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Archives for : March2016

7 reasons for non-functioning of the Gas Network Code

crThe gas network code was designed as a set of rules leading to market development, increase in transactions and discipline of market participants. 9 years from the commencement of this process there were no important steps in market development or the discipline of participants, in fact we don’t have any unitary document of the Code, but an endless series of additions and alterations of the old document, most realized “overnight”. Within the campaign Starting over in the gas market I will start an analysis of the current stage of the gas market. I will begin with an analysis of the causes that make the Gas Transmission Network Code non-functional. I believe there are 7 causes that determine the non-functioning of the Network Code, which I will present in order of importance:

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Crisis in the gas transmission system?

imagesWas there a crisis in the Gas Transmission System in January 2016? If we consider TRANSGAZ communiques, the answer would be NO, but if we monitor the little information on TRANSGAZ’s website, the few remained, after erasing the mandatory data posted on company’s website on January 22nd 2016, the answer is categorically YES. Then, why this misinformation? Recently, we have been given TRANSGAZ as an example in the amazing step made by moving the Office from Medias to Bucharest. This amazing step is probably related to the fact that Transgaz’s Office in Bucharest ordered the acquisition, in January 2016, of gas from a supplier (100% GAZPROM capital) at prices up to 40% higher than the price in the external market! Probably the same proximity of offices in Bucharest to Transgaz’s Office in Bucharest has led to misinformation, hiding and erasing data on company’s website. The same proximity has probably determined in January 2016 an immaculate image across Romania: So that people don’t become alarmed! So that people don’t take the streets! The functioning of the Gas Transmission System involves the permanent existence of a gas amount in the system and the continuous acquisition by suppliers of amounts introduced in the system at the level of amounts which the same suppliers remove from the system and sell to consumers. If suppliers sell more than they buy, they sell a gas amount that does not belong to them (respectively, they sell from the gas amount from the transmission system, property of the transmission operator, or in other words they sell a commodity which is not theirs), but even more serious is that they seriously affect the functioning of the national transmission system. The gas transmission system cannot be operated normally if gas stored in pipelines, which ensure the continuous flow to the entry and exit from the system, is consumed by more than 20% of such gas. Analyzing Transgaz’s website, we notice that on 20-21 January 2016 consumption exceeded 20% (if we consider the reduction in gas amounts supplied to Brazi power plant, Iernut power plant and Electrocentrale Bucharest), so we can appreciate that there was a state of crisis in the transmission system (don’t mistake it with the emergency situation). The state of crisis in the transmission system was certain and determined by the indiscipline, actual refusal of certain suppliers to purchase gas which they sold on a daily basis. Given the crisis situation in the transmission system, legal actions had to be taken since 20 January 2016. Actions which involved two approaches, according to the Transmission Network Code (or articles that are not suspended, cancelled, amended) and other operational procedures:

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Chaos in the market of gas transmission services

imagesThe network code has been seen, one by one, in the recent years as: a whim, a bogey, a hope, a necessity, an indicator, an ambition. It was never seen as an essential tool of a liberalized market, understood, observed and undertaken by all parties, which make it today, in the hand of certain people, to do more harm than good. Amendments to the Network Code of the Gas Transmission Subsystem were published on 20 January 2016, ANRE paradoxically deciding to be applied retroactively. Another paradox of the act amending the Network Code was the fact that allocation in entry points in the transmission system wasn’t actually an allocation, but a statement of the user of the transmission system. Beyond abnormality of the situation that a supplier (in an office) which doesn’t even have an allocation instrument in the gas sale-purchase contracts (in these contracts having in general a clause by which the parties appointed TRANSGAZ to make this allocation in the entry points in the NTS), to “tell” TRANSGAZ what it transported in the previous month, there is also the fact that art. 1678 of the Civil Code is violated, “when the sale aims at generic goods (i.e. natural gas), the property shall be transferred to the buyer only after individualizing it by handing over, weighing, measuring, or by otherwise agreed or imposed by the nature of the good”. Given that in all entry points in the Gas Transmission System a single measurement is made for a quantity that belongs to several clients, only by measurement one cannot “individualize” the quantity of gas for each seller and buyer in that point, according to the Civil Code. The Civil Code allows the construction of a legal solution: setting through a legislation a method to allow the individualization of the gas amount measured. For example in an entry point of the gas transmission system there could be up to 10 suppliers buying and selling gas through the same point and at the same time, even if a single measurement is made for the entire amount. Ensuring “individualization” by Affidavits is not enough, because they can affect the “individualization” of a third, fourth etc. pair of sellers-buyers found in the respective point and for which gas must be assigned from the same amount of gas measured only once “in bulk”. In fact, this unilateral practice does not ensure observance of equity and fairness of allocation of commodities of this type. International practice uses the term “allocation” as a legal method that ensures the individualization of the amount traded in a point where gas trading takes place between several customers. Allocation is a method to “split” the amount actually measured between several buyers, in a fair and transparent manner. Good practice recommendations of European Association for the Streamlining of Energy Exchange – Gas (EASEE GAS), drawn up on February 18th 2009 in Common Business Practice, Interconnection Agreement, establish several methods of allocation (individualization) of amounts measured, which could be taken over and applied in the gas market legislation (transmission network code, market code etc.). Two years ago, I warned in a material published: The consequence of failure to solve this situation (introducing mechanisms of allocation according to the Civil Code), by the corresponding supplementation of Law 123/2012, may cause major prejudice in the market, by invoking the violation of art. 1678 of the Civil Code. Currently, the way in which individualization of amounts in entry points was determined under Order no. 1/2016 amending the Network Code allows users of the transmission system to challenge the connectedness of individualization (allocation) of gas amounts and, thus, to challenge imbalances in the national transmission system, as well as exceeding capacity. Notices sent by Transgaz to users of the transmission system on penalty that must be paid for exceeding the transmission capacity in December 2015 contain several aspects that question the alleged penalty:

