How are HEP's business activities regulated?

The Croatian energy sector, and thus HEP's business activities, are governed by a wide range of laws and regulations. The key domestic act regulating the energy sector is the 2012 Energy Act. The Energy Act provides a legal basis for the regulation of energy production and licensing. Additionally, it provides a regulatory framework for energy policy and strategy, governing both the market-based commercial sale as well as energy generation as a public good.
Finally, the Energy Act regulates the production of energy in accordance with environmental protection norms

Other energy sector-related acts include, but are not limited to, the Electricity Market Act, the Gas Market Act, the Act on the Regulation of Energy Activities, and the Heat Energy Production, Distribution and Supply Act.
Electricity transmission and distribution as well as electricity supply of the household category within the universal service, are activities performed as a public service with regulated tariffs approved by the Croatian Energy Regulatory Agency (HERA), pursuant to changes of the Energy Act from October 2012 and according to methodologies prescribed.
Electricity generation as well as customer supply are conducted as market activities with free price contracting.
Dependence on hydrology conditions
Half of HEP's generation capacities are hydro-based. It is thus clear that hydrology plays an important role in the Company's operations. Hydro generation is known as being extremely cost-effective, with higher capacity efficiency and a significant contribution to the percentage of green energy generated by HEP

The construction of the 500 MW coal-fired Plomin III thermal power plant is intended to decrease HEP's reliance on hydro power generation (i.e. hydrological conditions) by replacing the existing Plomin I unit and in addition significantly reducing its pollution levels. HEP is also planning further investments into new hydro-generation capacities throughout Croatia, to effectively tap into the existing unused potential.

How is precipitation measured?
HEP measures precipitation levels by water energy values. The precipitation energy volume (i.e. water flow energy) is the energy transformed into electricity by hydropower plants.

HEP’s hydro generation capacity includes approximately 80% storage and 20% run-of-river HPPs. One storage HPP is also pumped-storage with a 13% share in total hydro capacity of HEP's plants.

HEP Group's position after 1 July 2013 (or after the EU accession)

Following the Croatia's EU accession on 1 July 2013, the electricity market has experienced significant changes which have primarily been focused on the right to choose own electricity supplier. Electricity transmission and distribution have remained regulated activities conducted within HEP Group operations, which also owns the network i.e. it has a natural monopoly.

Regulated activities, primarily network activities, are regulated by HERA. The electricity market was liberalised for commercial and household categories on 1 July 2007 and 1 July 2008, respectively. It means that as of said date all customers have been considered eligible i.e. they have been autonomous in the selection of their electricity supplier.
As of 1 July 2013, first alternative electricity suppliers emerged only as electricity traders, while HEP has also remained the electricity producers for the needs of Croatian customers.
Apart from HEP, end customers are today supplied by more than 20 other suppliers which account for about 15% of the houshold market.
HEP has been transforming its business operations continuously, primarily in terms of it becoming aware that profit earning and efficiency are a condition of its survival and growth. The above has been underlined by the presence of strong competition, the appearance of big and small players on the market, a strict supervision of EU bodies in terms of any potential subsidies or market limitations, the change of electricity sources structure, and the overall rate of all other market elements.