Scope and policy options for Framework Guidelines on Harmonised transmission tariff structures. -Public Hearing -

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Lilian Norman
5 years ago
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Contact Details (as instructed): Name Ana Pinto/Mikel Amundarain Company EDP Gás/Naturgás Energia Comercializadora Contact email Anateixeira.pinto@edp.pt/mikel.amundarain@naturgasenergia.

Energia Comercializadora Comments 3. Issues, objectives and ACER approach: 3.1. What are the issues? Question 1: What other issues should be dealt with in this Framework Guideline?

1 Contact Details (as instructed): Name Ana Pinto/Mikel Amundarain Company EDP Gás/Naturgás Energia Comercializadora Contact Phone / Country Portugal/Spain Scope and policy options for Framework Guidelines on Harmonised transmission tariff structures -Public Hearing - - EDP Gás and Naturgas Energia Comercializadora Comments 3. Issues, objectives and ACER approach: 3.1. What are the issues? Question 1: What other issues should be dealt with in this Framework Guideline? What is the evidence for including these issues? Please provide justification. Together with the issues already considered in the Consultation Document, it is our opinion that the Framework Guideline on Tariff Harmonisation should also propose harmonisation rules on: o How to manage differences between TSO/NRAs of adjacent systems in their approach to the implementation of the Framework Guidelines, in order to avoid delays and major discrepancies in the adopted solutions. An ex ante procedure for the joint approach to the implementation procedure could be a good solution to avoid this problem. Furthermore, we consider that taking into account the importance of this issue, ACER as European regulator should supervise the level of access tariffs applied in all European interconnection points and oversee the status of implementation of the Framework Guideline on Tariffs once it is published. o Criteria on how and if to include security of supply issues in the establishment of access tariffs and/or the promotion of the diversification of gas sources, like natural gas or LNG. o Which of the two TSOs on either side of an interconnection point should charge shippers for the capacity they have been allocated, and how the charging TSO should reimburse the other TSO for the entry/exit component of the bundled capacity charge. o How to manage possible currency differences between adjacent systems. 1

2 Moreover, we would like to stress that tariffs pancaking effect is clearly an issue that disincentives cross-border flows around different European systems. Thus, it is our opinion that a minimum harmonisation level should be ensured in matters such as criteria for investment cost determination/approval, cost allocation, tariff structure, in order to improve the current situation and to avoid distortions in the wholesale markets General objectives of gas transmission tariff structures Question 2: What are the most important problems that relate to tariff structures? Do the problems identified by you relate to the lack of harmonised approaches? We consider that the lack of transparency on the methodology used in the definition of access tariffs in some European markets is a major problem in what concerns the impacts on cross border transmission tariffs, since it does not allow shippers to understand the nature of the costs that they pay and also to perceive what could be the evolution of said tariffs. Also, there is no harmonisation between the concepts of short term vs. long term and firm vs. interruptible capacities and respective prices at interconnection points, creating unjustified price and operational differentials that may hinder the use of interconnection points. Thus, with the aim of achieving the general objectives set out under item 3.2 of the consultation, it is our opinion that harmonised criteria should in fact be applied in all the tariffs definition process from the determination of investment costs to the implementation of access tariffs, taking into account cost allocation, tariffs structure and level, etc. According to the above mentioned, the criteria for the definition of the investment costs that can be associated to interconnection points should be included explicitly in this document as a first step, in order to guarantee the elimination of cross subsidies, the discrimination between systems, shippers and customers, and other criteria that may somehow disincentive cross border flows and the efficient use of interconnection capacities. We also consider that the estimated costs associated to any TSO investments on potential incremental capacity should be published, including details on the specific infrastructure considered necessary to deliver varying ranges of incremental capacity. Stakeholders should be consulted on these costs and on the methodology used to determine auction/osp reserve prices. ACER should intervene to settle disputes between TSOs and NRAs on the magnitude and efficiency of neighbouring TSOs efficient investment costs, using benchmarking techniques and independent engineering advice where necessary. Question 3: Based on the Gas Regulation, are there further principles to be added? The inclusion of the principle of promotion of diversification of sources of gas supply, as a way to enhance security of supply, in the definition of cross border tariffs could be analysed. 2

