EMI Opinion on the Draft Law Amending and Supplementing the Energy Act (Ref. No. 51-554-01-116) of 12 June 2025

This opinion (full text in BG available in pdf here) of the Energy Management Institute has been prepared in connection with the proposed Law Amending and Supplementing the Energy Act (Ref. No. 51-554-01-116), published on the website of the National Assembly. The analysis covers the new texts providing for the extension of the sanctions regime for electricity distribution grid operators (EDOs), including in cases of objectively insurmountable circumstances such as natural disasters and extreme weather conditions, examples of which we saw last December (see more on this topic in the EMI publication It’s the grid, stupid!).

We welcome the lawmakers’ efforts to increase the security of electricity supply and the resilience of the electricity infrastructure by introducing specific provisions requiring electricity distribution companies to invest in the maintenance and modernisation of electricity distribution grids to ensure the security and quality of electricity supply, even though these commitments are already subject to their legal and licensing obligations. The Energy and Water Regulatory Commission currently has similar powers to control the investment programmes of licensees, and we do not consider it necessary to specify such provisions exhaustively, as this would create additional problems.

The electricity grid resilience policy is a strategic framework designed to strengthen the grid against various threats and ensure rapid recovery after disruptions.

The increasing frequency and intensity of extreme weather events as a result of climate change highlight the need for proactive resilience measures. More frequent and intense storms, heat waves and forest fires place critical strain on energy grid infrastructure. The allocation of resources and the establishment of clear responsibilities are vital for the effective implementation of these policies.

However, the current draft law does not appear to aim at creating a legal framework that would pragmatically ensure a coordinated and effective response in extreme circumstances and crises, including the timely restoration of electricity supply. On the contrary, it demonstrates the familiar approach of presuming the guilt of electricity distribution companies and proposes populist, disproportionately repressive and, at the same time, ineffective sanctioning mechanisms.

Bulgarian citizens, including residents of the areas affected by last December’s snowstorms, would benefit from the state introducing a legal mechanism to activate a coordinated response of all available state and municipal resources and structures in support of critical infrastructure operators for faster and smoother repair of faults and restoration of normal functioning of the systems. This would have been the case in the specific incident that triggered the latest punitive action against electricity distribution companies, if the competent authority responsible for introducing restrictive measures due to extreme weather conditions (objectively confirmed in the NIMH bulletin of December 2024) had fulfilled its legal obligations under Chapter 7 of the Energy Act. At a time when global energy and climate policy is focused on sustainability, flexibility and overcoming systemic risks, Bulgaria is effectively proposing a punitive framework for some of those most affected by natural disasters – electricity distribution companies and their customers. The financial burden on DSOs through fines that are not returned to the sector only exacerbates the problems without stimulating investment.

As long as the anouncement of a restrictive regime continues to be left to the sole decision and discretion of the Minister of Energy, without a clear mechanism and a definitive obligation as to when such a regime should be announced, there is a risk that DSOs will be forced to bear responsibility and be disproportionately penalised even in circumstances that are objectively beyond their control or the result of their culpable action or inaction. The lack of objective criteria and an administrative procedure that does not allow for conflicting interpretations of the declaration of force majeure and the imposition of a restrictive regime will lead to mass sanctions without real fault.

Within this framework, we will comment on the proposed amendments to the Energy Act, namely:

