A first analysis of the implementing rules in the gas sector of Ordinance 114/2018

by Dumitru Chisalita

ANRE has published the implementing rules in the gas sector, of GEO 114/2018, aimed to harmonize the existing secondary legislation with the legal provisions in force. Analyzing with great lenience, disregarding the missing articles and annexes from the published documents, I can only say that it is an amateurish legislative act, lacking a real applicability. Exceeding its legal powers established under the functioning law, ANRE wants to regulate the sale of all gas from domestic production, which is why it wants to approve a Framework contract for the sale-purchase of natural gas concluded between gas producers and gas suppliers or eligible end-customers. According to art. 10 of ANRE functioning law, its responsibilities are to prepare and approve the framework contracts for gas supply to customers, under the law. The law for the gas sector, with the amendments brought by GEO 114/2018, establishes in art. 124 that “the producer has the obligation to sell with priority to suppliers, under the terms regulated by ANRE, to ensure the entire consumption demand of household customers“, without any reference to other types of consumers.

Analyzing the provisions of the Framework Contract regulating the sale of domestic gas production, we are surprised by the amateurism with which it has been drafted:

• the obligation to sell-purchase gas with a constant daily profile throughout the year. Romania is characterized by variations of daily gas consumption by up to 10 times between the minimum daily consumption and the maximum daily consumption;
• the price of gas from domestic production extracted from the underground storage facilities is RON 68/MWh, plus the underground gas storage tariffs, approved by ANRE, is a provision that disregards the costs of financing storage for 6-8 months, the mark-up etc., operation which besides household customers cannot be financially supported by suppliers;
• invoicing the equivalent value of gas delivered must be made by the Seller, within 1 day from the end of each month of delivery. This article proves the lack of knowledge of the realities in the field, the fact that it is necessary to gather data from several hundred metering panels, the calculation of energy, divergences, errors, signing the protocol, allocation on buyers etc.
• the contract establishes the obligation not to establish guarantees for the equivalent value of gas sold if the advance payment is made, in conditions in which the Framework contract establishes that the modality of payment of the equivalent value of gas delivered is within 15 calendar days of the date of issuing the invoice by the Seller;

The methodologies for the implementation of GEO 114/2018 proposed by ANRE, together with the Framework contract for selling the gas production, also highlight amendments to the secondary legislation that are not applicable and operable:

