The big picture in the EUManaging conflicting objectives in tariff design

Tom Maes, Vice-Chair CEER Gas Working Group

Understanding the impact of regulatory incentives4th Workshop of Eastern Partnership, Moldova, 26-27 March 2015

Presentation outline

Unbundling and regulation

Regulatory regimes

From revenues to tariffs

Objectives and incentives

3

Unbundling and regulation

Production / import Transport Supply

Gas producer /

Power generator

Transmission system

operator

Distribution system

operatorConsumer

Wholesale Retail

Competitive activities Monopolistic activities Competitive activities

4

Defining a regulatory regime

Cost-

plus

• Pass through of system operator’s costs (no incentive)• Fair return on investments (no excessive monopolistic return)

Revenu

e cap

• Only efficiently incurred costs shall be covered (RPI-X)• No volume risk

Price

cap

• System operator is exposed to demand fluctuations• Need for assumptions on the cost drivers per unit sold

RIIO

• Revenue using Incentives to deliver Innovation and Outputs• Quality control needed to assess primary and secondary deliverables

Setting the (allowed) revenues...

REGULATORY ASSET BASE (RAB)

RATE OF RETURNX

= RETURN ON RAB

+

DEPRECIATION

+OPERATING COSTS

(OPEX)

+

OTHER COSTS

ALLOWED REVENUES

Transporting gas has a cost which has to be recovered by regulated tariffs► Only efficiently incurred costs shall be covered

6

Allowed Revenue

Transmission Services Revenue

Cost Allocation

Methodology

Secondary adjustments

Non-standard products

(multipliers)

Publication

Revenue Reconciliation

… to fixing the tariffs

System users shall pay their share of the costs

► Transparency

► Non-discrimination

► Avoidance of cross-subsidies

► Cost reflectivity

7

Balanced incentives

Cost efficiency

Quality

Investments

8

• Publication requirements• Consultation requirements• Minimum notice period for tariff publication

Transparency

• Capacity based pricing• Default rule on entry-exit split• Limited range of multipliers / seasonal factors• Harmonised pricing of non-firm products

Efficient trade & competition

• Harmonised approach to cost allocation – one of 4 methodologies determined by circumstances, counterfactual and cost-allocation test

• Harmonised approach to rescaling, equalisation and benchmarking

Avoidance of cross-subsidies & discrimination

• Harmonised revenue reconciliation• Economic test for incremental/new capacity• Payable price – predictability for all users

Framework for efficient investment

0€

Future EU network code on harmonised gas transmission tariff structures

9

Thanks for your attention!

Thank you for your attention!

10

Tom Maes

+ 32 22 89 76 57

tom.maes@creg.be

www.energy-regulators.eu

Contact