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ANRE’s abuse against gas suppliers

AbuzANRE annually issues an Order by which it sets for each licensed supplier the obligation to store gas to guarantee the security of gas supply. This practice violates the legislation in force. The obligation to establish by the supplier a minimum gas stock in the storage facilities is a measure derived from the provisions of Directive 67/2004 concerning measures to safeguard security of natural gas supply and transposed in Romania by Law 346/3 December 2007. Law 346/3 December 2007 (which transposed the Directive 67/2004), provided in art. 16. (2) “The minimum level of gas stock is determined annually, by decision of the National Energy Regulatory Authority, with consideration mainly of existing storage capacities, consumption forecast, frequency and duration of periods with low temperatures, ensuring a level corresponding to domestic consumption”. This law enabled ANRE to issue orders to force suppliers to store gas in the period of 2008-2010. In 2010, EU Directive 67/2004, which was the basis of Law 346/2007 and entitled ANRE to force suppliers to store gas, was repealed by EU Regulation 994/2010 concerning measures to safeguard gas supply security. Regulation 994/2010 no longer requires application in Romania by issuing a law, being applied also in Romania as of the entry into force. Thus, Law 346/2007, which transposed the Directive 2004/67/EC, Directive repealed by Regulation 994/2010, was implicitly repealed. Moreover, art. 148 of the Constitution of Romania shows that European Regulations take precedence over any other regulation in Romania. Thus, accepting ANRE’s interpretation, that Law no. 346/2007 is not repealed (failure to repeal Law 346/2007 being an oversight of the Parliament of Romania), Regulation 994 will apply in Romania and not Law 346/2007, according to the Constitution of Romania. In conclusion, ANRE wouldn’t be entitled, as of 2011, to set the obligation for suppliers to store gas for conditions to safeguard gas supply security. Respectively, ANRE wouldn’t be entitled during 2011-2016 to fine gas suppliers for failure to comply with the obligation to store gas. Regulation 994/2010 established that as of 2011: a measure to ensure gas supply security to protected consumers in emergency situation is the establishment of a minimum stock by the Competent Authority in Romania. In 2013, under GD 429/2013, the Department for Energy was appointed as National Competent Authority to prevent and coordinate emergency situation in the field of natural gas, and with the disestablishment of the Department for Energy and takeover of its duties by the Ministry for Energy, Small and Medium Enterprises and Business Environment, this ministry was appointed under GD 42/2015 and subsequently the Ministry of Energy was appointed under GD 980/2015 as Competent Authority to apply the Regulation (EU) no. 994/2010 concerning measures to safeguard gas supply security. Thus, the institution that could force the establishment of a minimum gas stock in storage facilities at the level of suppliers (those who sell gas to household customers and only within the limit of covering with gas the emergency situation) as of 2013 was only the Department for Energy/Ministry of Energy. Moreover, Law 160/2012 on ANRE’s functioning does not list among ANRE’s duties the establishment of the minimum stock of gas stored or responsibilities in terms of gas supply security. Protected consumers provided by Regulation 994/2010 are all household consumers in Romania. Although Regulation 994/2010, gives the possibility for each state to appoint other protected consumers and communicate them to the European Commission, Romania has not adopted any act to appoint other protected consumers, so Romania accepted that the only protected consumers are those provided by the Regulation 994/2010, i.e. household consumers. Thus, there is a legal possibility as of 2011 to establish the obligation to set a minimum gas stock in the storage facilities, for emergency situation, exclusively in the obligation of the Competent Authority (the Department for Energy/the Ministry of Energy) and only for household consumers. The emergency situation in the gas market can be triggered only if gas demand of household consumers for one day is exceptionally high compared to the daily household consumption of the past 20 years. According to Regulation 994/2010, sizing the minimum mandatory stock to be stored is made:

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