• forcing gas market participants to make nominations/renominations in the entry/exit points to/from the NTS, correlation of nominations, allocation including the calculation of daily and final imbalances and of the imbalance tariffs to be made broken down by household customers and non-household customers that the supplier has in its portfolio. There is also an obligation that gas allocation be made separately based on daily readings at the end-customers and the quantities allocated based on consumption profiles. The application of this provision is impossible as of 1 April 2019, as it requires massive changes in TRANSGAZ platform within several days, changes which will probably have to be made by specialized companies; resorting to the services of such companies requires money in the budget, the services are purchased through tenders, the tenders have legal terms that must be met, and in the end time is needed to analyze, to make the changes in the platform, to verify and validate them. Meaning that TRANSGAZ needs more than 30 days, as ANRE allocates for these operations.
• a new procedure is established that validates the daily allocation for the sale and provision of services as being final. An item that, although necessary, because it is incompletely addressed and regulated, will lead in practice to several problems of implementation:
  • it will lead to negative differences between the daily amount allocated by distribution operators based on consumption profiles and the actual metering at the end of the month at consumers. This negative difference will place suppliers in the situation of having sold gas that they did not own, in fact placing them in the situation of making illegalities.
  • it will lead to positive differences between the daily amount allocated by distribution operators based on consumption profiles and the actual metering at the end of the month at consumers. This positive difference will put the suppliers in the situation of being accused of gas “theft”, as they will appear as having purchased more gas and selling less gas. But the “stolen” gas bear excise duties, VAT, corporate taxes etc., meaning that the suppliers are in the situation of tax evasion.
  • gas incorrectly determined will be found in the artificial and illegal increase/decrease in technological consumption at operators.
• Commercial balancing, as it is proposed to be carried out under the implementing rules of GEO 114/2018, is not possible to put into practice. Meaning that if there is a surplus one day on the gas market, meaning that due to an increase in temperatures less gas was consumed from domestic production, there is no one to buy it, as the level established under the basket for all market participants was reached. If there is a deficit one day on the gas market, respectively due to a decrease in temperatures more gas was consumed from domestic production and everyone wants to buy gas from domestic production to achieve the monthly gas basket imposed by ANRE, gas which in fact does not exist. The article on commercial balancing, as it is written, can apply only if gas entries from domestic production are perfectly equal to the estimated exits of gas from domestic production and imbalances are only between the NU. A theoretical situation which does not exist in practice.
• TRANSGAZ is required to make available, by 1 April 2019, to NU the trading platforms intended for transactions with intra-day or day-ahead products. An obligation, in my opinion, which cannot be put into practice in such a short period, proving the lack of connection to reality of the authors of these texts.
• it is established that the marginal purchase price, in the case of gas from domestic production necessary to cover the consumption of end-customers, is equal to the weighted average price, plus the adjustment component, representing a 10% rate. This article does not establish what is the price concerned, the price of gas from domestic production, of imported gas, of a domestic production-import basket; the daily/monthly weighting formula is not established. In accordance with the elements mentioned in the law and this rule, suppliers must sell and consumers must buy gas according to the established elements:
  • only domestic production for population, which means that gas necessary to cover imbalances can be purchased at a maximum price of RON 68/MWh (according to GEO 114/2018)
  • domestic production and import based on a monthly basket established by ANRE, which makes for gas from domestic production that the price, including for gas necessary to cover imbalances, cannot be higher than RON 68/MWh (according to GEO 114/2018),

thus, any deficit from domestic production cannot be penalized, which invites to imbalance for the gas component from domestic production.

• an article that defies the annual consumption profile on the household market provides: “Monthly quantities of gas from domestic production for which the two producers have the obligation to conclude sale-purchase contracts with suppliers in order to ensure the consumption demand of household customers is determined by splitting the quantities determined in accordance with art. 9 to the number of months related to the respective period and shall be approved by ANRE by Decision of ANRE President.”
• ANRE will establish annually a monthly domestic production-import gas basket based on data of the previous year and estimates for the current year, which the non-household consumers must observe, subject to fines. This basket established annually can only be modified if themonthly forecasts on household consumption change or if the forecasts of production of gas producers change. In other words, it is impossible to modify the gas basket during the month, which will determine situations in which we will be required to stop/start gas wells daily (operation which in fact is almost impossible to put into practice and dangerous from a technological and economic point of view), to the detriment of gas import.
• given the great variations of gas consumption in Romania due to temperatures, gas suppliers will not observe the annual basket established by ANRE in any month of the year, being subject to a continuous fining process. Failure to comply with the gas basket will determine the impossibility to comply with the requirements of the Network Code in terms of falling within the capacity booked on each component of the gas source, in ensuring balancing between the quantity entering/exiting the NTS for the gas quantity from import, domestic production, domestic storage, import storage, for household and non-household customers, depending on the modality of allocation by metering or consumption profile.
• another controversial provision is how it was intended to solve access to gas quantities from domestic production:
  • if the quantity of gas from domestic production is higher than the annual demand of suppliers or NC, it will be pro-rated with the share of each producer in total gas production. This provision is useless, as this situation will not be reached during 2019-2022.
  • if the gas from domestic production is lower than the annual demand of suppliers or NC, it will be made based on the first come-first served principle, until the entire gas quantity made available by each producer is contracted. This provision opens the way for the apparition of the new Smart Guys.

The implementing rules do not treat the situation where in certain days the household gas consumption exceeds the potential of domestic sources and of gas extracted from storage (situation which took place in the previous years). In this situation the population should consume imported gas, but it is prohibited by law!

Translation from Romanian by Romaniascout.