obligation, taking into account the revenue received and a reasonable profit. The performing enterprise ensures security of supply, supply of predefined or agreed quality, regulated tariffs in defined cases, environmental protection and energy efficiency improvement, protection of human health, life and property, and protection of consumer rights.
Mandatory Licensing and Exceptions
The commission issues licenses for the following activities: in the electricity sector — electricity generation (with statutory exceptions), transmission, distribution and the operation of the electricity market; in the natural gas sector — transmission, distribution, operation of a storage system, operation of liquefied natural gas devices and market operation; as well as water supply. It is prohibited to carry out these activities without a valid license issued by the commission.
No license is required for: a person's generation of electricity solely for their own household or non-household consumption where the generation and consumption objects are not connected to the transmission or distribution network; generation at the time of commissioning of the object; generation by small and micro capacity power plants; and a closed distribution system operator whose status has been granted by decision of the commission. The activities of supply, trading and administration of a bilateral contracts platform do not require a license, but notifying the commission about them is mandatory.
Licensing Conditions
The commission licenses an enterprise that satisfies the conditions established by the Law on Licenses and Permits, the energy law and the licensing rules approved by the commission. Through its documentation, the license seeker must substantiate the following capabilities:
- technical, economic, financial and operational, human resource capabilities necessary for performing the functions related to the licensed activity under Georgian legislation;
- the ability to take all measures necessary to ensure the quality of the service to be provided;
- the ability to duly perform other obligations established by Georgian legislation for the respective activity;
- in relevant cases, also the ability to perform public service obligations.
These capabilities are mandatory licensing conditions: if the seeker cannot prove their existence, the commission will not issue the license. The licensee must ensure fulfillment of the licensing conditions throughout the entire period of validity of the license. During supervision, the commission is entitled to request documents confirming compliance with those conditions; failure to comply with this request is deemed a violation of the licensing conditions and entails liability.
The License Issuance Procedure and Supporting Documents
The license is issued in a transparent, objective, legally substantiated and non-discriminatory manner. Together with the application, the following must be submitted: documents confirming ownership or use of the devices or means necessary for the activity (where necessary, the commission may require the extension of the temporary ownership right for a minimum period defined by it); documents confirming commissioning or compliance with technical requirements; a single-line scheme and plan of the network or, for water supply, the system scheme and a technological description in the commission's form; the technical condition of connection or information on the connection point's technical parameters confirmed by the network operator; an environmental decision where it is mandatory under legislation; a list of operational assets with their values and an audit report on the financial statements; and information on the organizational structure confirming the availability of qualified human resources or documents confirming third-party performance of those functions.
For a water supply license, the submitted documents must confirm the compliance of the visible structures and devices of the drinking water supply systems with technical regulations, the pipelines' capacity to ensure safe, continuous, 24-hour and reliable supply of drinking water, and, for sewerage systems, the compliance of the treatment facility. Where the water supply means are used through third parties, that third party must be a water supply licensee. A transmission license seeker must satisfy the unbundling and certification requirements for the transmission system operator, and a distribution license seeker the unbundling requirements, submitting confirming documentation. The issuance of a license is confirmed by a license certificate indicating the licensee, the licensed activity, the service to be provided, the location of the main assets, the area of validity and the date of issue.
Refusal and Appeal
A license seeker may be refused a license only on the grounds established by the law and by the Law on Licenses and Permits. The refusal must be legally substantiated, based on the principles of objectivity, transparency and non-discrimination, and duly explained to the seeker. The refusal may be appealed in the manner established by legislation. Every refusal to issue an energy activity license, together with its reasons, is notified to the Secretariat of the Energy Community. The commission publishes on its website, and permanently updates, the complete list of documents to be submitted, the relevant regulatory acts and standard forms.
Notification and Transitional Deadlines
A small capacity power plant or an energy enterprise carrying out, or intending to carry out, the activity of supply, trading or administration of a bilateral contracts platform must notify the commission in the commission-approved form and submit a written notice no later than 5 working days from the start of the respective activity. The notice must be accompanied by registration data, addresses and, for a small capacity plant, the document confirming commissioning, as well as information on performed or planned activities and the estimated annual turnover. The notification is informational in nature: the commission has no right to prohibit an energy enterprise from carrying out this activity, although this does not limit its supervisory powers or the possibility of imposing a fine established by the law.
Under the transitional provisions, an enterprise operating under an authorization received before the law continues its activity under the old conditions until a new authorization is issued, and it had to apply for authorization within 2 months from the law's entry into force. The government was to ensure the approval of the electricity market model concept within 3 months from the law's entry into force, of the natural gas market model concept within 10 months, and the adoption of the relevant subordinate acts within 12 months. In the electricity sector, the authorization of the universal service provider and the supplier of last resort took place no later than July 1, 2021, and in the natural gas sector no later than July 1, 2022. The commission approved the market rules and supply rules within 4 months from the approval of the market model concept, and the transmission system operator certification rule within 3 months from the law's entry into force.