sasol gas transmission tariff application & maximum prices application for piped gas
DESCRIPTION
Sasol Gas Transmission Tariff Application & Maximum Prices Application for Piped Gas. PPC Energy Meeting 27 March 2013, Parliament, Cape Town Ms Ethèl Teljeur Regulator Member Piped Gas Ms Nomfundo Maseti, Executive Manager Piped Gas Division. Introduction. - PowerPoint PPT PresentationTRANSCRIPT
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Sasol Gas Transmission Tariff Application & Maximum Prices Application for Piped Gas
PPC Energy Meeting 27 March 2013, Parliament, Cape TownMs Ethèl Teljeur Regulator Member Piped Gas
Ms Nomfundo Maseti, Executive Manager Piped Gas Division
Introduction
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• NERSA regulates the piped-gas industry•Natural/synthetic/compressed gas transported via pipeline•Not LPG in cylinders (Minister of Energy)
•A special regulatory agreement was entered into between the Government of the Republic of South Africa and Sasol ltd in September 2001
•Rights and obligations, first gas on 26 March 2004 •Special regulatory dispensation period up to 10 years•Expires on 25 March 2014
Agreement Mozambican Gas Pipeline
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• NERSA has regulated prices in terms of the Agreement since 2005
•Maximum prices for various customer categories•Revenue cap on average gas prices
•But...•... Constrained by the Agreement which allows Sasol to price according to ‘Market Value Pricing’
Agreement Mozambican Gas Pipeline
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• NERSA has regulated prices in terms of the Agreement since 2005
•Maximum prices for various customer categories•Revenue cap on average gas prices
•But...•... Constrained by the Agreement which allows Sasol to price according to ‘Market Value Pricing’
Agreement Mozambican Gas Pipeline
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• ‘Market Value Pricing’•Pricing according to the customer’s alternative fuel at the time of conversion•Plus switching costs and opex differentials•Unique system, not used elsewhere
•Allowed for perfect price discrimination•Numerous complaints received•Like customers given widely divergent prices, even within same industry
Gas Act
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• The Gas Act and the Regulations require a fundamental price restructuring
• required by shift from Agreement to Gas Act wrt pricing provisions in particular• current MVP, which allowed price discrimination, is not allowed ito the Gas Act•Gas Act requires non-discrimination ito prices, tariffs and other conditions•Gas Act mandates NERSA to ‘approve maximum prices for distributors, reticulators and all classes of customers, where there is inadequate competition...’
Gas Act
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• The Gas Act and the Regulations require a fundamental price restructuring
•Removal of price discrimination means that prices for some customers will go down or remain the same, and go up for others•In particular those (smaller) customers whose prices were based on LPG face price reductions, •... whereas some large customers whose prices were related to coal, may face price increases
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• Sasol Gas Ltd has applied to NERSA for approval of:-– Maximum Gas Prices for the prescribed customer
categories for a multi-year period from 26 March 2014 to 30 June 2017
– Transmission tariffs for 26 March 2014 to 30 June 2015
NB Price = charge for gas molecule, “Gas Energy price”
Tariff = charge for (network) serviceNote: 25 March 2014 is the end of Sasol Gas’ Special Regulatory Dispensation
The Applications
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• NERSA regulates the Piped-Gas industry in terms of Gas Act, 2001 (Act No. 48 of 2001).
• Regulations issued by the Minister in terms of Gas Act
• The Gas Act and the Regulations contain more “light handed regulation” – fundamentally different from e.g. Electricity regulation
• Not every element of the value chain is regulated by NERSA as shown in the following slide:-
Legal Basis
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Total charges build-up
Max Gas Energy Price
Transmission
Price (R)
Tariff (R)
Distribution Tariff (U)
Trading margin Margin (R)
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• The role of the Energy Regulator in regulation of transmission tariffs – Section 4(h) of the Gas Act provides that the Energy
Regulator must ‘monitor and approve and, if necessary, regulate’ transmission and storage tariffs
• The role of the Energy Regulator in regulation of maximum prices of gas– Section 21(1)(p) of the Gas Act, prescribes that
the Energy Regulator, may impose licence conditions…
Legal mandate
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“…within the following framework of requirements and limitations: ...
