Tariffs and Quality of The Gas Distribution Cover+report

Study on Regulation of Tariffs and
Quality of the Gas Distribution
Gas
Service in the Energy Community
www.energy-community.org
KEMA Consulting GmbH

August 2010
This report was financed by the Energy Community.
Study on Regulation of Tariffs and Quality

of the Gas Distribution Service in the
Energy Community.
Final Report.
KEMA Consulting GmbH, Kurt-Schumacher-Str. 8, D-53113 Bonn

Bonn, 05 August 2010
Experience you can trust
Contents
1. Introduction .................................................................................................................... 1
2. Theory of Gas Tariff Methodologies and Regulations ............................................... 2
2.1
Tariff Regulation .............................................................................................. 2
2.1.1 Why Regulation .......................................................................................... 2
2.1.2 Areas of Regulation .................................................................................... 3
2.1.3 Reasons and Options for Unbundling......................................................... 8
2.1.4 Regulatory Regimes ................................................................................. 10
2.1.5 Revenue Requirements............................................................................ 14
2.2
Tariff Setting .................................................................................................. 15
2.2.1 Pricing Objectives..................................................................................... 16
2.2.2 Cost Allocation.......................................................................................... 17
2.2.3 Customer Category Definition .................................................................. 21
2.2.4 Distribution Tariffs..................................................................................... 23
2.2.5 Supply Tariffs............................................................................................ 24
2.3
Quality Regulation ......................................................................................... 24
2.3.1 Overview................................................................................................... 24
2.3.2 Security of Supply..................................................................................... 25
2.3.3 Technical Quality and Safety.................................................................... 25
2.3.4 Quality of Service and Reliability .............................................................. 25
2.4
Vulnerable Customers ................................................................................... 28
2.4.1 Definition of Vulnerability for this Report .................................................. 28
2.4.2 Treatment of Vulnerable Customers......................................................... 29
2.4.3 Supporting Mechanisms ........................................................................... 29
2.4.4 Issues for Regulators................................................................................ 32
3. General overview on EU gas tariff methodologies and regulations ....................... 33
3.1
EU Legislation ............................................................................................... 33
3.2
Tariff Regulation ............................................................................................ 37
3.3
Tariff Methodologies and Levels ................................................................... 39
3.4
Tariffs and Competition ................................................................................. 43
3.5
Tariffs and Efficiency ..................................................................................... 45
3.6
Tariffs and Investment ................................................................................... 45
3.7
EU Quality Regulation ................................................................................... 46
3.8
EU Measures to protect Vulnerable Customers ............................................ 54
Study on Regulation of Tariffs and Quality of the

Gas Distribution Service in the Energy Community
August 2010
Page i
Contents
4. Gas Tariff Methodologies and Regulations in the Energy Community Contracting
Parties and Observer Countries ................................................................................. 59
4.1
Gas markets in the Energy Community ........................................................ 61
4.2
Regulation ..................................................................................................... 63
4.3
Distribution tariffs including connection (methodology, levels) ...................... 68
4.4
End-user tariffs (methodology, levels) ........................................................... 72
4.5
Quality of supply ............................................................................................ 78
4.6
Vulnerable customers.................................................................................... 83
5. Recommendations....................................................................................................... 88
Annex A: Case Studies....................................................................................................... 94
A.1 Slovenia................................................................................................................... 94
A.2 Romania ................................................................................................................ 100
A.3 Portugal ................................................................................................................. 105
Annex B: Questionnaire ................................................................................................... 113
Annex C: Answers received from participating regulators........................................... 133

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Figures
Figure 1: Areas of Regulation Gas....................................................................................... 4

Figure 2: Examples of Quality Incentive Schemes ............................................................... 27
Figure 3: Graphical representation of a rising block system ................................................. 30
Figure 4: EU legislation for gas............................................................................................. 36
Figure 5: Regulators participating in the questionnaire and analysed for this report ............ 60
Figure 6: The Slovenian gas network ................................................................................... 95
Figure 7: Natural gas transport routes to Slovenia ............................................................... 95
Figure 8: Number of new customers connected to the distribution network in 2005-2008 ... 99
Figure 9: The Romanian gas network................................................................................. 101
Figure 10: Evolution of gas tariffs in Lei / 1000 m 2000-2009 ........................................... 103
Figure 11: The Portuguese gas network............................................................................. 106
Figure 12: End-user regulated tariffs .................................................................................. 109
Figure 13: Average price of end-user tariffs (2008-2009) ................................................... 109
Figure 14: Structure of the average price of end-user tariffs (2008-2009) .......................... 110

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Tables
Table 1: Regulation of gas end-user prices in EU member states in 2008 ........................... 38

Table 2: Gas distribution tariffs in EU member states in 2007 .............................................. 40
Table 3: Average gas supply tariffs for household customers in EU member states 1997
2007 (in Euro/GJ) .......................................................................................................... 41
Table 4: Average gas supply tariffs for industrial customers in EU member states 1997
2007 (in Euro/GJ) .......................................................................................................... 42
Table 5: Unbundling of gas DSOs in EU member states in 2008 ......................................... 44
Table 6: Reported number of interruptions per 100 customers in UK................................... 49
Table 7: Customer satisfaction repairs of unplanned interruption UK................................... 50
Table 8: Customer satisfaction planned interruption / replacements UK .............................. 51
Table 9: Guaranteed Standards of Performance / Penalty payments UK ............................ 52
Table 10: Countries with specific support system for gas consumers .................................. 57
Table 11: Customer Categories that are included in a support system ................................ 58
Table 12: Overview on the natural gas sectors..................................................................... 62
Table 13: Overview on the natural gas consumption ............................................................ 63
Table 14: Regulation in the natural gas market .................................................................... 64
Table 15: Determination of tariff methodologies, structures and levels ................................ 65
Table 16: Regulatory regimes............................................................................................... 67
Table 17: Unbundling and benchmarking ............................................................................. 68
Table 18: Elements of distribution tariffs............................................................................... 69
Table 19: Costs included in the cost base of distribution tariffs ............................................ 70
Table 20: Distribution tariff levels in 2009 ............................................................................. 71
Table 21: Standard connection charges ............................................................................... 72
Table 22: Elements of end-user tariffs .................................................................................. 73
Table 23: Average end-user tariff levels for household and industrial customers without taxes
in /Joule ....................................................................................................................... 74
Table 24: Shares of commodity, transmission, distribution, end-user supply, taxes and VAT
and other elements in end-user tariffs ........................................................................... 75
Table 25: Automatic adjustment mechanisms for end-user prices and end-user categories 76
Table 26: Customer choice ................................................................................................... 78
Table 27: Application of quality of supply regulation ............................................................. 79

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Tables
Table 28: Quality indicators included in the regulation of commercial quality....................... 80
Table 29: Quality indicators included in the regulation of gas safety .................................... 80
Table 30: Quality indicators included in the regulation of reliability ...................................... 81
Table 31: Quality indicators included in the regulation of technical quality ........................... 82
Table 32: Indicators of commercial quality............................................................................ 83
Table 33: Definition of vulnerable customers........................................................................ 84
Table 34: Support mechanisms for vulnerable customers.................................................... 85
Table 35: Consequences if vulnerable customer can / does not pay its bill ......................... 86
Table 36: Average frequency of meter readings and invoicing and the collection rate......... 87
Table 37: Standard customer groups in Slovenia ................................................................. 98
Table 38: Quality of supply in the distribution network (gas year 2007-2008) .................... 112

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1.
Introduction
This study has been prepared by KEMA on behalf of the Energy Community (EC),
Vienna. The Energy Community extends the EU internal energy market to South
East Europe and beyond on the grounds of a legally binding framework. It thereby
provides a stable investment environment based on the rule of law, and ties the Contracting Parties together with the European Union.
The overall objective of this report is to provide an overview of natural gas pricing issues (distribution and retail) in the EC member states and compare them with the
European best practice. It analyses tariff levels, tariff and quality regulations and
specific treatments for vulnerable customers currently applied in the gas distribution
and gas supply markets in the Energy Community Contracting Parties (Albania, Bosnia and Herzegovina, Croatia, FYR of Macedonia, Moldova1, Montenegro, Serbia,
UNMIK2) and three Observer Countries (Georgia, Turkey, Ukraine).
Within this report KEMA assesses the developments and regulations of the local gas
markets of the Contracting Parties and Observer Countries against each other and in
comparison to the natural gas markets of the European Union. Furthermore this report provides recommendations and preliminary proposals on how the current conditions and regulations can be further improved and brought in line with the best practices in the European Union. This should enable regulators in the Energy Community
to evaluate and adopt the gas distribution and supply tariff structures and the quality
measures necessary for a secure, efficient, competitive and affordable energy supply.
As part of this project KEMA has developed a detailed questionnaire, which was sent
out to the regulators in the Contracting Parties and Observer Countries of the Energy
Community in December 2009. In addition the questionnaire was also sent to the
regulators in Austria and Slovenia. Completed questionnaires have been received
from 12 jurisdictions. Given the constitutional structure of Bosnia and Herzegovina,
results for the Federation BiH and the Republika Srpska of Bosnia and Herzegovina
Moldova signed the declaration for joining the Energy Community on 17 March 2010. After ratification
of the protocol Moldova is treated as Contracting Party as of 1 May 2010.
2
Pursuant to the United Nations Security Council Resolution 1244.

