Gas Distribution Tariffs

Methodologies, International Practice and Evaluation of the Status Quo in Bosnia and Herzegovina

14th of December 2018

Dr. Daniel Grote, Waisum Steinborn-Cheng, Nebojša Filipović (DNV GL)

Agenda

Introduction and Objectives01

Principal options for gas distribution tariff

structures02

International experience03

2

Status Quo in Bosnia and Herzegovina04

Gap Analysis and Discussion05

Next Steps06

Coffee Break

Lunch (12:30)

Introduction and Objectives

Regulatory steps for the determination of network tariffs

4

Actual cost of company

Cost related to

gas network activities

Regulatory allowed revenues

Regulatory provisions on unbundling

Regulatory assessment of

cost efficiency

Analysed in

separate

sub-projects

Allocation of network cost

Network tariffs

Sum of network

tariffs needs to

match allowed

revenues

Analysed in

this sub-project

Regulatory provisions for cost allocation

Regulatory provisions on

network tariff structure

Cost related to other

(competitive) activities

Principal options for gas distribution tariff structures

Gas distribution network cost categories

6

One-off cost per

connection

Recurring cost per

connection

Capacity dependent

cost

Cost dependent on

distributed volumes

Shared service cost

Network connection

Network expansion (attributed to individual connection)

Maintenance of connection

Meter and Metering

Billing

Management services (attributed to network)

Energy used at gas pressure

regulating stations

Capital expenditures

of network assets

Network maintenance

Asset documentation / register

Network planning

Dispatch

Incident management

Asset

related

Gas odorization

Gas distribution network tariff elements

7

Network connection charges

(for the access of the user to the

network)

Use of network tariffs

(for the transport of gas across the

network)

Metering charges

(for installation, operation,

maintenance and reading of meters)

Shallow/deep connection charges

Individual/standardized connection charges

Capacity, commodity and fixed charges

Differentiation of tariffs by type of user

Locational tariffs

Time dependent tariffs

Could be part of standing (fixed) charge

Separate metering charge

Possible options for use of distribution network tariffs

8

Type of charge Type of userLocational

differentiation

Time

dependent

Capacity

Charge

Commodity

Charge

Standing / Fixed

Charge

Annual

consumption

(intervals or

bands)

Used capacityUniform tariff

(post stamp)

Pressure level

Flat tariff

Seasonal tariffsMetered /

non-metered

capacity

Connection

point

Other DSO

located

downstream

Time-of-use

tariffs

Cost allocation for different gas distribution network structures

9

Network area 1 Network area 2

Low pressure

Medium / high

pressure (blue lines)

Differentiation by pressure level Differentiation by network area

Differentiation by customer type

Industrial

customersHouseholds

(local distribution)

Cost allocation – from costs to tariffs

10

Cost categories

Sum of all cost categories

= allowed revenues

Depreciation

Return on assets

Operating Expenditures

(Labor, Material, Services)

Cost centers Network tariffs

Network costs

Connection

Cost centre connection

Billing

Cost centre m+b

Cost centre network

Metering

High pressure pipelines

Medium pressure pipelines

Low pressure pipelines

Regulating stations

Metering stations

Connection charge

Individual

(connection specific)

Standing (fixed) charge

Use of network charge

Customer group 1

Customer group 2

Customer group N

•

•

•

Capacity and

commodity

charges

Customer group 1

Customer group N

•

•

Standardized

• •

International experience

Requirements of EU Acquis on gas distribution tariffs

12

Only general requirements for the determination of gas distribution network tariffs

Regulatory authority to set or approve network tariffs or the tariff calculation

methodology based on a proposal by the gas DSO (or a proposal of the DSO and

the network users)

Regulatory authority to ensure that distribution network tariffs are non-

discriminatory and cost-reflective and are applicable objectively and without

discrimination to all network users

Methodologies for calculation of network tariffs to be approved by regulatory

authority prior to entry into force

Network tariffs and methodologies to be published prior to their application

Gas Distribution Network Tariffs in Europe (I)

Source: Study on tariff design for distribution systems (DG Ener, European Commission, Dec. 2014)13

Gas Distribution Network Tariffs in Europe (II)

