Chaos in the market of gas transmission services

by Dumitru Chisalita

The network code has been seen, one by one, in the recent years as: a whim, a bogey, a hope, a necessity, an indicator, an ambition. It was never seen as an essential tool of a liberalized market, understood, observed and undertaken by all parties, which make it today, in the hand of certain people, to do more harm than good. Amendments to the Network Code of the Gas Transmission Subsystem were published on 20 January 2016, ANRE paradoxically deciding to be applied retroactively. Another paradox of the act amending the Network Code was the fact that allocation in entry points in the transmission system wasn’t actually an allocation, but a statement of the user of the transmission system. Beyond abnormality of the situation that a supplier (in an office) which doesn’t even have an allocation instrument in the gas sale-purchase contracts (in these contracts having in general a clause by which the parties appointed TRANSGAZ to make this allocation in the entry points in the NTS), to “tell” TRANSGAZ what it transported in the previous month, there is also the fact that art. 1678 of the Civil Code is violated, “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”. Given that in all entry points in the Gas Transmission System a single measurement is made for a quantity that belongs to several clients, only by measurement one cannot “individualize” the quantity of gas for each seller and buyer in that point, according to the Civil Code. The Civil Code allows the construction of a legal solution: setting through a legislation a method to allow the individualization of the gas amount measured. For example in an entry point of the gas transmission system there could 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 Affidavits is not enough, 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 fact, this unilateral practice does not ensure observance of equity and fairness of allocation of commodities of this type. International practice uses the term “allocation” as a legal method that ensures the individualization of the amount traded in a point where gas trading takes place between several customers. 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, establish several methods of allocation (individualization) of amounts measured, which could be taken over and applied in the gas market legislation (transmission network code, market code etc.). Two years ago, I warned in a material published: The consequence of failure to solve this situation (introducing mechanisms of allocation according to the Civil Code), by the corresponding supplementation of Law 123/2012, may cause major prejudice in the market, by invoking the violation of art. 1678 of the Civil Code. Currently, the way in which individualization of amounts in entry points was determined under Order no. 1/2016 amending the Network Code allows users of the transmission system to challenge the connectedness of individualization (allocation) of gas amounts and, thus, to challenge imbalances in the national transmission system, as well as exceeding capacity. Notices sent by Transgaz to users of the transmission system on penalty that must be paid for exceeding the transmission capacity in December 2015 contain several aspects that question the alleged penalty:

– contracts for transmission services signed between users of the transmission system and TRANSGAZ agreed that reservation of capacity is daily for the entire gas year.

– amendments to the transmission network code (art. 3 paragraph 1 of Order 1/2016), which establishes the renunciation to the daily reservation of capacity and move to monthly capacity, had to require the signing of an addendum to the existing contract and thus to allow the parties to resize the capacity contracted on a new philosophy – monthly reservation of capacity on entry points in the gas transmission system. In fact, moving from a daily capacity to a monthly capacity cannot be done by arithmetic addition, the two types of capacities being radically different. Daily capacity in a system refers to daily consumption peaks that the respective system must be able to take over, while a monthly capacity refers to an average. Thus, daily peaks can be 2-5 times higher than the level of monthly reservation capacity in the gas transmission system.

Changing the philosophy of capacity, by moving from daily capacity to monthly capacity, imposed a change of the Methodology for setting capacity tariffs, given that variables underlying the establishment of the methodology of daily/hourly reservation of capacity are changed. But a change of the pricing methodology requires the change of capacity tariffs that the transmission operator can apply under transmission services contracts (for the entire capacity reserved, not only for the transmission capacity exceeded). Thus, not only the exceeding capacity and penalties for exceeding the capacity, but also the validity of the transmission tariff are questioned by unilateral change of the modality of daily reservation of capacity and considering the reservation as being monthly. Elements signaled here can determine the challenge of transmission services provided by TRANSGAZ starting with December 2015 (exceeding the capacity, imbalance or even the transmission service itself) and strengthen the idea that one cannot resort to changes in haste, corrections and returns to legislation, being necessary to support the country project that I have launched: Starting over in the gas market.

Romanian version: http://dumitruchisalita.ro/2016/02/28/haos-pe-piata-de-gaze/