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are displayed separately in this report. In addition further data has been taken into
account from a number of national and international sources.3
This report has been structured into 3 main sections, describing and analysing the
general theory (section 2), the European best practice (section 3) and the current
situation in the Energy Community Contracting Parties and Observer Countries (section 4) of natural gas markets tariff methodologies and regulations. Section 4 presents preliminary proposals on how the current natural gas systems and regulations
in the jurisdictions of the Energy Community can be further improved. Annex A gives
three detailed case studies on the current tariff methodologies and regulations in the
natural gas markets of Slovenia, Romania and Portugal. Annex B shows the questionnaire that has been sent out to the participating regulators and Annex C lists all
answers to the questionnaire in detail.
2.
Theory of Gas Tariff Methodologies and Regulations
2.1
Tariff Regulation
This section presents fundamental background information on tariff regulation and

introduces the rationale of regulation and the particular specifications in the area of
natural gas.
2.1.1
Why Regulation
The introduction of economic regulation is driven by the need to control the activities
of monopolistic structures which are essential for the development of competition and
the protection of consumer interests in other (linked up- and downstream) markets.
Gas (and electricity) transmission and distribution networks are considered as such
essential facilities and natural monopolies.
Additional sources include: Energy Community (2008): National Reports for Albania, Bosnia and Herzegovina, Croatia, UNMIK, FYR of Macedonia, Montenegro and Serbia; Annual Reports of the regulators; Energy Information Administration; Eurostat, DG TREN; ERGEG; ENTSO-G, Energy Community
Regulatory Board (2009): Vulnerable Household Customers an ECRB Contribution to a Common
Understanding, 25.11.2009.

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The major regulatory objectives are to:
ensure equal and non-discriminatory access to essential facilities for all sector
participants with a view to establishing and improving the conditions for competition in the gas (and electricity) sectors
protect consumer interests and eliminate monopoly inefficiency
ensure financial viability of industry participants by allowing them to recover

their efficient costs.
For example in a situation where only one company operates in a market, the market
price cannot be considered as exogenous to this company. Realistically, this company would recognise its monopoly position and its influence over the market price
by choosing that level of price and output that maximised its overall profits. Of
course, it cannot choose price and output independently, as for any given price, the
company will be able to sell only what the market will bear. If the company sets a
very high price it will be only likely to sell a small quantity as the consumers will react
negatively to the price increase.
Generally, if effective competition exists then there is no need for regulation. However, where competition is not possible (like in the case of natural monopoly), economic regulation is required to prevent the abuse of market power by dominant or
monopolistic industry participants.
Natural monopolies arise if duplication of an infrastructure or service is un-economic,
i.e. the character of technology and demand dictate that the costs of construction do
not make duplication of the network infrastructure economically feasible. The underlying source of this problem is the so-called sub-additivity of costs. The main
sources of sub-additivity of costs are economies of scale and economies of scope.
Economies of scale imply that average costs fall with increasing output. The most
prevalent source of economies of scale is fixed costs, costs that are incurred irrespective of the level of output. Economies of scope arise if a given quantity of each of
two or more goods can be produced by one firm at lower costs than if each good
were produced separately.
2.1.2
Areas of Regulation
In the area of gas, the need for regulation of certain services depends on the economic properties of the services and (wholesale and retail) market arrangements.
The following figure shows the different areas in the gas sector. The figure presents

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gas activities categorised into areas that are subject to regulation, competitive services and where competitive potential exists.
Each area is explained in the subsequent chapters.
Figure 1: Areas of Regulation Gas

Gas Production / Import
Gas Storage
Anciliary System Services
Services subject to
regulatory control
Gas Transmission / System operation

Gas Wholesale Supply
Competitive services
Gas Distribution
Gas Retail Supply
Services where
competitive potentials
exist
Metering and Billing
2.1.2.1
Gas Production / Import
The small number of indigenous resources, the strong dependence on external supply sources and the heavy economies of scale in the upstream business have resulted in a limited number of competitors in the field of gas production. Gas production is limited to geographical areas where gas is naturally available. The costs of
production facilities are high and can strongly differ depending on the gas source and
its technical accessibility. The high investment costs of production (including the risk
of exploration before a gas source is developed) are traditionally recovered by longterm supply contracts. Natural gas production is considered as a competitive business area. Regulations in the area of production should therefore focus on health,
safety and environmental aspects only. To make competition work on up-stream
natural gas production it is essential that gas production companies are effectively
unbundled from natural gas transmission and distribution services.
2.1.2.2
Storage Services
Gas storage can be used to support the reliable operation of the network, but also as
a source of energy supply, e.g. to balance seasonal demand differences.
There are different types of storages and their investment cost depends on the construction technology and location. The biggest storages are constructed underStudy on Regulation of Tariffs and Quality of the
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ground, e.g. in former salt caverns or exhausted oil and gas fields or aquifers (porespace storage). The feasibility of constructing such storage facilities and the associated construction cost heavily depend on geological conditions.
In principle, gas storage services can be exposed to competition, therefore they are
classified as a service where competitive potential exists. Economies of scale are not
as high as in gas networks (discussed below). Gas storage may have significant
variable costs including compressor costs, liquefaction and re-gasification costs,
losses in case of LNG storage, cushion gas, etc. Cost sub-additivity is not fulfilled for
storage services. Storage is thus not a natural monopoly. Nevertheless, storage operators often hold a de facto monopoly.4 Big underground storage facilities in particular can only be constructed where adequate geographical conditions exist. Moreover,
they can usually only be reached via one single network. In other words, competitive
gas storage service can only be provided if:
Several storages exist
A sufficient number of storage facilities are equally accessible5:
Technical access is possible
Storage access conditions and network access conditions are transparent and non-discriminatory
Storage and network capacities are available.
In all cases where these conditions are not fulfilled, the storage operator is a potential
or de facto monopolist who may be able to exercise market power by charging excessive prices or withholding available capacities in favour of associated companies.
In such cases storage tariffs should be subject to regulation. Also, access conditions
should be monitored to ensure transparent and non-discriminatory access. The new
Gas Directive 2009/73/EC in the 3rd Internal Energy Package leaves the choice of
storage regime to the Member States6.
See for example Creti, Anna ed. (2009): The Economics of Natural Gas Storage - A European Perspective, Springer
5
See also: DG Energy (2010), Commission Staff Working Document, Interpretative note on Directive
2009/73/EC concerning common rules for the internal market in natural gas, third-party access to storage facilities, 22.1.2010.
6
Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning
common rules for the internal market in natural gas.

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2.1.2.3
System Services and Ancillary Services
Ancillary services are those services procured by transmission system operators

which are linked to network operation, such as load balancing, blending and to a certain extent also some storage services.7
In practice, the network operators usually purchase ancillary services acting as single buyers for such services. If the procurement of ancillary services is carried out
competitively there is no need for an ex-ante direct price control. However, the (tender or market) rules and contracts governing the procurement process should be
subject to regulatory endorsement and supervision.
2.1.2.4
Gas Transmission and Distribution
Gas networks are characterised by high initial and irreversible investments that turn
into sunk costs if not used. The construction and operation cost of a natural gas system depend on the geographical conditions, the legal requirements (licenses etc.),
the distance and the pressure level. Typical asset components of gas transport infrastructure are pipelines, (small / network-related) storage facilities, pressure regulators, compressors (relevant for gas transmission).
Theoretically, transmission pipelines could lack the sub-additive cost structure in certain cases so that the natural monopoly character would not be strictly given. However, empirical tests have rarely been carried out so far and those transmission systems which have been tested, evidenced sub-additive cost structures.8 Irrespective of
the academic discussions dealing with the sub-additivity features of gas networks,
transmission and distribution pipelines remain regulated in most countries which
have undergone a restructuring of their gas markets.
LNG transport provides competitive pressure on the long-distance transmission level.
LNG transport in general is characterised by rather high cost compared to the cost of
pipeline transmission due to the expensive conversion treatment for cooling and re-
E.g. in the short term a network operator may need a certain amount of gas for system balancing in
case the majority of shippers underestimate demand at the same time. Also, a certain amount of gas offtake capacity is needed in reserve in case the majority of shippers at a given date over-estimated demand. The TSO can achieve these goals by buying (or selling) its gas on the spot market on a day to
day procurement basis (if such a market exists), by using longer-term gas procurement with specific
flexibility arrangements or by contracting and using storage capacity.
8
Compare Gordon, Daniel V. / Gunsch, K. / Pawluk, C.V. (2003): A natural monopoly in natural gas
transmission, in: Energy economics, Volume 25, pp. 473-485.