• The proposed new texts in 1 and § 2, which introduce obligations for operators to coordinate their investment programmes with mayors and the Energy and Water Regulatory Commission, appear at first glance to be committed to local needs. In reality, these changes — such as Article 6(4) and Article 21(1)(30b) and (30c) — create an unnecessarily complicated administrative mechanism that could seriously hamper the timely planning and implementation of grid investments.
• Operators carrying out licensed activities at regulated prices will be bound by multiple, simultaneously applicable and often contradictory requirements from municipalities, with no guarantee of consistency, and with minimal deadlines and strict thresholds (Article 21(1)(30c)), with 30% of the costs to be allocated to the reconstruction and modernisation of existing facilities. This administrative quota may prove ineffective and economically arbitrary if it does not take into account the specific grid needs, the technological state of the facilities or the severity of climate risks in different regions, and, in a broader sense, does not address the specific nature of this type of activity, which is subject to strict licensing and regulatory regime.
• In 4 (Article 38, paragraph 4), DSOs are required to establish ‘special channels of communication with mayors’. This provision is entirely declaratory and has no real legal content unless it is specified with rules, procedures and sanctions. In its current form, it will create expectations but no real results.
• In Article 6(4), 4, Article 21, items 30b and 30c, as well as in Article 38, paragraph 4, new obligations are imposed only on electricity distribution system operators, without assigning similar responsibilities to the transmission system operator, even though it is often the capacity, reliability and need for additional substations of the transmission operator are critical for restoring power after disasters and integrating renewable sources. This once again creates a risk of regulatory discrimination between different parts of the energy system.
• In 8 (Article 89, paragraphs 2 and 3), an obligation is introduced for the DSO to publish its investment programme and to take into account ‘information provided by mayors’. Such wording is unclear, legally uncertain and easily manipulated. It creates an artificial administrative dependency without a clearly established process for verifying the accuracy or objectivity of this ‘information’. This will delay projects, burden operators with unnecessary formal procedures and weaken their ability to respond adequately to real grid needs. The requirement also raises a number of practical and legal issues. First, there is no regulation on how this ‘information’ is to be collected, verified and objectified. Second, linking planned activities to an external, non-regulatory source may lead to attempts to introduce populism into the investment policy of the DSO, attempts by third parties to divert priorities and inefficient spending of funds. Thirdly, it calls into question the independent expert responsibility of the operator, who bears licensing and financial responsibility but whose autonomy in planning is limited.
• Article 223, new paragraph 1 provides for significantly (4-5 times) increased fines from BGN 20,000 to BGN 50,000, with the penalty increasing threefold in the event of a repeat offence. The imposition of such fines creates a disproportionate financial burden on operators, especially in the event of natural disasters when access to facilities is impossible or severely hampered, while at the same time the declaration of force majeure has been ‘omitted’ and the entire burden and responsibility for restoration is transferred to the operators. In the absence of explicit guarantees and a mechanism for determining the circumstances in which a restrictive regime should be declared, this leads to unjustified additional financial and administrative pressure on DSOs. And while compensation for consumers is a reasonable principle, if there is no possibility of protecting operators from administrative arbitrariness in the event of circumstances beyond their control, such as landslides, snow blockages or accidents on the transmission grid, the result is the imposition of liability without fault, contrary to fundamental principles of law and regulatory logic.
• The provision of Article 73(4) provides that if the power supply interruption exceeds 48 hours within 72 hours, operators shall owe penalties to end customers in the amount specified in the general terms and conditions. Multiple consecutive interruptions are most often part of the technological process of restoring power supply after a failure. In addition to the comment on the previous bulletin, in the absence of clear criteria for determining penalties, there is no guarantee that their application will not lead to duplication of penalties with those already existing in the compensation mechanisms of the Energy and Water Regulatory Commission.

The penalties provided for create a risk for investments as they are excessive and disproportionate, especially in cases where the interruptions are caused by extreme weather conditions but no restrictive regime has been imposed. Such penalties divert resources from investments in sustainability and modernisation to the payment of administrative fines, which do not lead to improvements in the system. Instead of investing in infrastructure reinforcement, operators will be forced to adapt their actions to a repressive control regime that risks destabilising companies’ operating budgets. In practice, these excessive penalties will divert resources from long-term investments to short-term ‘insurance’ against fines.

Under Bulgarian law, fines imposed by the EWRC go to the national budget or special accounts, but are not earmarked for the restoration, strengthening or modernisation of the electricity distribution grid. This results in a financial penalty with no compensatory effect for the system itself. Punishing DSOs with high fines, without the possibility of reinvesting these funds back into grid resilience, for example, bleeds the electricity distribution sector dry and does not improve security of supply. Moreover, in the absence of investment in improving facilities and the grid, the risk of recurrence of the same events increases.