3 Question 4: How would you interpret the above principles and objectives? Which objective would you consider to be the most important for achieving an EU internal market for gas? How would you rank the rest of the objectives? Please provide justification. In our opinion the principles and the objectives are adequately described in the consultation. Without prejudice to the other identified goals, we believe that the final main objective should be the achievement of an efficient gas trade environment and an appropriate level of competition all around Europe. This would represent a major step in the development of the internal gas market that aims to deliver a real choice for all consumers within the EU, new business opportunities and more cross-border trade, and also to achieve efficiency gains, competitive prices, and higher standards of service, and to contribute to security of supply and sustainability. The other principles and objectives that should be considered as necessary previous steps in order to achieve this main goal are, in our opinion: 1. Absence of cross-subsidies and undue discrimination between network users 2. Transparency 3. Cost reflective tariffs and recovery of allowed revenues 4. New and efficient investments (based on transparent mechanisms such as public consultations followed by Open Seasons, auctions, etc). In what concerns the goal new and efficient investments, we believe that this would be a consequence of the accomplishment of the other objectives because the enhancement of competition will also create a climate for efficient investment in new capacities. Regarding transparency, we would like to stress that to achieve this essential objective, shippers involvement in the process of definition of the access tariffs methodology should be ensured. In fact, tariffs structure and respective value is one of the most important issues to ensure efficient cross border flows and the accomplishment of the internal energy market. Thus, the views of the different stakeholders should be considered in its approval process. Furthermore, the established methodology should be well-known, clear, predictable and easily reproducible by shippers. 4. Proposed scope and application Question 5: What are your views on the proposed scope and application regarding: -Entry and exit points -Determination of the annual reference price -Mechanisms to deal with over- and under-recovery of allowed revenues and the definition of the clearing price? Please justify your answer. Referring to entry and exit points, we consider that the scope of the Framework Guidelines should be the cross border interconnection points between two or more Member States, as established under Gas Regulation 715/

4 Nevertheless this scope should not hinder NRAs from applying the methodology defined under the FG to entry/exit point tariffs in their national transmission systems (i.e. LNG facilities, storage facilities, etc). In what concerns the determination of the annual reference price, mechanisms for dealing with under/over recovery and the definition of the clearing price should also be within the scope of the Framework Guideline. Discrepancies in how these are treated or determined will restrict the potential for efficient cross border trade, price correlation and price convergence throughout the EU. Question 6: Regarding the issue of compensation payments between TSOs within crossnational entry-exit zones, do you consider that: ii. The rules establishing compensation payments should be harmonised at EU level. iii. Guidelines of good practice on the issue would suffice. Please provide guidelines suggestions. iv. Other option: In our point of view this issue could be a source of delays and distortions if adjacent TSOs do not reach an agreement. Thu, we consider that some harmonisation is required and also a common explicit implementation time. Furthermore, NRA s and also ACER should effectively intermediate in these cases with the aim of avoiding any type of distortion in the efficient use of the interconnection points. PART II: Policy options 1. Regulated tariffs: determination of a reference price Question 7: Do you agree that reserve prices shall be based on reference prices as described above? Yes, reference prices should be based on costs effectively and efficiently incurred by shippers, ensuring transparency to network users. Question 8: Which option would you find appropriate to determine the reference price? Please justify your answer. Both options, long run marginal costs and average costs, are, in our opinion, appropriate for the determination of the reference price, both having advantages and possible disadvantages. Due to its complexity, this is a subject that should be further analysed and discussed during the Framework Guideline development procedure. 4