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gasification.9 Although both options can be financially compared only for specific projects with clearly observable cost, general estimations indicate that pipeline transport
is likely to be less efficient than LNG transport for distances higher than 5000 km. On
the contrary, pipeline transport is likely to be more efficient for distances lower than
2500 km.10
2.1.2.5
Gas Wholesale and Retail Supply
Gas wholesale and retail supply are competitive areas. However a functional competitive gas wholesale and retail supply would require:
Access to gas pipelines, including both non-discriminatory access rules and

pricing as well as available network capacities.
Existence of competitive (liquid) gas markets.
The first condition (network access) can be enforced and controlled by national regulators, whereas the second one is more difficult due to the prevailing long-term
wholesale supply contracts, import dependency and often a lack of liquid short-term
markets.
The shippers often import on the basis of long-term take-or-pay contracts and pass
these contractual relationships through to the retail supply level. The gas industry has
always argued that long-term import contracts are fundamental to the EU gas market.
Although the role for short-term gas markets has been acknowledged, the gas industry asserted that the gas business in Europe is fundamentally orientated to long-term
arrangements, especially given the increased dependency on imports. The main reason is that long-term import contracts limit the risk for investors in gas infrastructure
The gas should be first cooled down to temperatures lower than -160C in a liquefaction station. The
produced liquid gas (LNG) is then transported by tanker and delivered to re-gasification terminals. The
liquid gas is then converted back to normal gas and injected into the transport pipelines for further
transportation.
10
The information is based on the Sector Inquiry of the European Commission, see DG Competition
(2007), report on energy sector inquiry (SEC (2006) 1724), 10 January 2007, p. 274. The comparison
has been made between the costs of pipelines of different throughputs (10, 25, 40 bcm per year) and
LNG costs necessary to cover the same throughput. The comparison is based on a number of assumptions, and it is therefore of purely indicative value. Taxes, royalties, efficiency gains, commodity value,
extraction costs, production costs, operators mark-up, financing costs have not been considered in the
calculation. For pipeline gas, capital expenditure related to laying pipelines on land and building gas
compressor stations have been calculated as a function of the distance and on the pipelines diameter.
The main CAPEX cost driver was assumed to be the price of steel (USD35/inch/meter with a price of
steel of USD1,250/ton). As regards LNG, the project chosen includes a tanker of 135,000 m LNG and a
re-gasification terminal with a capacity of 8 bcm per year. All facilities, including the liquefaction plant are
assumed to be according to current best technological practice.

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(transit, transmission, storage and LNG) and enhance security of supply.11 On the
other hand, long-term arrangements may decrease the market liquidity and competitive dynamics. Moreover they may also create self-sustaining negative incentives for
suppliers to continuously stick to such long-term contracts. The retail suppliers would
need a reliable procurement source to cover their gas demand and would prefer the
long-term arrangements which may hamper the development of a liquid short-term
gas market. As a result, even potentially competitive wholesale and retail gas supply
may need to remain under regulatory supervision (through ex-ante price regulation or
continuous market performance monitoring) if competition cannot function satisfactorily.
2.1.2.6
Metering and Billing
Metering and billing can be exposed to competition. Whether or not these services
should be under regulatory control depends however on the allowed level of contestability as set out in legislation. If only network operators are entitled to provide
metering and billing services, these services will remain regulated. Should the legislation however provide for a competitive provision of these services, i.e. various service providers are allowed to compete; the regulator may decide to abolish the explicit ex-ante price control.
2.1.3
Reasons and Options for Unbundling
Unbundling is fundamental when the energy industry evolves towards more competition. In order to make this competition functional and to ensure that the market is not
hindered in its development, the potentially competitive functions should be separated from the monopoly functions. The integration of the businesses poses a risk to
competitors and consumers because integrated businesses may attempt to use its
status as monopoly service providers to obtain an unfair advantage in the competitive
parts of their services. E.g. the integrated businesses may shift costs and charge
higher prices for the regulated networks which would favour their competitive services and may hinder the development of competition due to prohibitively high network charges.
11
See DG Competition (2007), report on energy sector inquiry (SEC(2006) 1724), 10 January 2007, p.
209.

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In order to promote transparency, to disentangle the interests of network operators

from other parts of the vertically integrated company, and to facilitate the tasks of
regulators, different unbundling instruments have been designed in the European
Union: unbundling of accounts, unbundling into different legal parts and ownership
unbundling.12
2.1.3.1
Accounting Unbundling
Accounting unbundling requires natural gas undertakings to keep separate accounts

for each of their transmission, distribution, LNG, storage, production and retail activities in their internal accounting. This is to create similar conditions to a situation
where activities are carried out by separate undertakings. The firm remains vertically
integrated but the costs of the network services and each other business area are
kept in separate (non-consolidated) accounts.
2.1.3.2
Legal Unbundling
Legal unbundling also demands the separation of network activities from the other
business areas in a separate company. However network assets still remain under
the same ownership as production or retail.
2.1.3.3
Ownership Unbundling
Under ownership unbundling the company who owns and operates the network assets is fully separated from all other business areas, including the separation of asset
ownership. The transmission network operator is not allowed to hold any assets (or
shares) in companies operating in the competitive business segments of the gas
value chain, while other companies (if not ownership unbundled network operators
themselves) are also not allowed to hold any network assets (or shares).
Based on their sector inquiry13 in September 2007, the Commission proposed their
third legislative package14 strongly arguing in favour of ownership unbundling of gas
12
common rules for the internal market in natural gas.
13
DG Competition (2007), report on energy sector inquiry (SEC(2006) 1724), 10 January 2007.
14
rd
The 3 legislative package on EU Electricity and Gas markets consists of Directive 2009/73/EC and
Regulation (EC) 715/2009 for the gas and Directive 2009/72/EC and Regulation (EC) No 714/2009 for

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and electricity transmission networks as the preferred regulatory regime of vertical

disintegration. However, due to different positions in the EU member states, the new
Gas Directive 2009/73/EC includes two alternatives to full ownership unbundling: the
creation of an independent system operator or an independent transmission operator.
2.1.4
Regulatory Regimes
A range of forms of tariff regulation are used by regulators, as are various classifications of these forms by commentators. In this report, we discuss the different forms of
price regulation under the following categories:
Rate of return regulation, referred to sometimes as cost plus regulation;
Cap regulation, referred to sometimes as RPI-X or incentive regulation.
2.1.4.1
Rate of Return Regulation
Under rate of return regulation, the regulator sets prices for the service provider
(generally) every one, or sometimes two years, in such a way that they cover the
service providers costs of production and include a rate of return on capital that is
sufficient to maintain investors willingness to replace or expand the companys assets. Often the forecast of costs (OPEX and depreciation) are based on the previous
years costs with an adjustment for price inflation.
Depending on the regulatory period, rate of return regulation does not normally require forecasts of data for more than one year; it is often applied in situations where it
is difficult to obtain reliable data forecasts. This could be because data is difficult to
collect or a high degree of uncertainty exists over some key variables, e.g. investment needs or costs due to institutional restructuring. This form of regulation can also
be effective in encouraging investments in risky environments if the rate of return
regulation is designed to ensure (e.g. through end-of-year adjustments) that the service provider receives a guaranteed rate of return15.
the electricity markets, as well as Regulation (EC) 713/2009 for the establishment of a European regulatory agency. For more details see also section 3.1 of this report.
15
Rate of return regulation is sometimes defined as regulation that guarantees that ex post profits reach
certain levels. See Burns P, Estache A, (1999) Infrastructure Concessions, Information Flows and
Regulatory Risk, World Bank, Public Policy for the Private Sector, Note No, 203, December 1999.

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On the other hand, rate of return regulation has two, well-known and significant disadvantages:
It provides little or no incentive to control costs, let alone reduce them.
It provides an incentive for the service provider to over-invest in capital

equipment and plant.
Other disadvantages include the need for frequent regulatory reviews, with often detailed information needs, and hence high associated costs for both the regulator and
the service provider.
2.1.4.2
Cap Regulation
Under cap regulation, prices or revenues are set in advance, usually for a period of
three to five years, allowing the company to benefit from any cost savings made during that period. At the end of the period, the prices or revenues are recalculated in
order to bring them back into line with costs, and to pass through the benefits of any
efficiency gains to customers.
The cap refers to the upper limit that is placed on prices or revenue, hence the term
price cap or revenue cap. While a few US precursors can be identified, cap regulation was first applied on a large scale to British Telecom in the UK in 1984. It is designed to give the service provider a strong incentive to reduce costs. This is partly
done by setting the prices or revenues that a service provider can earn over a number of years partially or completely decoupled from the costs it incurs over this time.
It is also achieved by allowing the company to keep at least a portion of the benefits
of any efficiency improvements over the assumed level of improvements incorporated in the level of the cap for a pre-defined period of time.
In order to take account of unpredictable rates of inflation in an economy, a capregulation regime typically allows a firm to vary its prices in any year by an amount
linked to the overall level of inflation, as measured by the percentage change in an
appropriate price index. This inflation-adjusted price level is then usually adjusted by
a percentage, often referred to as the X, that reflects, among other things, the real
change to costs that the regulator assumes is reasonable.
As explained above, the cap, or upper limit, may be placed on prices, in which case it
is often referred to as a price cap, or on revenues, in which case it is referred to as a
revenue cap.

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There is no widely accepted classification of the different types of price and revenue
cap regulation. Two distinct types of price caps are:
Individual price caps, where the regulator sets the upper limit for each individual price. This is the most direct form of price control, but its application is
limited to situations where the number of services provided is small and stable and costs are easily identifiable.
Tariff baskets, where prices are grouped into one or more baskets on the
basis of the services to which they apply. A representative weighted average
price for the basket is calculated and an upper limit or cap is then applied to
the weighted average price. The service provider faces a cap on this
weighted average price, which increases over time on the basis of a RPI-X
formula. Advantages of tariff baskets are that in theory the business has an
incentive to adopt economically efficient prices and it is consistent with the
principle of light-handed regulation. However, in practice the tariff basket is often found to be difficult to understand by market participants and difficult to
implement.16
For the purpose of this report, we divide revenue caps into:
Fixed revenue caps, or pure revenue caps as they are sometimes referred
to, set an upper revenue limit at the start of the control period as an absolute
amount, which is adjusted each year for general price inflation and the Xfactor. It is called a fixed cap, because the amount of allowed revenue does
not normally vary automatically with a change in volume.
Variable revenue caps index the allowed revenues (in addition to inflation
and the X-factor) to some measure of change, in one or more other cost drivers, e.g. units distributed or customer numbers or length of network. An advantage of this type of cap is that it allows an automatic adjustment for some
changes in costs that are beyond the control of the service provider.17
One form of cap not covered above is the average (or unit) revenue cap, sometimes also referred to as an average yield cap or revenue yield cap. These are
16
We have observed such difficulties in our work on several projects in Slovenia, Romania and Germany.
17
The term hybrid cap was initially used (in the early 1990s) to describe a hybrid of a revenue and
price cap but is now used sometimes to describe a wide variety of forms of revenue cap or average
revenue cap with some linkage to demand (i.e. units distributed or sold). Because of the ambiguity over
the meaning of the term hybrid cap and to avoid confusion, we generally do not use this term when
describing caps.