In this regard, we note that many European jurisdictions apply more flexible and long-term approaches to the responsibility of electricity distribution operators and grid resilience (see Annex 1 below, which provides only a few examples illustrating current trends), with the aim of promoting systemic resilience and flexibility rather than imposing penalties:

• The countries described focus on incentives, resilience and prevention rather than penalties;
• There is a clear commitment to integrate climate strategies into business plans;
• Penalties are not applied in cases of force majeure, but instead targeted investments and risk assessment are applied.

In all these cases, the principle of incentives, predictability and objective assessment of circumstances is applied – unlike the scheme proposed in the Bulgarian draft law, which provides for high penalties without an objective mechanism for recognising force majeure and without incentives for grid resilience.

The legislative changes discussed are at odds with these trends and represent a departure from good contemporary European practices.

In view of the problems outlined and the international examples, we propose that the following be included in the discussion of the draft bill:

• A clear, applicable, objectively formulated and consistent procedure should be included, obliging the competent authority under Article 72 of the Energy Act to declare a restrictive regime – natural disasters, extraordinary crises, difficult or impossible access to infrastructure, etc. Such texts should be discussed in advance and agreed with the interested parties in order to achieve a consensus mechanism that reflects the real challenges in practice. The aim is to ensure predictability, legal certainty and consistency between regulation and the actual response capabilities in emergency situations at the legislative level.
• Introduce a mechanism for ex ante and ex post regulatory assessment in the event of mass power outages. The Energy and Water Regulatory Commission should conduct an in-depth analysis before imposing sanctions, taking into account meteorological conditions, access to infrastructure and available human and technical resources.
• Consider the possibility of targeting the use of fines collected. Instead of going to the state budget, the funds should be directed, for example, to a special fund for the sustainability, modernisation and restoration of the grid in vulnerable areas. This would turn the sanction mechanism into an instrument for improvement rather than a punishment with no effect.
• The principle of reciprocity of the regulatory regime should also apply to the electricity transmission system operator. The obligations envisaged for electricity distribution system operators, including in terms of operational preparedness, investments in resilience and capacity enhancement, should also apply to the transmission system operator. This is essential to ensure the overall resilience of the electricity system and to overcome real infrastructure constraints. A level playing field between grid operators is not only a matter of fairness, but also of effective energy policy planning and implementation. In this sense, any regulatory framework that places the entire burden on the DSO without imposing proportionate requirements on the transmission operator is not only unfair but also technically inefficient.

The proposed bill introduces a penalty model instead of incentives to improve the security of the electricity distribution grid in the context of increasing frequency and destructive impact of natural disasters.

Once again, the emphasis is on increasing responsibilities and penalties without improving the conditions in which grid companies operate. From a procedural point of view, the short deadlines for discussing the draft law do not allow for an in-depth debate on improving the resilience of the grid infrastructure.

More worrying is that this approach of avoiding a full public debate on legislative changes is becoming a trend for the current legislature, without the usual excuse of deadlines and the need for urgent changes.

In conclusion, we should note that instead of strengthening the system, the bill weakens it. Instead of encouraging investment, it discourages it. Instead of introducing clear mechanisms for responding to disasters, it introduces administrative traps. We therefore insist on a review of the key provisions and the creation of a stable, predictable and fair regulatory framework that will ensure security for consumers, sustainability for the system and transparency for institutions.

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Annex. International practice – policies for electricity grid sustainability

In the current context of increasing climate challenges and the need for greater grid resilience, a number of European countries are introducing regulatory frameworks based on incentives, predictability and objective risk assessment. Instead of punitive sanctions, the focus is on encouraging investment in the sustainability and resilience of the distribution grid and electricity supply. Below we look at just three of these, but if there is institutional interest, we will provide a broad overview of existing practices in the areas discussed.