5 Question 9: Regarding the cost concepts, do you consider that: ii. The rules should be harmonised, along the following lines: iii. Guidelines of good practice would suffice, along the following line: iv. Other option: As per question 8, we believe that the option between harmonisation or guidelines of good practice should be further debated and analysed throughout the FG development procedure Cost allocation methodology Question 10: Could two different cost concepts be applied on the two sides of an interconnection point without hindering cross-border trade? Please justify your answer. We believe that the same cost concepts should be applied on both sides of an interconnection point in order to avoid any type of cross border subsidies, independently of the possibility of application of different cost concepts on either side of said border. Moreover, whenever two different concepts are applied at interconnection points, NRAs and ACER should analyse in advance if this may cause any distortion. Question 11: Regarding the issue of cost allocation, do you consider that: ii. Methodologies for allocating a TSO s costs between cross-border and domestic usage should be harmonised across Europe. iii. Methodologies for allocating a TSO s costs between cross-border and domestic usage should be established on a more local basis, in combination with guidelines of good practice. iv. Are there any other ways of allocating the TSO s costs in a harmonised or local way which should be considered, focusing on the allocation of costs between crossborder and domestic usage? v. If cost allocation methodologies are to be set on a local basis, do you agree with the criteria set out above for assessing the methodologies? We consider that more efficient than the harmonisation of methodologies of cost allocation, that can be difficult to ensure across all systems in Europe, rules to avoid cross subsidy between national tariffs and cross border tariffs should be defined and established. Question 12: Do you consider potential cross-subsidies as a concern in relation to the coexistence of different cost allocation methodologies? Please provide justification. Yes. 5

6 Cost allocation methodologies could be intentionally or inadvertently designed to allow revenues to be disproportionally recovered from national transmission flows compared to cross border transit flows, or vice versa. They could also allow cross border revenues to be disproportionally recovered from entry flows compared to exit flows, or vice versa. 2. Reserve price structure Question 13: Regarding the issue of reserve prices for short term products, do you consider that: ii. The rules should be harmonised, along the following lines: iii. Guidelines of good practice would suffice, along the following line : iv. Other option: We believe the rules for setting reserve prices for short term firm capacity auctions should be harmonised across the EU. This will ensure, that short term trading of gas between Member States, is carried out on a consistent basis. Regarding the different options analysed in the document, we believe that the better way to stimulate cross border flows and access to new markets is pricing short term products (quarterly, monthly, daily, within-day) proportionally to the yearly reference price. Furthermore, we believe that this option would foster more efficient capacity booking avoiding shipper s capacity hoarding. Question 14: What are your views on the proposed policy options? Would you suggest other options? Please provide your reasons. We agree with the proposed policies. Question 15: What are in your view the advantages/disadvantages of each of the options? Option 1: o Advantage: it gives equal importance to short, medium and long term bookings. o Disadvantage: It could disincentive long term bookings which are needed to ensure investment in new infrastructures. Option 2/3: o Advantage: It increases short term trading between markets. o Disadvantage: This is likely to result in under-recovery of TSOs allowed revenues necessitating complicated inter-tso compensation schemes or the introduction of under recovery mechanisms, which are detrimental to 6

7 short term trading (e.g. commodity charges) and which distort the market through cross subsidies. It could disincentive long term bookings which are needed to ensure investment in new infrastructures. Option 4: o Advantage: This is unlikely to result in under-recovery of TSO allowed revenues. o Disadvantage: It increases short term trading between markets This is likely to result in Over-recovery of TSO allowed revenues which could cause distortions and give TSOs windfall cash flow benefits Question 16: Should seasonal factors be applied? We consider that the introduction of seasonal factors adds complexity to the process with no obvious advantages in the current phase of markets development and interconnection. This development could be considered at a more advanced stage of markets integration Reserve prices for interruptible and non-physical backhaul capacity Question 17: Regarding the issue of reserve prices for interruptible and non-physical backhaul capacity, do you consider that: ii. The rules should be harmonised, along the following lines: iii. Guidelines of good practice would suffice, along the following line: iv. Other option: We believe the rules for setting reserve prices for interruptible (at least in the short term) and virtual backhaul capacity should be harmonised and, more specifically, the methodology should be the one explained under option 2. So, under this option the reserve price for an interruptible/non physical backhaul capacity service shall be priced at zero, since: o It would encourage maximisation of interconnection utilisation, increasing cross border flows in the short term; o The value of this type of offered capacities would be fully determined by the market; o It does not require assumptions (as option 1) to be made about the likelihood of interruption. 7