(p) maximum prices for distributors, reticulators and all classes of consumers must be approved by the Gas Regulator where there is inadequate competition as contemplated in Chapters 2 and 3 of the Competition Act, 1998”
Legal mandate
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• Based on the legislative provisions NERSA developed two sets of methodologies after extensive consultation:• Tariff Guidelines, 2009, appl. to infrastructure
• Applicable to transmission and storage tariffs and comprising of a flexible menu of 6 tariff methodologies
• Maximum Prices Methodology, 2011 for product• Applicable to the price for gas energy (molecule)
• And, on 8 February 2012, the Energy Regulator determined ‘inadequate competition’ in gas
Legal mandate
Transition from Agreement to Gas Act• Price restructuring means price can go up/down• However, the current application is for maximum prices,
not actual prices– Regulations prescribe very wide category bands– Non-discrimination does not mean one price, but where costs of
supply are equal, the prices must be equal (so large customers pay less than small customers in a particular category)
– S22 allows for price differentiation on objective factors– It is therefore misleading to compare today’s actual prices with
future maximum prices
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Salient features• Application complies with the appr. Methodology
– NERSA urged Sasol to apply early to assist industry– Sasol applied on 23 December 2012– The Gas Act requires immediate compliance, i.e. from 26
March 2014– Hence a 12 month implementation period to provide certainty
and allow customers to negotiate, assess implications/complain to NERSA when their actual price is clear
• Maximum prices are not actual prices – so some statements of increases are premature
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• Salient features
Element Application
Methodology chosen GE Price Indicators
Pricing period 26 March 2014 – 30 June 2017
NERSA calculation of maximum price of GE (2013-2014) / GJ
R 117.69
NERSA forecast of maximum price of GE (2014-2015) / GJ
R 120.55
Sasol Gas application GE maximum price (2014-15) / GJ
R 118
Sasol Gas Ltd Maximum Price of Gas Application
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• Discounts by Customer classes– NERSA accepted the discounts as provided by
Sasol
– Sasol discounts per customer class based on its international study of comparable customer classes
Sasol Gas Ltd Maximum Price of Gas Application
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• Distinguishing features– Additional discount to traders (incl distributors and
reticulators) of 50% of the trading margin (R 4.11 and R 5.20)
– S22 transitional mechanism: phasing-in of increases >15%
– Immediate implementation of price decreases as is required by the legislation
Sasol Gas Ltd Maximum Price of Gas Application
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What Sasol Applied for and NERSA approved
Class 1 Class 2 Class 3 Class 4 Class 5 Class 6
< 400 GJ p.a.
401 - 4 000 GJ p.a.
4 001 - 40 000 GJ p.a.
40 001 - 400 000 GJ p.a.
400 001 - 4 000 000 GJ p.a.
> 4 000 000 GJ p.a.
Gas Energy Price (GE) - R/GJ forecast 2014 128 128 128 128 128 128
Reductions % 7.5% 7.5% 15.0% 22.5% 30.0% 37.5%
Reduction (R/GJ) 9.6 9.6 19.2 28.8 38.4 48.0
Sasol GE (R/GJ) (26/3/2014)
NERSA approved (26/3/2013)
R118
R 108.86
R118
R 108.86
R109
R 100.04
R99
R91.21
R90
R 82.38
R80
R 73.56
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26 March ‘14 - 30 June '14 1 July '14 - 30 June '15
Trading Margin (R/GJ) 8.21 10.40
Sasol Gas Trading Margin Calculation Summary (26 March 2014- 30 June 2015)
Sasol Gas Trading Margin Application
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• Small volumes customers (class 1 to class 3) – account for 5% (3.1 million GJ) of sales to external
customers
• Of Sasol Gas’s 524 total customers– 345 (66%) are small volumes customers
Impact on small customers
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Impact on small customersSmall Customers (classes 1 to 3) prices after restructuring (assumptions NERSA)
Total Total in % % Vol
Customers that will/ may face decreases 268 78.4% 60.4%
Customers that may face increases 74 21.6% 39.6%
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Impact on small customers
R 0
R 50
R 100
R 150
R 200
R 250
1 10 19 28 37 46 55 64 73 82 91 100
109
118
127
136
145
154
163
172
181
190
199
208
217
226
235
244
253
262
271
280
289
298
307
316
325
334
343
Number of customers
Small Customers: Sasol Price Restructuring Impact
Gas Price R/GJ for the period April 2011 - March 2012 Maximum Price in R/GJ for the Class
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• 78% of the small customers may/will face decreases as shown above.
