Fair Gas Prices: Transactions on the gas market are made without compliance with the Civil Code

by Dumitru Chisalita, Energy Expert

Gas market liberalization in Romania started without the basic elements of its functionality: market model, working procedures, adapting the legislation to the principles of the free market. It is mandatory to solve these problems immediately, in order to ensure the legality of activities. The new Civil Code entered into force on October 1st 2011, which refers, among others, to the gas sale modality.

The Civil Code includes two articles referring to gas sale:

Art. 1674 – which gives the general rule: “Except cases stipulated by law or if by the will of the parties it does not result otherwise, the property is to be rightfully moved to the buyer as of the time of concluding the contract, even if the property has not been handed over or price has not been paid yet.”

Art. 1678 – which gives the special rule regarding the sale of generic goods: “when the sale aims at generic goods (i.e. natural gas), the property shall be transferred to the buyer only after individualizing it by handing over, weighing, measuring, or by otherwise agreed or imposed by the nature of the good”.

The conception of Romania’s gas industry as integrated industry in which the sale was made to the end-consumer of gas, respectively at the interface between the distribution system and consumer, made that all gas sold be measured individually for each customer through a meter.

The Romanian Civil Code is incompatible with gas market liberalization, without bringing specific additions in the Gas Law.

Until the unbundling of extraction, transmission, distribution activities, even if there were measurements between these activities, they had only a technological importance, not achieving an exchange of property (of gas) at the limit of these activities. In this context, the facts took place in compliance with art. 1678 of the Civil Code. Unbundling the various activities in the gas sector, occurrence of gas intermediaries as suppliers, determined the sale in import points, at panels for handing over gas from the extraction activity, at gas regulation and metering stations of the transmission system operator, at panels of storage facilities. We appreciate that neither of these situations complies with article 1678 of the Civil Code, because there is no longer a metering activity to individualize the gas amount related to each sale. In all these points, a single metering takes place for an amount that belongs to several customers, thus by metering one cannot “individualize” the amount of gas for each seller and buyer in the respective point, as the Civil Code requires.

Except for gas sale to the end-consumer, gas transactions performed in Romania do not comply with provisions of art. 1678 of the Civil Code.

In Romania, “splitting gas sold” is made by SNTGN TRANSGAZ SA, in conditions in which:

• it violates the principles of European Directive 73/2009 on unbundling the gas transmission activity from the sale-purchase activity; basically, TRANSGAZ intervenes in the sale-purchase activity between two parties, imposing the amount exchanged by them.
• there is no normative act to set Transgaz’s powers to “individualize” gas in metering points between sellers and buyers; it has competences exclusively to allocate the amounts of gas transported on behalf of network users and not on sale-purchase operations;
• there are no procedures and instructions to make the “individualization” process transparent and fair for all parties that trade gas measured together in a consumption point; the history of newer or older situations proves inequities in individualizing the amount.

Market liberalization involves carrying out several gas sale and purchase activities in the same point (for example in an inlet point of the transmission system there will be up to 10 suppliers buying and selling gas through the same point and at the same time, even if a single measurement is made for the entire amount). Ensuring “individualization” by specific provisions in bilateral contracts does not meet the conditions specified in the Civil Code, because they can affect the “individualization” of a third, fourth etc. pair of sellers-buyers found in the respective point and for which gas must be assigned from the same amount of gas measured only once “in bulk”. In other words, without fair rules, a seller/buyer is put in the position in which they must buy more/less than consumed to the detriment of the other sellers/buyers. The Civil Code, under the same art. 1678, allows the construction of a legal solution: setting through a normative act a method to allow the individualization of the gas amount traded. International practice uses the term “allocation” as a legal method by which the amount traded in a point where gas trading takes place between several customers is individualized. Allocation is a method to “split” the amount actually measured between several buyers, in a fair and transparent manner. Good practice recommendations of European Association for the Streamlining of Energy Exchange – Gas (EASEE GAS), drawn up on February 18th 2009 in Common Business Practice, Interconnection Agreement, are the following:

1. Operational Balancing Account (“OBA”)– method through which each customer is allocated with a nominated amount, and the positive or negative difference is registered in a balancing account specific to operators of adjacent systems.

Description of the method:

• Concluding a Convention for delivery points between the operators of adjacent systems, setting the establishment of the Account Balancing Point (ABP) and the responsible for conducting this activity;
• Daily allocation of gas to all customers at the level of nominations approved;
• Daily record of amounts with Plus or Minus in ABP;
• ABP management so as to cancel opposing positions recorded on different days;
• Periodical sale/purchase of gas from ABP;
• Upon termination of physical points operation, operators will sell/buy natural gas existing in ABP at a fair price.

• Advantages of the method:

• Customers will always have gas at the level of nominations approved;
• Possibility to track daily the nominated amounts vs. the consume amounts;
• Nonexistence of flow regulation facilities at the metering panels, corroborated with the variation of pressure parameters in adjacent systems is solved by a mechanism with high flexibility.

• Cons:

• At the closing of the monthly/annual balance, there is an amount of gas that is not included in invoices or it is included in invoices, but the delivery hasn’t actually taken place.

2. Pro-rata, where each customer is allocated with the amount resulting from the application of the individual nomination rate in the total amount at the actually measured amount.

Description of the method:

• Calculating the share of daily nomination of a customer in total daily nomination (for all customers) related to a delivery point;
• After gas metering, the share related to each customer is multiplied with the amount metered and the result is allocated to the customer as individualization of the traded amount;
• The sum of daily allocated amounts represents the monthly amount delivered.

• Pros:

• Possibility to track daily the nominated amounts vs. the consume amounts;

• Cons:

• Existence of differences, which can be major, between the nominated amounts and allocated amounts;
• Malfunction of metering systems, delays in data reporting etc. determine complex procedures for the correction of the amounts;

3. Balancing Customer – European Association for the Streamlining of Energy Exchange – Gas (EASEE GAS), drawn up on February 18th 2009 in Common Business Practice, Interconnection Agreement: Balancing Customer (“BC”), procedure through which customers with firm contracts are allocated with the approved nominated amount and difference between the measured amount and the amount of allocations is managed through flexible contracts.

Description of the method:

• Daily allocation of gas to all customers with firm contracts at the level of nominations approved;
• Difference between the measured amount and the amount of allocations for firm contracts is managed through flexible contracts, using the pro-rata allocation of the amounts.

• Pros:

• Customers will always have gas at the level of nominations approved;
• Possibility to track daily the nominated amounts vs. the consume amounts;
• Nonexistence of flow regulation facilities at the metering panels at the production-transmission interface, corroborated with the variation of pressure parameters in adjacent systems, is solved by a mechanism with high flexibility.

• Cons:

• There are customers with flexible contracts which will have to be compensated by financial incentives.

In 2012, the gas bill, sent to the Parliament, included the articles allowing the applicability of Civil Code provisions, but these provisions were inexplicably eliminated.

Failure to supplement Law 123/2012 may determine the “justified” refusal of buyers to pay for gas purchased, invoking the violation of art. 1678 of the Civil Code.

The EU countries adopted and legislated some of these methods or combinations between them, except for Romania, where liberalization is ahead of legislation in violation of the Civil Code.

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