The European Gas Market | Analysing the Role of Transmission Tariffs

The European Union Agency for the Cooperation of Energy Regulators (ACER) published a report assessing the implementation of the Network Code on harmonized transmission tariff structures for gas, which was designed to facilitate cross-border trade by providing a level playing field between domestic and cross-border users and by increasing transparency.

With its review, the Agency aims to promote a better interpretation of the key principles of the EU legislation, as well as a review of national tariff practices’ compatibility with the Network Code.

Main findings

  • Transparency on the reference price methodologies has improved significantly: transparency increases the understanding of tariff setting methodologies in the EU and may lead to more effective tariff designs in the future. The Report includes best practices across EU Member States and also presents several shortcomings, like incomplete descriptions of the methodologies.
  • Regional networks need to be better defined: ACER reports on the different treatment of regional networks across the EU. Regional networks supply domestic consumers and cannot be used for transporting gas to interconnection points between Member States. Allocating the costs of regional networks to users that do not benefit from them leads to cross-subsidies between users.
  • Charges unrelated to transmission activities: Some Transmission System Operators collect charges unrelated to transmission, such as storage facilities, Liquefied Natural Gas facilities, biogas promotion, etc. ACER identifies the risks of these measures while acknowledging where these are useful. The Agency stresses the need for financial neutrality of the entity collecting these charges and that efficiently sized assets are charged to beneficiaries using these assets.
  • In addition, the Agency has also assessed a large number of other implementation issues, such as clarifying the scope of the Network Code. The report also includes reflections on volume risk applications for transit flows, on inter-transmission system compensations, benchmarking tariffs, revenue reconciliation and cost allocation assessment.

Finally, the report also covers tariff changes and an assessment of best practices in terms of the publication of values and parameters related to the allowed revenue methodologies.

 

Country sheet: Romania

Romanian Energy Regulatory Authority (ANRE) has set the gas transmission tariffs following the motivated decision136 published on 18 March 2019 for the following period:

  • Duration of the regulatory period: 1 October 2019 – 30 September 2024 (5 years);
  • Duration of the tariff period: 1 October 2019 – 30 September 2020 (1 year);
  • Entry into force of new tariffs: 1 October 2019.

ANRE sets tariffs for the SNTGN Transgaz SA operating in Romania.

The allowed revenue for the tariff period from 1 October 2019 to 30 September 2020 is EUR 255,665,724 (RON 1,214,407.44 million).

ANRE applies a postage stamp RPM. The methodology is applied separately to all the TSOs.

The following adjustments are applied to the RPM:

  • Rescaling applied to all points;
  • Discounts to points to and from storage facilities. ANRE applies a 50% discount to capacity tariffs at entry/exit points from/to storage facilities.

The applied RPM results in the following ratios:

  • Capacity – commodity split: 85% – 15%;
  • Transmission – non-transmission: All allowed revenue is allocated as transmission as the allowed revenue is set only for transmission and does not include any other activities;
  • Intra-system – cross-system: 83.41%-16.59%;
  • Entry-exit split: 50/50 (for capacity).

The NRA applies ex-post discounts for standard capacity products for interruptible capacity.

The NRA applies the following non-transmission services. The revenue for these services is not set by the NRA.

  • Connection services as described in ANRE Order nr.71/2018, tariffs for connection services.
  • Complementary transmission services according to ANRE Order nr. 172/2018, tariffs for complementary services.

The NRA applies commodity-based transmission tariffs. The commodity component comprises variable costs and it is allocated in whole to the transmitted gas quantity. As of 1 October 2019, the fixed component of the regulated revenue increases by 5% each year, as compared to the current level of 70% used for setting capacity booking tariffs up to the level of 85% of the regulated revenue.

The commodity-based transmission tariff is applied to all exit points for the utilization of the system.

The commodity charge is applied to the quantity measured at all exits points, which is considered to be the amount of gas transported in the system.

The TSO does not apply fixed payable prices.