May 2010
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sometimes classified as price caps and sometimes as revenue caps. Under an average revenue cap, an upper limit is placed on the average revenue per unit of
throughput the business is permitted to earn in any year. The average revenue is
then allowed to vary per year on the basis of a RPI-X formula. One of the features of
an average revenue cap is that it provides incentives to the regulated business to
increase sales, which may or may not be an advantage.
Ways of Setting the Caps

The most commonly used ways of setting the cap are:
1. Linked caps using building blocks under this approach the regulator first assesses the allowed revenue of the regulated entity for each year of the regulatory period by assessing the revenue components separately for each year,
i.e. the OPEX and capital costs including depreciation and return (based on
the annual capital expenditures), and incorporating efficiency increase requirements in the revenue projections. The next step is to convert this series
of revenues into a cap formula with a starting value that is adjusted each year
by an X-factor and inflation. The regulator does this by selecting the starting
value and calculating an X so that the present value of the revenues under
the cap formula should be the same as the present value of the series of projected revenues. This step is referred to as the smoothing procedure and
the resultant X as the smoothing X.
2. Unlinked caps using ex-post efficiency analysis on total costs - under this approach the regulator does not use projections for OPEX and capital costs to
arrive at the allowed revenue for the upcoming regulatory period. The allowed
revenue is set equal to the actual costs at the end of the previous regulatory
period and is adjusted annually by inflation and efficiency increase. The efficiency increase is applied on the total cost reported at the end of the previous
regulatory period.
Price versus Revenue Caps

One basic difference between price and revenue caps is the way they respond to
changes in the quantity demanded. Under a price cap, a service providers revenue
will move in the same direction as any change in the quantity demanded, and hence
the risk of an unexpected change to demand can be said to lie with the service provider. Under a revenue cap, the level of revenue is guaranteed for the service provider, and hence the risk of a demand change can be said to lie with the customer.
May 2010
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The appropriateness of the different types of cap will depend partly on how the costs
of providing the regulated service change with differences in demand. Assuming for
example that the cost structure of a business is such that the average cost per unit
sold does not vary with a change in the volume sold. A price cap appears appropriate
the business average revenue will not vary with a change in the volume sold and
total costs will move in proportion with total revenue. On the other hand, if total costs
change only little with differences in demand, then a revenue cap incorporating properly selected cost drivers may be a more appropriate means of price control. However, depending on how the price cap regime is designed, a price cap scheme may
encourage the service providers to establish efficient tariffs systems, e.g. using tariff
basket caps.
Rate of Return versus Cap Regulation

The key difference between cap and rate of return regulation is that with the latter,
the upper limit on prices or revenue is normally determined directly from actual costs
in the previous year. While, in the case of cap regulation, the limit is normally determined from the limit in the previous year. Hence under cap regulation the allowed
prices/revenue are determined independently from last years actual costs and the
service provider is able to keep any cost savings that it makes over the period between price reviews and which are above any cost savings assumed, via the X, when
the cap is set. The ability to keep these savings is important as it provides the service
provider with a strong incentive to make cost savings.
Compared to rate of return regulation, cap regulation provides stronger incentives to
reduce costs; it can be argued that the longer the time between reviews, the stronger
the cost-reduction incentive. Through weakening the relationships between actual
costs and regulated prices, cap regulation minimizes many of the deficiencies of rate
of return regulation. It avoids the need to review prices annually and can provide
greater price stability. However, cost reductions should not be achieved by prohibitive
regulatory arrangements that would not allow investors to earn an adequate rate of
return. In setting the caps, the regulator will need to ensure that their level is sufficient to cover not only the efficient operation and maintenance costs, but also to provide an adequate return on inherited capital and new investment.
2.1.5
Revenue Requirements
Revenue requirements are equivalent to the justified (eligible) costs that should be
allowed to be recovered from the regulated services. Eligible costs should include the
May 2010
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reasonable efficient OPEX (operation and maintenance cost) and the capital cost (including depreciation and return on assets). The recovery of OPEX does not provide
any return to the infrastructure owner, as they are paid out in the form of salaries,
ongoing operating and maintenance costs, emergency service costs, etc. These
costs allow the business to provide and maintain its service. On the other hand, the
inclusion of capital costs in the revenue requirement formula recognises the owners
investment in the regulated company and ensures reasonable return on the efficient
assets.
This concept of the required revenue is generally expressed through the following
formula:
RRevt =
OPEXt + Depreciationt + RAt
Where:
RRevt
required revenue (in year t)
OPEXt
operation and maintenance costs (in year t)
Depreciationt =
=
RAt
2.2
regulated depreciation (in year t)

return on assets (in year t)
Tariff Setting
Once the revenue requirements of a regulated company have been determined,

these are allocated to the service users in the form of a tariff system. Below we explain:
the pricing objectives
cost allocation issues
the tariff strictures components
customer category definition
distribution network tariffs
supply tariffs.

May 2010
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2.2.1
Pricing Objectives
When designing a tariff methodology the following major principles of energy pricing
are taken into account:
Economic efficiency: An efficient charging structure should signal to users the marginal costs that they impose on the regulated company and encourage the operator
to utilise its assets optimally (both day-to-day and in the longer term).
Cost recovery: Achieving this objective involves ensuring that price control regulation
allows the regulated service provider to recover the operating and maintenance costs
and capital costs that are commensurate with the efficient provision of the service.
Efficient regulation: Aims to minimise the costs to the service provider of complying
with the regulation. It will also take into account the costs to the regulator of administering the regulations.
Simplicity and Transparency: It is essential that pricing rules are clearly understood.
Regulated charges should be understandable and transparent so that a user can
readily determine the charges it faces and respond to them. Furthermore, to avoid
disputes the tariff regime needs to be clear and should be based on explicit rules as
far as possible. Finally, transparency can be seen as a prerequisite for general acceptance by users and the general public.
Non-discrimination: A key element of the pricing regime is the requirement to ensure
that a level playing field is created for all service users. This requires the notion of
treating all users equally, irrespective of size, ownership or other factors, i.e. nondiscrimination between users unless they generate different underlying cost patterns.
In practice, this means that all users should face the same methodology for calculating charges not necessarily the same charges.
Social affordability and political acceptance: Microeconomic efficiency principles are
not always in accordance with this objective. Introducing cost reflective tariffs often
means high price increases for smaller customers. While the computation of cost reflective tariffs is a quantitative effort and depends mainly on the quality of available
data and professional knowledge, their implementation for all customer categories
cannot be completed overnight. Therefore in order to achieve political acceptability
and social affordability, a gradual approach supported by transition arrangements
may be required.
Macroeconomic constraints: On some occasions, constraints of a macroeconomic
nature might play their role in limiting regulators and companies in their actions. Constraints like inflation control, GDP growth requirement, employment policy etc. may
May 2010
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prevent regulators and companies from pursuing full price readjustment/realignment.

On other occasions macroeconomic and microeconomic policies interact to keep
price rises moderate, and to make it possible for investors to enter the market without
causing widespread malcontent throughout the population. In the next section we
discuss the aspects related to achieving policy trade-off.
The application of all pricing principles should be considered in the light of their interdependencies and avoid mechanically prioritising one of them. There is no universal
answer as to how these principles should be prioritised. Economic efficiency and cost
recovery are key objectives in pricing but must be balanced against other objectives.
These include non-discrimination against certain market participants, simplicity in implementation and transparency to users, stability to support long-term investment decisions and flexibility to support changing market environments. These objectives
represent key criteria for judging the appropriateness of various charges for achieving efficiency and cost recovery objectives.
2.2.2
Cost Allocation
Cost allocation refers to several aspects like the choice of average versus marginal
cost pricing, the choice of cost drivers, application of time-of-use tariffs, application of
geographically differentiated tariffs etc. With respect to the geographical differentiation the model can be divided into those that provide locational pricing signals and
those that do not. The latter are referred to as postal or postage stamp models18.
While models with locational signals (e.g. entry / exit models) have often been used
for pricing of gas transmission, postage stamp models are commonly used in the
area of gas distribution.
2.2.2.1
Marginal versus average cost pricing
An important aspect is to decide whether average or marginal cost pricing should be

used. The average costs refer to the total costs incurred by the service provider, divided by the number of units of that good or service. This approach is backward looking and aims to distribute the actual costs over the delivered quantities.
18
Presumably the term postal is used to refer to the non-locational nature of stamps, i.e. in most postal
systems, the same stamp applies to a particular service regardless of where it is delivered. For example
the same stamp would normally apply to posting a parcel of a certain weight, no matter where it is sent
within a country.