14Source: Study on tariff design for distribution systems (DG Ener, European Commission, Dec. 2014)

Gas Distribution Network Tariffs in Germany (I)

15

Gas distribution tariff levels and structure set by each DSO (>700) based on allowed

revenues of the DSO and considering provisions of the gas network ordinance

Capacity and a commodity (energy) charge to apply for distribution network users with

metered capacity

Only a commodity (energy) charge to apply for standard load profile customers

(without metered peak capacity)

Optionally a monthly standard (fixed) charge may apply

Shares of different types of network charges should be in an “appropriate relation”

Distribution network tariffs need to be independent of pressure level network users is

connected to and independent of distance between point of entry and exit

Gas Distribution Network Tariffs in Germany (II)

16

Gas distribution tariff structure of Westnetz (large DSO in the west of Germany)

Tariff ID Consumption rangeStanding charge

(in € / month)

Energy already paid for by

standing charge

Commodity charge

(in €ct / kWh)

SZ-1 0 kWh – 1,000 kWh 0 0 kWh 3.1656

SZ-2 1,001 kWh – 4,000 kWh 2.6380 1,000 kWh 1.9433

SZ-3 4,001 kWh – 10,000 kWh 7.4693 4,000 kWh 1.5644

SZ-9 600,001 kWh – 1,000,000 kWh 540.1379 600,000 kWh 0.9189

SZ-10 > 1,000,001 kWh 846.4379 1,000,000 kWh 0.8137

• •

Standard load profile customers

Customers with metered peak capacity

Tariff ID Consumption rangeMinimum charge

(in €/year)

Energy already paid for by

minimum charge

Commodity charge

(in €ct/kWh)

RZ-A1 0 kWh – 1,500,000 kWh 0 0 kWh 0.236

RZ-A2 1,500,001 kWh – 2,500,000 kWh 3,540 1,500,000 kWh 0.177

RZ-A7 20,000,001 kWh – 1,000,000,000 kWh 25,460 20,000,000 kWh 0.097

RZ-A8 1,000,000,001 kWh – 10,000,000,000 kWh 976,060 1,000,000,000 kWh 0.097

• •

Tariff ID Consumption rangeMinimum charge

(in €/year)

Capacity already paid for

by minimum charge

Capacity charge

(in €/kW/year)

RZ-L1 0 Kw – 801 kW 0 0 kW 13.328

RZ-L2 802 kW – 801 kW 10,675.782 801 kW 9.852

RZ-L7 7,377 kw – 21,0787 kW 61,426.334 7,376 kW 7.898

RZ-L8 21,0788 kw – 1,516,504 kW 1,667,966.412 21,0787 kW 7.912

• •

Source: website of Westnetz (2018 tariffs)

Gas Distribution Network Tariffs in Germany (III)

17

Household customers(23,500 kwh/year)

Commercial customers(116 MWh/year)

Industrial customers(116 GWh/year)

below

1ct/kwh

above

2.2 ct/kwh

below

0.25 ct/kwh above

0.55 ct/kwh

below

1ct/kwhabove

2.2 ct/kwh

Source: BNetzA Monitoring Report 2018

Gas Distribution Network Tariffs in France (I)

Properties of gas distribution in France

− Gas DSOs operate only low pressure network

(regional transportation networks operated by two French gas TSOs)

− Gas distribution networks owned and operated by

GRDF and around 30 smaller local gas DSOs

− GRDF operates a 198,886 km long pipeline network,

distributing 96% of natural gas demand to customers

located within 9,541 French municipalities

French regulatory authority (CRE) sets gas distribution network tariffs

separately for each DSO corresponding to allowed revenues of DSO

Distribution tariffs set for duration of regulatory period (4 years) with

annual updates according to predefined formula (accounting for inflation

and elements not controlled by the DSO, e.g., the distributed volume

Natural gas DSOs in France

Gas transportation network

18

Gas Distribution Network Tariffs in France (II)

Tariff option

Consumption rangeStanding charge

(in €/year)Commodity charge

(in €/MWh)Capacity charge(in €/MWh/day)