The reconciliation of the TSO is performed every year. For regulatory year 2019-2020, the regulatory account amounts to EUR 35,344,933 over-recovery (RON 167,888.43 million – 4.75 RON/EUR). This represents 7.23% of the allowed (regulated) revenue for tariff period 1 October 2019 – 30 September 2020.

 

How has ANRE addressed with the recommendations made by the Agency in the Report on the final tariff consultation?

In the Report of the Agency analyzing the tariff consultation of Romania, the Agency recommended the following:

Firstly, that the reasoning supporting the choice of RPM is not sufficient. If the decision as referred to in Article 27(4) of the NC TAR were not to provide a better reasoning, the Agency would not consider such a Decision as complying with the requirement to take a motivated decision.

  • The Agency notes that ANRE includes several elements that had not been included in the consultation, such a more detailed comparison with the CWD methodology, a description of the complexity of the network and some reference to the transit pipelines. The Agency notes that this information has not been reviewed as part of this assessment.

Secondly, the Agency recommended ANRE to explain in the motivated decision how the costs related to the ‘transit’ pipelines are taken into account in the RPM. The Agency understood from the consultation from ANRE that the RPM would apply to all points of the Romanian network and that the costs of the ‘transit’ pipelines will not enter the RAB, and will not be allocated via the RPM (only the connection of the transit pipeline with the NTS would be included). The Agency recommended ANRE to explain who will pay for the assets that are not included in the RAB and how this is compliant with the NC TAR. The Agency will monitor how these pipelines are treated.

  • ANRE has clarified that the pipelines between Isaccea II and III – Negru Voda II and III are not connected with the Romanian NTS and are under the regulation of ANRE order nr. 34/2016 which rules the methodology for the allocation of transmission capacity and the setting of tariffs. These pipelines are still under the historical commercial contracts signed with Gazprom Export.
  • Related to the Isaccea 1 – Negru Voda 1 pipelines, ANRE has clarified to the Agency that the impact applying the RPM to these pipelines is low. The costs associated with this pipeline represent less than 5% of the revenue allowed for the natural gas transmission activity and its additional capacity is of almost 10% of NTS capacity without the transit pipelines. As for the use of this pipeline, ANRE has already monitored the quantities and associated capacities and found out a constant degree of utilization of the pipeline over the past 3 years.

Thirdly, the Agency recommended ANRE to elaborate in the final decision on the way the ‘flows’ are determined. The Agency noted that ANRE intended decrease the flow-based charge gradually from starting levels of 40% of the allowed revenue (in 2017) down to 15%. The decrease would be based on a 5% reduction per year. The Agency considers this gradual decrease sensible and the final share of 15% appropriate.

  • The Agency notes that the motivated decision clarifies that flows are measured using measurements at exit points.

Fourthly, the Agency recommended ANRE to include in the final decision the modality in which revenue for non-transmission services are reconciled. ANRE has notified the Agency that the revenue related to these services is separated from those of transmission services and covered by tariffs calculated according to the ANRE decisions 71/2018 and 172/2018. For these activities ANRE does not approve a specific revenue. ANRE explained to the Agency that the reconciliation is not applicable to these services.

  • Regarding the non-transmission tariff for a connection service. The Agency has understood that the costs of such connections are not known in advanced and that therefore cannot be established ex-ante. No new assets from new connections are included in RAB of transmission services.
  • Regarding the complementary transmission services, the Agency notes that tariffs are available at the TSO’s website.

Fifthly, the Agency suggests ANRE to use the following units in the simplified tariff model: RON/MWh for the commodity charge, but use a tariff expressed in RON/MWh/h/day, RON/MWh/h/month, RON/MWh/h/quarter and RON/MWh/h/year for the capacity charges.

  • The Agency acknowledges that the motivated decision includes tariffs for yearly capacity products in the recommended units.

Sixthly, the Agency recommended ANRE to include the information in the simplified model in English. The Agency notes that ANRE has translated to English the simplified model included in the motivated decision.

Finally, the Agency remarks that it could not check the compliance of the calculation of cross-system flows as an input to the CAA. This calculation should follow the description in Article 5(a)-(c) of the NC TAR.

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