8 Regarding option 3, we believe that shippers should have in advance all information needed to take the decision: cost of the possible booking, operational information (historic backhaul/interruptible flows, etc.) in order to assess the risk of being interrupted. Thus, in our opinion this option wouldn t be appropriated. 3. Definition of the payable Price Question 18: Would you suggest other options? No Question 19: What are your views on the proposed policy options? Would you prefer one option over the other? To what extent can this preferred option be uniformly applied? Please explain. The options described are comprehensive. Regarding the different options proposed in the document, we would support option 4. Under this option the price payable is the clearing price of the auction: o As ACER mentions, shippers have total visibility on the future price payable for a long term capacity service. o This option could incentive long term bookings which are needed to ensure investment in new infrastructures. Bearing in mind the uncertainty that already exists regarding medium and long term commodity prices compounding this uncertainty, by allowing cleared capacity auction prices to vary over time, will further discourage long term booking and investment. We do not support either Option 1 or 2. Both of these options will disproportionally add to the risks faced by shippers and traders, discouraging medium/long term capacity booking and hence medium/long term liquidity in commodity markets. Finally, according to option 3 or 2, we believe that update an auction premium has not sense because it shows a particular market situation, derived from the difference between capacity demand and supply in the booking auction. Question 20: Do you consider that different approaches could be applied for one bundled capacity product? We believe that the same approach should be applied in both sides of the same interconnection point where capacity could be bundled and unbundled. If the same approach is not applied it would add significant complexity to the invoicing and settlement processes for bundled capacity, particularly if the frequency by which capacity reserve prices are amended is not harmonised. 8

9 4. Recovery of allowed revenues Question 21: Regarding the issue of recovery of allowed revenues, do you consider that: i. No harmonisation in required. ii. The rules establishing this relation should be harmonised at EU level. Please provide harmonisation suggestions. iii. Guidelines of good practice on the issue would suffice. Please provide guideline suggestions. iv. Other option: In our point of view a minimum level of harmonisation should be achieved across the European Union in order to avoid distortions in the wholesale markets or cross-border subsidies. Regarding the different options, we believe that option 1, where a regulatory account may assure unintended differences of actual revenues as compared to allowed revenues are accounted for in the following tariff periods. In the same way that ACER said in the document, in our opinion regulatory account offers security for the TSO regarding the recovery of its allowed revenues and enhances tariff stability. For example, a similar model is applied currently in the Spanish gas system. Furthermore, with implementation of the option 1 other mechanisms as ex-ante commodity charges (option 2) or revenue-recovery charges (option 3) that could create distortions are avoided. According to above mentioned harmonisation and implementation of option 1, we believe that this shall include a harmonised process of recovery of possible shortfalls and surpluses. For example, if one side of the interconnection decides to recover the shortfalls in the next year and in the other side that difference will be recovered in 5 years, this situation could distort cross border flows between adjacent systems. Question 22: Should there be a cap on the percentage of revenues to be recovered through a commodity charge? If so, then please provide proposals for how this could work in practice. As we mentioned above, we do not believe that recovery of allowed revenues on flows is the most appropriate option to manage unintended shortfalls or surpluses. So, the cap should be 0%. 9

RESPONSE TO ACER'S CONSULTATION ON TARIFFS

RESPONSE TO ACER'S CONSULTATION ON TARIFFS Question 1: What other issues should be dealt with in this Framework Guideline? What is the evidence for including these issues? Please provide justification.