May 2010
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The approach of using marginal cost-based prices as signals for efficient utilisation of
regulated service attempts to replicate the outcome on the competitive market
whereby producers sell at the competitive market price whenever it is equal to or
greater than their marginal cost. Marginal costs can be defined as the costs incurred
in supplying a small increase in demand of the relevant commodity. Thus, in order to
be able to apply the marginal cost concept the increment (kW, m/day or kWh, m)
must be defined.
Depending on whether capital stock is kept constant or investments can be added,
marginal (average) cost can be further divided into short and long-run marginal (average) cost. For instance, short run marginal costs are defined as the additional costs
arising when one additional kWh is demanded and the installed capacity remains
constant. In contrast, long run marginal costs also take into consideration the capital
investment incurred by the regulated company when one additional kWh is demanded.
Marginal cost (and ideally long run marginal cost) pricing provides signals for efficient
resource allocation, but usually does not allow the business concerned to recover
costs. Hence in practice, prices are sometimes based on average costs or some mixture of average and marginal costs that provides some of the pricing signal advantages of marginal costs ensures cost recovery. In some instances, the cost allocation
model chosen will determine whether marginal or average costs can be used; in others there will be a choice.
2.2.2.2
Cost Drivers
Yet another issue, generally related to the choice of cost allocation model, is to decide what drivers to use in allocating costs to the chosen tariffs (or charges). This will
partially determine the level of the individual charge. The main drivers of gas costs
that are taken into account for the pricing19 are normally the:
1. Capacity required to provide the service to the customers. For the individual customer, this is usually represented by a measure of the customers peak demand
(e.g. MW or m/day) or, in the case of gas, sometimes reserved capacity. The
costs driven mainly by the level of demand are often referred to as the demand
19
There are other drivers of distribution costs, e.g. population density, however, the three listed here are
those directly related to actions taken by customers and hence of most use to reflect in the pricing.

May 2010
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dependent or capacity dependent costs and for a network will include the costs of
providing and maintaining the network.
2. Actual usage of energy. The costs driven mainly by the throughput of energy are
often referred to as the energy-dependent costs20;
3. Number of customers. The costs driven mainly by the number of customers are
often referred to as the customer dependent costs and include for example the
cost of reading meters.
Sometimes, for example in gas network pricing, a simple ratio can be used to allocate total costs between the demand dependent and energy dependent cost categories. For example, the ratio may be set equal to 50:50, normally meaning that 50% of
total costs are allocated to the demand dependent category of costs and 50% to the
energy dependent category. The ratio chosen is sometimes intended to represent the
actual ratio between fixed and variable costs or result from application of marginal
cost pricing; other times it also takes into account such things as the impact on
smaller customers21. In gas pricing, the ratio between demand and energy-dependent
costs is often referred to as the capacity/commodity split.
2.2.2.3
Pressure Tier / Consumption Zones
Gas customers are normally categorised by annual consumption or pressure tier of

connection. Pressure tier may provide a reasonable proxy for cost of utilisation, however it has the disadvantage that it may encourage bypass of the low pressure systems to avoid the high charges for using this part of the network. While this could encourage better pricing that aligns the network cost structure, incentives to connect to
higher pressure levels would leave network capacity under-utilised and cause a price
increase on lower pressure levels. This could particularly be the case for countries
with developing gas markets, where a small number of industrial customers account
20
Some costs, such as that of system operation do not vary with the throughput of energy, but they may
be included in the energy dependent costs for the purpose of allocating costs to tariffs. Such costs also
do not vary with demand, customer numbers or other customer characteristics, and it may be held that a
non-discriminatory way of allocating these costs among consumers is to divide them by the energy
transported.
21
Smaller customers tend to have lower utilisation of their peak demand than larger customers and so
they are generally hit relatively harder by a tariff structure where a high proportion of costs is allocated,
via the demand dependent cost category, to the demand charge. Hence the proportion of total costs
allocated to the demand dependent category may be reduced to lower the impact on smaller customers,
particularly those with a low level of energy consumption.

May 2010
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for a large part of total gas demand and are directly connected to the transmission
pipelines.
In contrast to the standard (high, medium, low) voltage levels in electricity distribution, pressure levels for natural gas distribution pipelines are usually based on historic developments and not standardised within a country. Furthermore pressure levels within a single pipeline can already vary significantly over time and at different
parts of the pipeline. Transmission and distribution pipelines operate at various pressure levels that often cannot be clearly or meaningfully distinguished. A tariff differentiation by pressure level could therefore be difficult to implement.
Customers with similar consumption patterns use the network to the same extent
causing similar costs to the whole pipeline system. As a matter of equity such customers should also be charged the same tariff levels. Customers with different usage
patterns, such as customers with a relatively constant demand or large differences
between base and peak load, use the gas distribution network to a different extent
and require a larger or smaller back-up from the network operator via balancing and
ancillary services. Different gas distribution tariffs are therefore often calculated for
different customer groups. These groups can be categorised by specific consumption
levels or zones or for simplifying purposes by specific types of customers, such
as household, small commercial and industrial customers and gas-fired power plants.
2.2.2.4
Time-of-Use Pricing
One option is to vary the capacity tariffs with time in order to incentivise users to shift
consumption away from peak periods where possible. However, it tends to be difficult
to structure a tariff that encourages movement away from the peak period without
severely penalising those who have no choice but to take gas at peak times. Sometimes interruptible tariffs / contracts are used to encourage peak reductions. A timeof-use tariff also requires time dependent metering to register the energy or demand
served in the tariff time periods.
2.2.2.5
Tariff Structure
To ensure that costs are properly allocated, the costs should be classified into categories that reflect the main factors determining the level of overall costs of providing
the relevant service. Often the regulated entity calculates the tariff structure and levels; however the regulatory authority usually establishes the guidelines and methodology for this, usually in the form of tariff methodologies.

May 2010
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The term tariff structure usually refers to the number and form of the tariffs (also
referred to as charges or tariff elements). These are normally chosen to allow, among
other things, the cost of serving the customer to be more accurately reflected by a
tariff element. The choices made will be determined to a large extent by the type of
cost allocation methodology chosen.
Gas network tariffs tend to consist of three basic types of charges (i.e. tariff elements):
1. Capacity charge (i.e. tariff element per MW or m/day) levied against a network
users entitlement to use the network, where the entitlement to use the network
would normally be expressed in terms of a maximum daily rate reserved by the
user, either in volumetric or energy terms. In most regimes, the user will face
considerable penalties, called overrun charges, if they exceed this reserved figure.
2. Commodity charge or element: levied on actual usage or throughput, i.e. an
amount per volume unit consumed.
3. Standing charge or element (or service charge) per customer.
A basic design issue for any tariff scheme is how much of the cost recovery target
should be met by capacity charges, and how much by commodity charges. A high
capacity element will tend to secure more of the companys revenue each year regardless of how much gas is actually transported. It will also increase bills for low
load factor users of the network (i.e. those with demand profiles showing marked
peaks), and reduce bills for those with high load factors. For distribution systems the
fixed element tends to be lower than in transmission systems, but there is a more important aspect when looking at this split. The household and smaller commercial customer tends to have the lowest load factor and hence could incur high capacity
charges in a fully cost-reflective tariff regime.
2.2.3
Customer Category Definition
Where the regulated entity provides a variety of services/products to the same customer, these services/products are often identified on the basis of the main factor(s)
driving their cost of provision. In the gas sector, the factors normally used are: number of energy units sold, some measure of peak demand and number of customers.
This practice means that prices can be structured to more accurately reflect the costs
of supplying the customer concerned.
Users are often grouped into categories on the basis of the users characteristics that
determine the costs of supplying the user. These characteristics usually include
May 2010
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pressure level of connection and customer consumption behaviour. In addition, a criterion like metering equipment and data availability should be considered. These
characteristics are explained as follows:
Pressure level. Under a cost reflective pricing policy, customers connected

at a particular pressure level should not pay for the costs of providing network
assets that are at a lower pressure level. In terms of cost allocation this
means, among other things, that (ideally): only the costs (and the relevant
portion of these costs) relating to pressure levels at and above the level at
which a customer is connected should be allocated to the charges paid by
that customer.
Consumption behaviour (load pattern / consumption zones). The level

and pattern of the customers consumption is largely determined by the main
use to which the gas is put and hence customer categories are often differentiated by the type of user (e.g. household and industrial customer). To further
reflect different usage patterns of different customer types, distribution and retail supply tariffs do sometimes also vary for different consumption levels or
consumption zones.
Metering equipment and availability of data. When designing the tariff

structure, the extent to which individual services are priced separately should
also take into account the existing metering arrangements and availability of
recorded data. The extent to which individual services are priced separately
will depend on whether it is physically possible to distinguish between the different services; for example, the introduction of charges based on peak demand or time-of-use pricing will depend on metering capabilities.
Eligibility for subsidies. Government policies in respect to such issues as

lifeline tariffs, capped tariffs and national uniform tariffs may also become a
factor that should be taken into consideration for customer definition. Although the separation of certain customer groups may not be clearly justified
by economic criteria, the need to provide subsidy support may require separate metering and consumption records for those groups.
In addition the location (geographical point of connection) of the customer could be

taken into account. This is often done by allowing distribution pipeline operators in
different geographical locations (e.g. in urban or rural, mountainous or flat areas) to
charge different distribution tariffs.