T1 <6 MWh / year 41.16 28.70 -

T2 6 <x <300 MWh / year 142.20 8.34 -

T3 300 <x <5000 MWh / year 854.64 5,81 -

T4 > 5000 MWh / year 15,795.60 0.82 204.48

19

Tariff option

Consumption rangeStanding charge

(in €/year)Commodity charge

(in €/MWh)Annual distance charge (in €/m)

TP> 5000 MWh / year and eligibility for

a direct connection to the transmission network

36,729.72 102.00 66.96

Elements of the gas distribution network tariff structure:

− 4 customer groups differentiated by consumption range

− standing and commodity charge (large consumers also capacity charge)

− distribution network tariffs equalized within network served by a DSO

→ uniform tariffs apply across all areas served by GRDF

Source: GRDF website (tariffs for 2018)

Gas Distribution Network Tariffs in Serbia (I)

20

Properties of gas distribution in Serbia

− Distribution network length: 16,961 km

− 33 gas distribution companies

− Number of active connections: 270,626

− Household connections: 257,476

− Largest distributor: Srbijagas 8,295 km

Gas transportation network

Gas distribution network tariffs based on decision by regulatory authority

for Serbia (AERS): Decision on Methodology for Setting Natural Gas

Distribution Use-of-System Charges (legally binding since 1.1.2017

Elements of the Decision:

− Regulatory method for the access to the gas distribution system

− Categories and groups of network users

− Determination of allowed revenues

− Determination of tariff elements and tariffs

Gas Distribution Network Tariffs in Serbia (II)

Definition of customer categories defined by:

− Operating pressure and maximum capacity of metering device

− Uniformity coefficient of gas consumption

Category 1 (K1) p < 6 bar Category 2 (K2) 6 < p < 16

Small consumption

Off peak consumption Off peak consumption

Uniform consumption Uniform consumption

Non-uniform consumption Non-uniform consumption

Application of a commodity (energy) charge (in RSD/m³) and a capacity charge (in RSD/m³/day/year)

Application of a commodity (energy) charge only for small consumers

Within the same customer groups, the same commodity and capacity charge apply

Allocation of maximum allowed revenue commodity and capacity charge by 70:30 21

Gas Distribution Network Tariffs in Serbia (III)

22

Applied since Tariff element

Customer group

“Category 1" (p < 6 bar)

“Small

consumption"

“Off peak

consumption

К1"

“Uniform

consumption

К1"

“Non-uniform

consumption

К1"

01. October 2017

Energy

(RSD/m3)10.26 7.10 7.10 7.10

Capacity

(RSD/m3/day/year)146.19 310.66 365.48

01. October 2015

Energy

(RSD/m3)9.99 7.10 7.10 7.10

Capacity

(RSD/m3/day/year)233.89 284.01 334.13

01. October 2014

Energy

(RSD/m3)4.43 3.04 3.04 3.04

Capacity

(RSD/m3/day/year)77.75 94.41 111.07

Source: AERS website

Example for gas distribution tariffs

Gas Distribution Network Tariffs in Croatia (I)

23

Gas transportation network

Properties of gas distribution in Serbia

− Distribution network length: 19,153 km

− 35 gas distribution companies

− Total number of connected metering points: 659,914

− Consumption ≤ 100,000 kWh: 654,148 metering points

− Consumption ≥ 100,000 kWh: 5,766 metering points

Gas distribution network tariffs based on decision by regulatory authority

for Croatia (HERA): Methodology for the Determination of the Amount of

Tariffs for Gas Distribution (legally binding since 15 June 2018

Elements of the Decision:

− Regulatory model for gas distribution

− Formulas and elements for allowed revenue calculation

− Determination allowed revenues

− Determination of tariff elements and tariffs

Gas Distribution Network Tariffs in Croatia (II)

24

Croatian regulatory authority (HERA) sets gas distribution network tariffs separately for each DSO

corresponding to allowed revenues of DSO

12 customer categories (TM1 – TM12) defined by annual gas consumption

Application of a commodity (energy) charge (in HRK/kWh) and a fixed charge (in HRK)