Italy:

According to the newly adopted regulatory framework for grid development in Italy, introduced by ARERA, distribution system operators may submit investment plans with specific objectives, such as increasing resilience to extreme weather events and expanding the grid’s capacity for renewable energy sources. These plans must demonstrate positive results in terms of cost-benefit analysis based on a predefined methodology.

A wide range of benefits are considered, such as

• the change in the infrastructure risk index before and after the resilience intervention,
• the economic value of lost load, and
• the number of consumers who will benefit from the project.

This provides a perspective for assessing grid investments in terms of value and benefits for the entire system, rather than strictly from a financial return on investment approach.

Following extreme snow events in central Italy, which caused prolonged power outages for over 100,000 customers, a climate resilience requirement is being introduced into the regulatory framework – a incentive-based regulation aimed at increasing the resilience of electricity distribution grids and requiring priority three-year investment plans for:

a) designing a grid capable of withstanding extreme events, and

(b) the ability of the system to restore standard operation after such events.

Each year, DSOs must publish a three-year plan to protect their grids from risk factors such as icing of conductors due to snow or wind, heat waves, floods and fallen trees due to snow. After a cost-benefit analysis for each project, the relevant investments are approved by ARERA and included in the price framework. Failure to make the investments due to the fault of the operators will result in penalties.

Sustainability measures include:

• preventive actions (aimed at increasing grid connectivity through the implementation of new power lines),
• restoration actions (aimed at reducing the time needed to restore power lines after a power outage),
• mitigation actions (aimed at limiting risks to the electricity system and reducing damage) and
• monitoring interventions (to anticipate critical weather events that could have an adverse impact on the grid, using innovative technological solutions).

The new methodology is characterised by the following three main elements:

• The development of climate scenarios allows the identification of areas most exposed to the effects of severe weather events of various types, linking them to the relative probability of climate hazards. The approach can be adapted and applied to grid areas of different sizes and parameters.
• An engineering approach for assessing the vulnerability of various components of overhead power lines to direct and indirect loads caused by severe weather events by determining specific vulnerability curves defined using real technical and orographic parameters.
• Probabilistic N-k approach for analysing multiple and simultaneous power outages due to meteorological events, in order to determine the probability of such situations occurring and to assess their impact (in terms of expected energy not delivered) on the part of the power system exposed to the severe meteorological event.[1]

Germany:

A few months ago, the German regulator published for discussion another initiative to support distribution grids, according to which the efforts and investments of grid operators to meet the challenges of the energy transition and climate change will be supported by simplified and accelerated regulation, attractive and stable framework conditions to encourage investment, and regulatory incentives. The Federal grid Agency (BNetzA) proposes a stable and predictable regulatory framework that includes, among other things:

• accelerated approval of investments in sustainability;
• guaranteed return on approved grid costs;
• regulatory incentives to address climate and infrastructure risks.

Germany’s approach is based on the principle that every euro invested should deliver maximum systemic benefits for consumers, and the regulatory framework is reviewed and improved in partnership with stakeholders[2].

United Kingdom:

In the United Kingdom, Ofgem applies the long-term RIIO (Revenue = Incentives + Innovation + Outputs) framework, which covers eight-year regulatory periods and provides:

• financial stability for planning sustainable investments;
• the inclusion of the Climate Resilience Strategy as part of grid operators’ business plans;
• recognised costs for climate, physical and cyber resilience.

RIIO-ED2 and RIIO-ED3 require adaptation pathways and in-depth climate risk assessments. The reports are based on the national adaptation framework and are subject to public consultation.[3]

[1] Source: https://www.arera.it/it/inglese/index.htm https://pure.strath.ac.uk/ws/portalfiles/portal/210660619/Hawker-etal-PE-2024-Management-of-extreme-weather-impacts-on-electricity-grids.pdf

[2] Source: CEER Report on Regulatory Frameworks for European Energy grids 2024: https://www.ceer.eu/documents/104400/-/-/aa43b477-7f47-cd93-01a4-b9e573e846f3

[3] Sources: https://www.ofgem.gov.uk/publications/riio-ed2-final-determinations and https://www.ofgem.gov.uk/publications/climate-adaptation-report-2021