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2.2.4
Distribution Tariffs
Distribution tariffs can be broken down into two categories:
Charges associated with the connection to the system, which enables a user
to obtain access to the system (connection charges);
Charges associated with the transport of gas across the system (use of network charges).
As it has been explained in section 2.2.2 use of network charges can be designed in
several ways. The way in which connection charges are calculated and applied may
have a significant impact on the competitiveness of new connections. In deciding on
the relevant connection charges that should properly be charged to the connected
party, a fundamental question is related to the split of assets between the connection and the core network. Generally, two extreme positions can be considered,
namely:
Deep connection: All the costs incurred in making the connection to the
connected party including the costs of incremental investments in the
wider system are levied on the connected party, depending on whether or
not these relate to the local network or to the connection point.
Shallow connection: The connected party is required to fund only the assets specifically required to connect it to the system and for the specific
benefits of this particular user.
Connection charges can be calculated on an individual basis or a standard (average)

cost basis. Connection charges to the distribution grid up to a certain capacity are
normally calculated on a standard cost basis. Individual charges would need stronger
involvement from the regulator in approving them, while standard charges can be
approved once and then published and applied by the relevant company.
Under any standard pricing approach, the actual costs of any particular project may
be above or below the standard charges, since these are developed as averages of
typical projects. The trade-off for applying charges that do not perfectly reflect an individual project is that the approach results in a faster application process as well as
bringing greater financial certainty to the connection offer. For household customers
a standardised tariff can be quite useful and fair if most of them face quite similar
conditions; while an average standardised charge for industrial customers at high
pressure might hide large connection cost differences.

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2.2.5
Supply Tariffs
However it is quite common that the tariffs offered to final customers have a different
structure to the use of network tariffs. This is especially the case when the retail market is opened.
Supply tariffs cover the cost of purchasing natural gas at wholesale level, the transit /
transportation of gas, the distribution charges and the cost of the retailer. Basically,
supply tariffs could have the same structure as use of network charges and the costs
could be allocated using the criteria described in section 2.2.2. The division between
demand dependent, energy dependent and customer dependent costs should properly consider the cost of gas purchasing and the cost of retailer, and will most likely
differ from the one for use of network charges.
In some countries government policy may envisage the application of lifeline tariffs,
capped tariffs and national uniform tariffs for specific customer groups. The implementation of such schemes using direct subsidies or cross-subsidies should be taken
into account in the cost allocation process.
2.3
Quality Regulation
2.3.1
Overview
This section provides an overview of the definition of quality in the area of gas distribution and supply.
The term gas quality in a broad view comprises the following topics:
Security of gas supply
Technical quality and safety standards
Commercial quality (quality of service)
Reliability of supply
In the following sections we analyse the definition of each term and the extent to
which regulators monitor and control it.

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2.3.2
Security of Supply
Security of supply regulation addresses the issue that most European countries are
dependent on gas imports from third countries. From a long term perspective, safeguard mechanisms ensure the supply of gas to household and industrial customers
in Europe. Measures include: reliable partnerships with supplier/s, transit and consumer countries reduce the risks of Europe's energy dependency, and setting-up a
coordination mechanism between member states for emergency cases. Regulating
authorities are normally not directly involved in ensuring the security of supply, nor is
it possible to actively regulate it. Regulators could carry out long-term studies and
surveys on demand for gas and availability of infrastructure and hereby support the
information on security issues and possible governmental measures.
2.3.3
Technical Quality and Safety
Technical codes and standards refer to the technical quality of gas (e.g. Wobbe Index) and the regulations and standards for the network infrastructure, e.g. concerning
the maximum operation pressure, pipeline construction. In addition the technical
codes and standards address the safety of the gas supply. Safety measures are for
example the odorisation of gas, safety devices for gas pressure regulating stations
and installations (gas safety shut-off devices). Technical codes and safety standards
are traditionally developed by the industry. In the area of electricity, regulators are
starting to monitor the quality of power supply but this is not yet the case for gas.22
We therefore do not further explore the regulation of technical quality and the safety
of gas within this report.
2.3.4
Commercial Quality and Reliability
Commercial quality of service and reliability are addressed by national regulators in

order to monitor and control the service provided by regulated network operators. As
regulation of distribution networks aims to improve the efficiency of the network operator this leads to cost savings that may affect the commercial quality and reliability.
Therefore regulators tend to provide standards and / or incentive schemes in order to
guarantee that the distributor reaches a certain level of commercial quality and reli-
22
th
See CEER (2008): 4 Benchmarking Report on Quality of Electricity Supply 2008, Ref: C08-EQS-2404, 10 December 2008.

May 2010
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ability. We refer to such measures as actual quality regulation. Compared with customer protection measures, quality regulation is often targeted towards the network
operator while customer protection measures also include the supplier and take into
account the specific needs of single customer groups. Quality regulation is normally
introduced as a complementary measure under incentive regulation (cap regulation)
in order to counter-balance the incentives to decrease costs. Most of the European
Member states however, did not yet introduce quality regulation for gas distributors.
Commercial Quality
The commercial quality of the network operator can be analysed and monitored
whenever the network operator has contact with the network user. For example this
when a client asks for connection to the distribution network, interruptions and safety
concerns (gas smell) are monitored.
In such cases the customer would call (or for the connection write a letter) to the service centre of the network operator. Indicators for commercial quality may include:
Time of reaction of the network operator
Waiting time to answer telephone call
Quality of reaction / information
Friendliness of the staff
Keeping of appointments with the customer
For these indicators standards could be defined (e.g. network operator must react
within 10 working days to a letter from the client) and if the network operator does not
meet the standard he has to pay a fixed penalty to the client.
Reliability
Reliability is a measure of gas availability and refers to capacity adequacy (long-term
measure) and operational security (short-term measure). The availability of gas to the
final customer is measured by reliability indicators such as the frequency and duration of gas interruptions. Reliability indicators measure the average performance of
the network operator (e.g. average interruption duration per customer per year).
The performance of the network operator can be incentivised using an incentive
scheme that connects the average performance or the network operator with financial incentives depending on the actual performance of the network operator. The
May 2010
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companys performance is compared to a quality target: deviations result in either a

penalty or a reward. There are many variations of quality incentive schemes. Price
and quality can be mapped continuously, in a discrete fashion, or a combination of
these, the level of the penalty or reward can be capped, dead bands may be applied,
etc. Figure 2 shows some examples. The x-axis represents the measured quality
level, the y-axis the penalty or reward.
Figure 2: Examples of Quality Incentive Schemes

Financial
incentive
2) continuous
4) dead band
Reward
3) capped
1) minimum
standard
Quality level
low
high
Penalty
Under scheme 1, after reaching a certain quality level, a fixed penalty is imposed.
This is essentially an ordinary standard. Scheme 2 introduces a continuous relation
between price and quality. At each level of quality, a corresponding penalty or reward
is attached. Scheme 3 is similar to scheme 2 except that the penalty and reward are
now capped. The argument for this capping is that this reduces the financial risks to
the company and customers. However, capping also has some drawbacks: If quality
decreases, the company would only have to pay penalties to a certain point. After
that, further quality degradation does not carry any financial effects. Similarly, capping the reward level will reduce the companys incentives to improve further quality
once the maximal reward has been reached. Scheme 4 is similar to scheme 2, but
has a dead band. For quality levels within this band, no price adjustments are made.
Quality can be thought of as consisting of two parts: the natural quality level, and
(superimposed on it) a stochastic element. In the short term, these stochastic effects
can lead to significant quality fluctuations and as a result, unintended penalty and
reward fluctuations. Dead bands are used to dampen these effects. Quality incentive
schemes are used for the regulation of electricity network operators. The German
regulator is currently working on introducing such a scheme also in the area of gas.
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Within this report we address quality regulation in terms of commercial quality and
reliability in relation to distribution and retail gas companies and therefore do not address the long-term capacity issues and security of gas supply relating to the gas
transportation system and gas imports much further in the following sections.
In addition, some regulators address issues of environmental protection in their
gas quality regulation framework. For example, the UK regulator Ofgem monitors the
amount of gas emitted from gas distribution networks, as methane (the principal
component of natural gas) is a greenhouse gas. Most of the emissions are due to
leakages in the network. Ofgem established a Discretionary Reward Scheme, which
provides gas distribution networks with an extra incentive to improve their customer
service in areas such as the reduction of the environmental impact of gas distribution.23 As the issue of environmental protection is a specific topic we will not address
it in this report.
2.4
Vulnerable Customers
2.4.1
Definition of Vulnerability for this Report
Section 3.7 of this report explains the scope of customers that can be regarded as
vulnerable. There is no common definition of vulnerability at EU level as is also the
case within the Energy Community member states (as outlined in the ECRB discussion paper Vulnerable Household Customers an ECRB Contribution to a Common
Understanding24). The analysis for the EU and the Energy Community shows that
support is mostly provided to low income groups (based on the monthly income),
while vulnerability is also defined for health, disability and age criteria in a number of
countries. Taking this into account and bearing in mind the objective of our work, we
focus mainly on tariff-related aspects for providing support to vulnerable customers.
Examples of such tariff-related support are tariff schemes where prices are set below
cost-reflective levels (social tariffs) providing in this way financial support to lowincome customers. A typical example is the lifeline or (increasing) block tariffs designed to cover a base level of gas consumption at affordable rates. Social gas tar-
23
Ofgem (2008): Gas distribution quality of service report 2007-2008, Reference number 164/08, 17
December 2008.
24
Energy Community Regulatory Board (2009): Vulnerable Household Customers an ECRB Contribution to a Common Understanding, 25.11.2009.