• 22% may face increases, extent of which is currently not known as the application is merely for maximum prices
• Thereafter it will be a process of individual customer price approvals
• It is expected that many actual prices will be far below the maximum prices per category
Impact on small customers
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Sasol Gas Maximum Price of Gas ApplicationLarge Customers (classes 4 to 6) prices after full restructuring (if done at once 26 March 2014)
• Note assumption : the prices are all contained at below the maximum and <R100/GJ in all customer classes
Total Total in % % Vol
Customers that may/will face decreases 66 53.7% 37.9%
Customers that may face increases 57 46.3% 62.1%
NERSA also approved• S22 (allowable discrimination) for a phased approach
to increases > 15%– 15% on 26 March 2014– Additional 15% in quarterly increments during 2014-15– Additional 15% in quarterly increments during 2015-2017– For increases > 45% Sasol Gas is to provide NERSA with
additional information and suggest an appropriate phase in period subject to NERSA approval
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The transmission tariff application
• Sasol’s transmission tariff applications were made in terms of the approved Tariff Guidelines– Approved in 2009 after an extensive public hearing
process– Have been applied in the past:
• Transnet gas transmission pipeline• Rompco tariff (>120 m GJ) and • Transnet’s current multi year application for gas transmission
tariffs
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The Tariff Guidelines• Guidelines for monitoring and approving piped gas
transmission and storage tariffs• Key provisions in the Guidelines:-
– Licensees choose a preferred methodology from the menu of six provided in the Guidelines
– Licensee can also use its own, (not in the menu), methodology so long as it is ‘proven and tested’
– Data sources are specified by NERSA– NERSA tests the application using same methodology as
licensee in its application
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Sasol Gas Ltd Transmission Tariff Application
Element Application
Methodology chosen Cost of service (Rate of return)
Tariff period 26 March 2014 – 30 June 2015
Tariff structure approach 3 zones
3 Tariff zones
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Phoenix
Richardsbay
Pretoria
Benoni
Ressano Garcia
MPUMALANGAMPUMALANGA
GAUTENGGAUTENG
SWAZILANDSWAZILAND
KWAZULU-NATALKWAZULU-NATAL
MAPUTOMAPUTO
MAGUDEMAGUDE
GAZAGAZA
INHAMBANEINHAMBANE
MOAMBAMOAMBA
Avoca
Sabie
Nigel
Guija
Maputo
Temane
Durban
Motaze
Mahele
ErmeloBethalAlberton
Chokwe
Muabsa
Talofo
Jofane
Rosslyn
Chigubo
Verulam
Mandini
Panjane
Secunda
Witbank
BreytenLenasia
Springs
Meginge
Babelegi
HendrinaBadplaas
Malelane
Carolina
Meyerton
Componde
Empangeni
Barberton
Nelspruit
Volksrust
Amsterdam
Sasolburg
Lyttelton
Magandene
Camo-Camo
Rumbacaca
New Castle
Middelburg
Standerton
Vilanculos
Kemptonpark
Komatipoort
Vereeniging
Randfontein
Mabuiapanse
AAEE
BB
CC
DD
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3* 1
2
3
Zone1
Zone 2
Zone 3
* Zone 3: Excludes the Transnet Lily Pipeline
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Sasol Gas Ltd Transmission Tariff ApplicationTariff calculation summary per Zone - 01 July 2014 to 30 June 2014
Zone NERSA Tariff
R/GJ SASOL Tariff
R/GJ Variance
% 1
Secunda-Gauteng
4.74
5.09 + 7 % 2
Witbank-Middelburg
13.22
14.20 + 7% 3
KZN
5.22
5.61 +7%
Tariff calculation summary per Zone - 01 July 2014 to 30 June 2015
Zone NERSA Tariff
R/GJ SASOL Tariff
R/GJ Variance
% 1
Secunda-Gauteng
4.77
5.13 + 7 % 2
Witbank-Middelburg
12.41
13.36 + 7 %
3 KZN
5.52
5.94
+ 7 %
The variance of - 7% is within NERSA tolerance of +/-10%
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END
Thank You
Q & A