PreturiCorecteLaGaze: Manipulation of non-household gas customers

by Dumitru Chisalita, Energy Expert

www.dumitruchisalita.ro 

Reservation of capacity is a notion that in Romania has no head and tail, determining difficulties in using it by many market participants, being a tool used to manipulate untrained customers. Failure to define the notion of capacity in the Romanian gas system is due to legislator (for both the primary and secondary legislation), which for certain reasons did not want to define this tool. Reasons are first related to the “garbage” that this tool would surface. Without planning to analyze this tool in the material present, we want to mention that in the production/import – transmission – storage – distribution – consumer gas flow, reservation of capacity is exclusively used in the transmission activity, creating confusion in the market. The lack of unitary approach of this tool throughout the gas chain determines the faulty functioning of the market, but also the speculative use or even with ill will of this tool. Capacity reserved in a gas supply contract to the end-customer, according to the applicable legislation, can be defined as being the hourly capacity reserved by supplier in the National Transmission System at any time during the contractual period. In the Romanian legislation, the notion of capacity in the delivery point to the end-consumer misses, but also the methodology for determining this capacity. Thus, the consumer does not know what is the capacity that should be reserved in the transmission system. Here, “benevolent” suppliers have helped consumers putting a clause in the contract under which the supplier unilaterally sets the capacity to be reserved on behalf of the consumer in the transmission system.

Apparently, the consumer is pleased, but at least two scenarios could take place:

1. The supplier reserves the transmission capacity on behalf of the customer based on the maximum hourly amount of gas consumed – in this situation the consumer unnecessarily pays for a service 365 days per year (8760 hours), which is used maybe for several hours of that year;
2. The supplier reserves a transmission capacity on behalf of the customer, which, being exceeded by consumption, determines penalties for the 100% rate exceeded of the transmission tariff structure, respectively the consumer will find that it has a cost with gas at the end of the month higher than the contractual price.

It should be noted that currently the tariff for exceeding the transmission capacity is postponed (does not apply in Romania), but this tariff is included in contracts between suppliers and non-household customers, basically the suppliers being able to collect this money without being forced to pay it to the transmission operator. Together with the financial aspects of this clause, there are also elements of operational nature. Thus, exceeding the capacity reserved in the transmission system above the limit in which the supplier reserved it for the customer is made only with the prior written approval of the supplier. So that everyone can understand, if the consumer fails to send 24 hours ahead a letter to supplier informing it on the fact that the next day it will consume (because the temperature drops and it needs heating) more than the capacity reserved in the transmission system, reservation made by the supplier, it may run out of gas. ANRE Orders are used by some gas suppliers in relation to non-households in a manipulating manner. Using Orders issued by ANRE, certain suppliers “convince” customers to accept certain contractual clauses, attracting economic benefits. Thus, consumers, invoking ANRE Order 70/2014 for the gas year 2014-2015 (01 August 2014 – 30 September 2015) are charged tariffs for the reservation of capacity in the National Transmission System (tariff adding to the commodity price) higher than tariffs paid to the transmission operator. To make myself understood, I will try to illustrate one way of approach. The supplier has reserved the capacity in the transmission system for one year, being necessary to pay for it RON 1.55/MWh/h, but charges from its consumers for the same service a tariff of RON 8.73/MWh/h. Both tariffs are approved under ANRE Order 70/2014, but they are optionally chosen in a contract negotiated between parties. Thus, there is a possibility that reservation of capacity be made annually, seasonally, quarterly, monthly and daily, but at different tariffs. If the consumer signs the option of quarterly reservation – the tariff for reservation of capacity is higher by 280%, monthly reservation – the tariff is higher by 463% and daily reservation – the tariff is higher by 744%. Consumers must follow their own interests and no longer accept that supplier set the type of tariff and amount reserved in the transmission system. In the table below we present the types of services and regulated tariffs approved by ANRE, noticing that choosing a tariff or another is made in conditions of opportunities in the market.

Tariff for the reservation of capacity for gas in the National Transmission System (excerpt) ANRE Order 70/2014 for the gas year 2014-2015 (01 August 2014 – 30 September 2015) (RON/MWh/h)

Suppliers of non-household customers, using this legislative “mismatch”:But the icing on the cake in terms of manipulation of capacity in the transmission system, in the interest of suppliers that had captive non-household customers consists of using it as a blocking element, in taking over customers from other suppliers, by imposing the takeover with gas customers of much larger and very large transmission capacities. Suppliers, in order to avoid losing customers, use an ANRE Order under which it has established the obligation “capacity follows the customer”. Absence of a unitary legislation throughout the production/import – end-customer chain determines the inapplicability of this principle. I showed at the beginning of the material that the notion of capacity is only defined for the transmission system, this tool missing from the other activities and especially at the level of end-consumer connected to the gas distribution system. For this reason, in fact the non-household customer does not have an individualized capacity reserved and this situation allows the existing supplier to consider almost any capacity that it has to transfer when a customer leaves. Given that the winter is almost over, suppliers are interested in giving up capacity, because it is ballast in the warm period, no longer needing it.

• block the intention of departure of customers that have found more advantageous offers;
• reduce their own costs, transferring them in an abusive manner to others;
• reduce the possibility for non-household customers to get lower prices by charging them, when they change the supplier, with costs of transferred capacity;
• use this situation to propose to customers with the intention of leaving certain advantages in exchange for giving up their intention.

These abuses can be and must be solved by ANRE, because the isolated nature has been exceeded, reaching the status of a market phenomenon. Resolution involves at least the introduction of the capacity notion at the level of the entire production – transmission – distribution – storage – end-customer chain, as to achieve its traceability. ANRE must become an impartial institution and no longer repeat the mistakes in the process of liberalization for non-households. A second aspect, which ANRE should quickly realize, is the preparation of the moment of full market liberalization for the non-household market, i.e. on July 1st 2015, so that abnormalities, irregularities, illegalities, abuses etc. of liberalization as of January 1st 2015 can quickly turn into a Lesson Learned underlying the Roadmap of full market liberalization for non-household customers.