May 2010
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iffs vary across the countries and usually depend on the availability of gas and the
purpose for which gas is used e.g. cooking, hot water, heating.
2.4.2
Treatment of Vulnerable Customers
Typically, protection of vulnerable customers is seen as necessary to ensure that

customers with limited incomes or in receipt of state benefits are helped to pay their
gas and electricity bills. For the question of how to treat vulnerable customers a
number of aspects should be taken into consideration, such as whose responsibility it
is to provide some type of support and what type of support should be offered.
Supporting mechanisms for vulnerable customers could be for example:
Special payment arrangements for customers who cannot pay their bills
Customers unable to pay are not disconnected, reserving disconnection for
those customers who can pay but choose not to
Financial support or special social tariffs
Prepayment or installation of a budget meter
Provision of energy efficiency measures to particular customer groups,

thereby enabling them to save on future energy bills as well as helping to
achieve environmental goals
The key question is not only the nature of the protection, but also how it is funded.
2.4.3
Supporting Mechanisms
This section provides an overview of the different schemes that could be offered to
provide some type of support to vulnerable customers.
2.4.3.1
Lifeline (block) Tariff
Lifeline (block) tariffs allow customers to pay a lower rate for a basic level of consumption. The tariffs generally work as part of an inverted block system where customers are charged for gas in blocks depending on their usage over a period of time,
typically a month. The first block of gas consumption is charged at a lower rate (normally below cost) to help all customers afford a basic level of consumption. The subsequent blocks are then charged at higher rates (generally above cost) to help recover the subsidy for the first block of gas. Ideally cross-subsidies should only exist
May 2010
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within the customer group in question. Figure 3 below demonstrates how a rising
block system could operate.
Figure 3: Graphical representation of a rising block system
Price
Cost reflective
tariff
Variablecost
Block1
Block2
Volume
The theory behind the reduced block tariff is that low-income customers are assumed
to have low gas consumption, and are therefore likely to remain within the first block.
Customers that are better off are likely to consume more gas and therefore will move
into the subsequent block and make a contribution towards the costs of subsidising
the initial cheap block. This tariff structure provides all households with a minimum
level of gas at a subsidised price.25
This implies that unless the subsidy is provided only to those consuming a very small
amount, the middle income groups will tend to benefit more in terms of the absolute
amount of the subsidy received. Another disadvantage of providing a high level of
subsidy is that the greater the subsidy, the greater the incentives for fraud. It can be
argued that because service is delivered through a meter, subsidies through utilities
are well targeted. However, the wealthy may gain access to subsidies through multiple meters on a single residence, while poor families in group housing or apartment
buildings with single meters may be taxed on their high consumption.
25
So one could discuss whether a block tariff that is offered to all customers is acceptable. A block tariff
should be defined as a social tariff so long as the first block is subsidised by customers with higher consumption or whether a social tariff needs a target group to which it is offered exclusively. Considering
that poor people consume less gas than people who are better off, the first argument might be acceptable.

May 2010
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Eligibility Criteria
The lifeline (block) tariff might be charged only to customers eligible to receive this
support. The eligibility could be defined by the income level of the household or other
criteria such as whether social assistance is received for other services. For a social
tariff the eligibility of a customer has to be determined and checked. E.g. households
with an income below the minimum could be allowed to buy gas at a block tariff. In
addition, the lower rate of a block tariff refers only to a certain amount of gas. Consuming more is charged by a normal i.e. cost-reflecting tariff or by an increasing
block tariff.
Funding
The lifeline (block) tariffs might be funded using cross-subsidisation (as described
above) but also out of public sources such as taxes. Public funding for poor customers normally has an eligibility criterion in order to help only the people who really
need assistance.
2.4.3.2
Direct Payments
Direct cash payments to vulnerable people by the social welfare agency/department

are generally preferred by economists, rather than involving the utility and possibly
introducing cross-subsides, either on a direct or indirect basis. However in some
situations, this may not be the preferred situation. USAID26 investigated different direct support mechanisms in Bulgaria, Romania, Hungary, Armenia and Kazakhstan.
The majority of these support programmes are for heat rather than gas and are
therefore only paid in the winter months. The research found that the most successful
programmes were not bundled with any other programmes and that the payments
were transferred directly to the utility/fuel supplier rather than given as cash payments to customers. Where cash payments were made directly to customers it was
found that the money was sometimes spent on food or medicine, which could then
result in unpaid utility bills.
Another example of cash payments comes from the winter aid in the UK. The UK
faced the problem of increased deaths in cold houses in the winter due to people being unable to pay for their heating. To overcome this situation, the so-called Winter
Fuel Payment was introduced. The Winter Fuel Payment is an annual payment to
26
Aguirre International and International Science and Technology Institute (2003): A Regional Review of
Social Safety Net Approaches In Support of Energy Sector Reform, report for U.S. Agency for International Development (USAID), October 2003.

May 2010
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help people aged 60 and over with the costs of heating in winter. Customers aged 60
to 70 receive either 100 or 200, depending on their circumstances in the qualifying
week (18-24 September 2006). People aged 80 or over get an extra 50 or 100,
meaning one could get up to 300, depending on their circumstances in the qualifying week. The money is paid to the customers during November and funded by the
government.
2.4.3.3
Indirect Payments / Vouchers
As an alternative to direct cash payments to the household, the money could also be
given directly to the suppliers claiming a certain number of eligible customers in their
respective areas. Such a programme is currently operated for electricity in the
UNMIK area where all social cases are recorded on the register of the local supplier/distributor KEK and allocated to a set number of units of electricity each month.27
The customer bill shows the energy used and the amount already deducted. Customers are still responsible for paying the remaining proportion of the bill and face the
threat of disconnection should they not pay the outstanding amount.
The advantage of such schemes is that the payments are made directly to the supplier, which should ensure that money is received and therefore reduce the exposure
to unpaid bills from poor customers. In order to avoid abuse (e.g. if the social case
register is wrong or if additional customers who are not classed as vulnerable are
able to be registered) this system needs a transparent payment mechanism which
exists between the government and the suppliers and an audit of the use of this
money by the suppliers.
2.4.4
Issues for Regulators
In Europe the trend is increasing towards the issue of customer protection as a

whole. Customer protection not only covers affordability issues but also consumer
rights for switching supplier, notification for disconnections etc. A report published by
the European Regulators group for electricity and gas (ERGEG)28 shows additional
work and interest in this area in a more general context as well as a high awareness
of the regulators on the issue of customer protection. Vulnerable customers should
generally be compensated through the respective national social support schemes
27
KEK Supply Directorate (2005), Social Cases Payment Strategy, 1/11/2005.

European Regulators Group for Electricity and Gas (2009), Status review of the definitions of vulnerable customer, default supplier and supplier of last resort, Ref: E09-CEM-26-04, 16 July 2009.
28

May 2010
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and not through discounts on network tariffs or regulated energy prices, as has also
been pointed out by the Energy Community Regulatory Board in their publications.29
More generally, the challenge of protecting vulnerable energy household customers
in a liberalized market should only be addressed with market oriented instruments.
Regulated prices should be abolished and, where necessary, substituted by instruments neutral to competition. 30
On a wider perspective in the UK, Ofgem the electricity and gas regulator provided
guidelines on the types of initiatives that energy suppliers can include towards the
social spending commitments agreed with Government. This means that vulnerable
and fuel poor customers (those spending more than a tenth of their income on energy), who struggle most to pay their energy bills will be assured the best deal their
supplier offers in their area. This initiative is part of the Social Action Strategy to help
the government tackle fuel poverty in the UK. This is one role that the regulator can
take to help define eligibility criteria and bring awareness to people requiring support.
3.
General Overview of EU Gas Tariff Methodologies and

Regulations
3.1
EU Legislation
The European Union has been very active in the promotion of competition and the
regulation of the natural gas sector since the second half of the 1990s. The overall
aim of creating an internal gas market within the European Union is set out by the
Directive 2003/55/EC31 (amended by Directive 2009/73/EC)32 and Regulation (EC)
29
E.g. Energy Community Regulatory Board (2009): Vulnerable Household Customers an ECRB
Contribution to a Common Understanding, 25.11.2009, page 10: The protection of vulnerable energy
household customers has to be discussed in a broader context of national social welfare systems and
has to be taken into account when implementing the Social Action Plans of the Energy Community Contracting Parties.
30
Energy Community Regulatory Board (2009): Vulnerable Household Customers an ECRB Contribution to a Common Understanding, 25.11.2009, page 10
31
Directive 2003/55/EC of the European Parliament and of the Council of 26 June 2003 concerning
common rules for the internal market in natural gas and repealing Directive 98/30/EC.
32