Customer group Annual gas consumption of metering point

TM1 ≤ 5 000 kWh

TM2 > 5 000 kWh ≤ 25 000 kWh

TM3 > 25 000 kWh ≤ 50 000 kWh

TM4 > 50 000 kWh ≤ 100 000 kWh

TM5 > 100 000 kWh ≤ 1 000 000 kWh

TM6 > 1 000 000 kWh ≤ 2 500 000 kWh

TM7 > 2 500 000 kWh ≤ 5 000 000 kWh

TM8 > 5 000 000 kWh ≤ 10 000 000 kWh

TM9 > 10 000 000 kWh ≤ 25 000 000 kWh

TM10 > 25 000 000 kWh ≤ 50 000 000 kWh

TM11 > 50 000 000 kWh ≤ 100 000 000 kWh

TM12 > 100 000 000 kWh

Gas Distribution Network Tariffs in Croatia (III)

25Source: HERA website

Example for gas distribution tariffs

Coffee Break

Situation in Bosnia and Herzegovina

Gas Distribution in Bosnia and Herzegovina

28

Border BiH-Srbija

Zvornik Stan

-distribution-

~3,42 mill. Sm3/year

Main metering and

regulating station

Sarajevogas Sarajevo

-distribution-

~143 mill. Sm3/year

Sarajevo-gas Lukavica

-distribution-

~2,2 mill. Sm3/year

Metering station

Mittal Steel Zenica

-industrial consumer-

~40,6 mill. Sm3/year

Visokogas

-distribution-

~3,9 mill. Sm3/year

Gaspromet Pale, 22 km

-transmission-

Zvornik (Karakaj)

Sarajevo-gas Lukavica, 40 km

-transmission-

Kladanj

BH-Gas Sarajevo, 132 km

-transmission-

Sarajevo

Zenica

IGM Visoko

-industrial consumer-

~5,36 mill. Sm3/year

TC Kakanj

-industrial consumer-

~0,71 mill. Sm3/year

Željezara Ilijaš

-industrial consumer-

~ 0,19 mill. Sm3/year

Other industrial consumers

in area Zvornik

~ 0,87 mill. Sm3/year

BH-Gas Sarajevo,

-import-

Travnik

Gas pipeline Zenica -

Travnik, 40 km

-transmission-

▪ Properties of gas distribution in Bosnia and Herzegovina

− Gas distribution networks developed in a few cities (Sarajevo, Zvornik and Visoko)

− Bijeljina municipality is in the process of gasification, establishing a gas distribution network

− Zenica municipality is planning to gasify and establish a gas DSO

− Gas distribution regulated on entity level (i.e. Federation BiH and Republika Srpska)

Gas transportation network

Gas distribution network

Sarajevogas Sarajevo

Legislation for gas distribution in Federation BiH

29

▪ Currently no legislation regulating gas networks (incl. gas distribution tariffs) adopted

▪ No entity regulatory authority for gas sector established (regulation by Federal Ministry of Energy, Mining

and Industry (FMERI) and on cantonal level)

▪ Adoption of Draft Gas Law would implement the following:

− Establishment of Energy Regulatory Commission as regulatory authority for gas in Federation of BiH

− Entity regulator to develop and to adopt network tariff methodology (use of network and network

connection)

− Entity regulator to approve tariff rates for non-eligible customers and connection fees

− Establishment of objective, transparent, and non-discriminatory distribution network access for all

users

Gas Distribution Tariffs in Federation BiH

30

Gas end-users tariffs of Sarajevogas Sarajevo applicable as of 29 October 2015

Gas end-users tariffs of Visokogas applicable as of 1 August 2017

Source: Sarajevogas and Visokogas websites

▪ No separate distribution and retail supply tariffs determined and published

Legislation for gas distribution in Republika Srpska (I)

31

▪ Regulatory Commission for Energy of Republika Srpska (RERS) to adopt

− network tariff methodology

− to approve network tariffs calculated based on the methodology

▪ Regulatory Commission for Energy of Republika Srpska (RERS) to adopt

− connection tariff methodology

− to approve connection tariffs calculated based on the methodology

Law on Gas

▪ According to the Methodology connection tariffs are to be calculated based on the maximum capacity of

the connection (in Sm³/h) and the unit cost of the capacity (in BAM/Sm³/h)

▪ Further regulatory provisions on how regulated connection cost are to be determined

Connection tariffs are regulated by Rulebook on methodology for calculation of costs of

connection to the distribution or transport system of natural gas

Legislation for gas distribution in Republika Srpska (II)

