Sasol Gas Transmission Tariff Application

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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
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Introduction

• 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

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Agreement Mozambican Gas Pipeline

• 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

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Agreement Mozambican Gas Pipeline

• 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

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Agreement Mozambican Gas Pipeline

• Market Value Pricing
• Pricing according to the customers 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

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Gas Act

• 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...

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Gas Act

• 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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The Applications

• 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

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Legal Basis

• 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-

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Total charges build-up
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Legal mandate

• 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

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Legal mandate

• 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

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Legal mandate

• 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

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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 todays
  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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Sasol Gas Ltd Maximum Price of Gas Application

• 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
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Sasol Gas Ltd Maximum Price of Gas Application

• 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

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Sasol Gas Ltd Maximum Price of Gas Application

• 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 gt15
• Immediate implementation of price decreases as is
  required by the legislation

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What Sasol Applied for and NERSA approved
  Class 1 Class 2 Class 3 Class 4 Class 5 Class 6
  lt 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. gt 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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Sasol Gas Trading Margin Application
Sasol Gas Trading Margin Calculation Summary (26
March 2014- 30 June 2015)
26 March 14 - 30 June '14 1 July '14 - 30 June '15

Trading Margin (R/GJ) 8.21 10.40
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Impact on small customers

• Small volumes customers (class 1 to class 3)
• account for 5 (3.1 million GJ) of sales to
  external customers
• Of Sasol Gass 524 total customers
• 345 (66) are small volumes customers

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Impact on small customers
Small 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
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Impact on small customers

• 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

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Sasol Gas Maximum Price of Gas Application
Large Customers (classes 4 to 6) prices after
full restructuring (if done at once 26 March
2014)
  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

• Note assumption the prices are all contained
  at below the maximum and ltR100/GJ in all
  customer classes

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NERSA also approved

• S22 (allowable discrimination) for a phased
  approach to increases gt 15
• 15 on 26 March 2014
• Additional 15 in quarterly increments during
  2014-15
• Additional 15 in quarterly increments during
  2015-2017
• For increases gt 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

• Sasols 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 (gt120 m GJ) and
• Transnets 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
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3 Tariff zones
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Sasol Gas Ltd Transmission Tariff Application
The variance of - 7 is within NERSA tolerance of
/-10
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END

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