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1 Sasol Gas Transmission Tariff Application & Maximum Prices Application for Piped Gas PPC Energy Meeting 27 March 2013, Parliament, Cape Town Ms Ethèl.

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Presentation on theme: "1 Sasol Gas Transmission Tariff Application & Maximum Prices Application for Piped Gas PPC Energy Meeting 27 March 2013, Parliament, Cape Town Ms Ethèl."— Presentation transcript:

1 1 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

2 Introduction 2 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

3 Agreement Mozambican Gas Pipeline 3 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’

4 Agreement Mozambican Gas Pipeline 4 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’

5 Agreement Mozambican Gas Pipeline 5 ‘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

6 Gas Act 6 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...’

7 Gas Act 7 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

8 8 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) service Note: 25 March 2014 is the end of Sasol Gas’ Special Regulatory Dispensation The Applications

9 9 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

10 10 Total charges build-up

11 11 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

12 12 “…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

13 13 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

14 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 14

15 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 15

16 16 Salient features ElementApplication Methodology chosenGE Price Indicators Pricing period26 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

17 17 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

18 18 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

19 19 What Sasol Applied for and NERSA approved Class 1Class 2Class 3Class 4Class 5Class 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 2014128 Reductions %7.5% 15.0%22.5%30.0%37.5% Reduction (R/GJ)9.6 19.228.838.4 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

20 20 26 March ‘14 - 30 June '141 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

21 21 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

22 22 Impact on small customers Small Customers (classes 1 to 3) prices after restructuring (assumptions NERSA) TotalTotal in % Vol Customers that will/ may face decreases268 78.4% 60.4% Customers that may face increases74 21.6% 39.6%

23 23 Impact on small customers

24 24 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

25 25 Sasol Gas Maximum Price of Gas Application Large 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 TotalTotal in % Vol Customers that may/will face decreases66 53.7% 37.9% Customers that may face increases57 46.3% 62.1%

26 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 26

27 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 27

28 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 28

29 29 Sasol Gas Ltd Transmission Tariff Application ElementApplication Methodology chosenCost of service (Rate of return) Tariff period26 March 2014 – 30 June 2015 Tariff structure approach3 zones

30 3 Tariff zones 30

31 31 Sasol Gas Ltd Transmission Tariff Application The variance of - 7% is within NERSA tolerance of +/-10%

32 32 END Thank You Q & A


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