32

▪ Network tariffs to be based on allowed revenues

Rulebook on tariff methodology and tariff system for distribution of natural gas and

natural gas supply

▪ Definition of three gas distribution network tariff elements:

− Capacity (KM / Sm³ / day / year)

− Consumption (KM / Sm³)

− Metering point (fixed value in KM)

▪ Distribution system users are classified into following categories:

− Industrial customers

− District heating systems

− Commercial customers

− Household customers

▪ Possibility to define network tariffs dependent on the consumption time

Legislation for gas distribution in Republika Srpska (III)

33

Rulebook on tariff methodology and tariff system for distribution of natural gas and

natural gas supply

▪ Capacity charges to be calculated based on:

− maximum daily consumption in the past year or planned consumption in the next years

(industrial and district heating customers, optional for commercial customers)

− maximum capacity of the connection, i.e., the metering device (commercial customers)

▪ Fixed cost of operation and maintenance of the distribution system to be allocated to capacity charges

▪ Variable cost of the distribution system to be allocated to commodity charges

▪ Costs of maintenance of the connection, including the metering devices, are to be allocated to metering

(fixed) charges

▪ Possibility to define network tariffs dependent on the consumption time

▪ RERS to publish decisions on network tariffs and tariff levels

Gas Distribution Tariffs in Republika Srpska

34

Customer GroupCommodity charge

(in KM / m³)

Fixed charge

(per metering point in KM /

month)

Households 0.1133 3.00

Commercial systems 0.1160 4.00

Industrial 0.0846 7.00

District heating 0.0955 7.00

Source: RERS website, , Decision on approval of tariffs for gas distribution and gas supply of tariff customers, April 2012

Gas distribution network tariffs for Zvornik Stan applicable since June 2012

Gap Analysis and Discussion

Gap Analysis (I)

36

Area Federation BiH Republika Srpska

Regulatory authority in charge of

gas distribution network tariffs

▪ No regulator for gas

▪ Would be implemented with

adoption of draft law

▪ yes, defined in Gas Law

Methodology for determination of

connection tariffs▪ Not adopted ▪ yes, adopted

Methodology for determination of

use of network tariffs▪ Not adopted

▪ yes, adopted

▪ Customer groups not well

defined

▪ Not accordingly applied in

practice

Gap Analysis (II)

37

Area Federation BiH Republika Srpska

Definition, application and

publication of a cost allocation

methodology

▪ Not in place

▪ Partially defined in Rulebook

▪ Practical guidance on

allocation of cost categories

to tariff elements missing

Publication of gas distribution

network tariffs

▪ No separate distribution

tariffs published

▪ Distribution tariffs only

published for Zvornik Stan (not clear whether tariffs from 2012

are still valid)

▪ No distribution tariffs

published for Sarajevogas

Lukavica

Next Steps

Next Steps

39

Integrate feedback from stakeholders in interim

report on distribution tariffs

Interim report shared with stakeholders,

opportunity to comment in writing

Development of recommendations

Presentation and discussion of recommendations

at 2nd meeting (first quarter 2019)

Submission of final report

(integrating stakeholder feedback)

Hvala!

Dr. Daniel Grote

Senior Consultant, Energy Markets & Technology

DNV GL Energy

DNV GL Energy Advisory GmbH

Zanderstr. 7

53177 Bonn

Phone: +49 228 44690 49

E-Mail: Daniel.Grote@dnvgl.com

Principles and criteria for gas distribution network tariffs

41

Pricing principles

Evaluation criteria

cost recoverynon-

discrimination

economic

efficiencytransparency

and simplicity

balance stability

and flexibility

cost causationincentives for

network users

transparency

and simplicity

practicability /

administrative

burden

distributional

impacts

Gas Distribution Network Tariffs in Europe

42

Country Pressure LevelAnnual

ConsumptionUsed Capacity

Meter

Capabilities

Austria X X X

Czech Republic X X

Finland Depends on DSO

France X

Germany X X

Hungary X

Ireland X

Italy X

Netherlands X X

Spain X X

Sweden Depends on DSO

Great Britain X

Key variables used to define gas distribution tariffs