May 2010
Page 33
1775/200533 (amended by Regulation (EC) 715/2009)34. Further Directives, Regulations and Decisions of the European Commission address network access conditions, interconnection, the cooperation of the regulators, security of supply and statistics (see Figure 4).
Directive 2003/55/EC requires the establishment of independent regulatory agencies
for transmission, distribution and LNG facilities and the opening of retail markets for
all non-household customers by 1.7.2004 and all customers by 1.7.2007.35
Regulation (EC) 1775/2005 (amended by Regulation (EC) 715/2009) sets out the
capacity allocation mechanisms, the congestion management procedures and the
trading of capacity rights for transmission, storage and LNG facilities, as well as the
rules for balancing and imbalance charges.36
The issue of security of natural gas supply is particularly addressed in Directive
2004/67/EC, which requires EU member states to prepare national emergency
measures and to report to the Commission on their storage capacities and long-term
gas supply contracts. In addition a Gas Coordination Group was established to coordinate the security of supply measures in the European Union in cases of major supply disruptions. Regulation (EC) No 2236/95 and the subsequent Decisions set out
33
Regulation (EC) No 1775/2005 of the European Parliament and of the Council of 28 September 2005
on conditions for access to the natural gas transmission networks
34
Regulation (EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC)
No 1775/2005.
Directive 2009/73/EC and Regulation (EC) 715/2009 together with Regulation (EC) 713/2009 and the
respective Directive and Regulation for electricity (Directive 2009/72/EC concerning common rules for
the internal market in electricity, Regulation (EC) No 714/2009 on conditions for access to the network
for cross-border exchanges in electricity) form the 3rd legislative package on EU Electricity and Gas
markets.
35
With the adoption of Directive 2009/73/EC a strengthening of the powers of national regulators and a
strengthening of the unbundling requirements legal and functional unbundling of storage and distribution, and full ownership unbundling, an Independent System Operator or an Independent Transmission
Operator for transmission have to be implemented. In addition the 2009 Directive establishes a regional solidarity mechanism (for situations of severe disruption of supply).
36
Regulation (EC) 713/2009 of the European Parliament and of the Council of 13 July 2009 establishing
an Agency for the Cooperation of Energy Regulators.
Regulation 715/2009 will create the European Network of Transmission System Operators for Gas
(ENTSO-G), which will develop the details of future network codes and which will be a further development of the former cooperation of Gas TSOs (GTE, http://www.entsog.eu). With the adoption of the third
legislative package, the current cooperation of energy regulators ERGEG (www.energy-regulators.eu)
will also be developed into an Agency for the Cooperation of Energy Regulators (ACER) headquartered
in Slovenia's capital Ljubljana by March 2011 (Regulation (EC) No 713/2009).

May 2010
Page 34
the general rules for financial aid by the Community for trans-European energy networks and define priority gas projects to be supported by the European Union.37
The European Regulatory Group of Energy Regulators (ERGEG) has further published a number of good practice guidelines for transmission, storage and LNG facilities, which determine general guidelines for best practice implementation of the EU
legislation.38
The following diagram presents an overview of EU legislation for gas.
37
Current gas projects close to the Energy Community include LNG terminals and underground storage
in Greece and Italy; the Libya-Italy gas pipeline (Greenstream); the Turkey Greece Italy gas pipeline
projects (TAP and IGI) and the Nabucco pipeline.
38
ERGEG Guidelines on Article 22 (exemptions) - Conclusions; Guidelines for Good Third Party Access
Practice for LNG System Operators (GGPLNG); Guidelines for Good Practice on Open Season Procedures (GGPOS); Guidelines of Good Practice for Gas Balancing (GGPGB); Guidelines for Good TPA
Practice for Storage System Operators (GGPSSO)

May 2010
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Figure 4: EU legislation for gas

Directive
98/30/EC
Internal Market
Network Access
Conditions
Third-party access
Market opening
Directive
2003/55/EC
Unbundling
Directive
2009/73/EC
Regional solidarity mechanism
Regulation (EC)
No 1775/2005
TSO cooperation ENTSOG
Regulation (EC)
No 715/2009
Independent regulators
Network development plan
Capacity-allocation mechanisms and congestionmanagement procedures

Balancing rules and imbalance charges
Regulation (EC)
No 2236/95
Interconnection
Cooperation of
Regulators
Decisions
No 1254/96/EC,
No 1047/97/EC,
No 1741/1999/EC,
No 1229/2003/EC,
No 1364/2006/EC
Decision
2003/796/EC
Regulation (EC)
No 713/2009
TEN-E Gas Priority Projects
ERGEG
ACER (by March 2011)
Gas Coordination Group

Security of Supply
Directive
2004/67/EC
Directive
90/377/EEC
Statistics
Decision No
2007/394/EC
Preparation of national emergency measures

Report on storage capacities and long-term supply
contracts
Definitions of gas prices of industrial-users to be

submitted to Eurostat

May 2010
Page 36
Tariff Regulation
In order to regulate the network infrastructure, European regulators chose to apply
either a rate-of-return or a cap regulation methodology. At present price and revenue
cap regulation have become the favourable regimes for gas distribution networks in
EU member states. However, in contrast to the electricity sector, rate-of-return regulation continues to be applied for distribution network operators in a number of countries. Charges for the connection to the gas distribution network might be set or approved by the regulating authority.
In addition to the regulation of the use of network charges some regulators set energy prices for (selected) customer groups. The following table provides an overview
of the status quo of end-user tariff regulation in the EU. 10, 13 and 17 EU member
states apply end-user tariff regulation to their industrial, small commercial users and
households respectively.
The issue of specific (regulated) energy prices for vulnerable customers is addressed
under section 3.7.

May 2010
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Table 1: Regulation of gas end-user prices in EU member states in 2008

Customer Group
Country
Non-Household
Households
Austria
Belgium
Bulgaria
Cyprus
Czech Republic
Denmark
Estonia
Finland
France
Germany
Great Britain
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
no developed gas market
Netherlands
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden
Northern Ireland
Source: DG Energy Benchmarking Report 2009

May 2010
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3.2
Tariff Methodologies and Levels
The calculation of the allowed annual revenue and the resulting tariffs is set in most
European countries by a tariff methodology or a similar document. Tariff differentiation for distribution tariffs considers energy and demand structures and eventually the
time of usage. Distribution charges can also be differentiated by pressure level and
by volume of consumption.
For supply (final end-user customers) tariffs could include a fixed (standing) charge,
energy and demand charge but also a seasonal and / or hourly differentiation. In addition supply tariffs could be distinguished per type of customer.
In the following tables we
summarise the level of distribution tariffs in the member states for different
types of customers (Table 2), and
provide an overview of the development of gas supply tariffs from 1997-2007

(Table 3 and Table 4).39
With a few exceptions distribution tariff levels for large users tend to be much lower
than those for medium commercial and small commercial and household customers.
Across EU member states distribution tariffs for the same customer profiles show
significant variations in their levels. Variations in distribution tariff levels are however
not related to East-West differences (old and new EU member states) or traditional or
newly developed natural gas markets.
End-user tariff levels for both household and industrial customers in the EU member
states show a significant increase between 1997 and 2007. Tariff levels for household customers in the 10 new EU member states are however significantly lower on
average than in the old EU 15 countries; for industrial users such differences are less
pronounced.
39
To give an overview of the development of end-user gas prices in the European Union Member States
over time, we show prices here according to the old Eurostat tariff methodology, as data for the new
Eurostat tariff methodology is only available from 2007 onwards. Gas prices according to the old Eurostat methodology is however only available up to 2007.

May 2010
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Table 2: Gas distribution tariffs in EU member states in 200740
Country
Austria
Approx. Network Tariff in /kWh

Medium CommerSmall Commercial /
Large Users
cial Users
Household Users
n/a
0.8678
1.2933
Belgium
0.13
0.95
1.3
Bulgaria
n/a
n/a
n/a
Cyprus
n/a
n/a
n/a
Czech Republic
0.236
0.4932
0.5685
Denmark
0.38
1.39
1.39
Estonia
0.151
0.151
0.537
Finland
0.68
n/a
n/a
France
0.101
0.938
0.132
Germany
0.17
0.93
0.118
Greece
0.41
1.44
1.51
Hungary
0.348
0.725
0.791
n/a
n/a
n/a
0.1673
0.7863
1.0452
Latvia
0.51
Lithuania
0.384
0.659
0.659
Luxembourg
0.117
0.462
0.738
Ireland
Italy
No developed gas market
Malta
n/a
n/a
0.85
0.3878
0.0886
1.0781
Portugal
n/a
n/a
n/a
Romania
n/a
n/a
n/a
Slovakia
0.36
0.0912
2.86
Slovenia
0.2031
n/a
1.407
Spain
0.2629
0.132
2.305
Sweden
0.36
n/a
2.18
United Kingdom
n/a
n/a
0.76
Netherlands
Poland
Source: DG TREN Benchmarking Report 2008
40
Data on gas distribution tariff levels was not reported in the 2009 Benchmarking report of DG Energy,
so the latest available comparison of EU gas distribution tariffs are the 2007 figures reported in the 2008
Benchmarking report of DG TREN.

May 2010
Page 40
Table 3: Average gas supply tariffs for household customers in

EU member states 1997 2007 (in Euro/GJ)
(old Eurostat methodology: Households - D3 (Annual consumption: 83.70 GJ Gross calorific value))
Country
1997
1999
2001
2003
2005
2007
Austria
8.3277
7.8029
8.7811
8.85
8.91
10.98
Belgium
6.9243
6.4576
9.4497
8.58
8.85
10.33
Bulgaria
n/a
n/a
n/a
n/a
5.6092
7.3622
Cyprus
n/a
n/a
n/a
n/a
n/a
n/a
Czech Republic
n/a
n/a
4.5093
5.2046
6.2972
7.944
Denmark
n/a
6.0071
10.959
8.3284
12.5798
13.6439
Estonia
n/a
n/a
n/a
3.9252
3.9235
4.9902
Finland
5.4817
6.5761
n/a
n/a
n/a
n/a
France
7.2298
7.3602
8.4396
9.06
11.42
Germany
7.1092
6.6417
9.6481
8.93
10.16
13.97
n/a
n/a
n/a
n/a
n/a
n/a
Hungary
2.9968
2.9894
3.1962
3.9384
4.4347
5.9668
Ireland
7.6416
7.3518
7.2756
7.27
8.8
14.742
Italy
9.0037
8.0479
11.0697
9.86
8.984
11.794
Latvia
n/a
n/a
n/a
n/a
3.8489
6.3513
Lithuania
n/a
n/a
n/a
n/a
4.5847
5.9699
5.7532
5.294
7.6307
6.91
7.6753
10.8655
Greece
Luxembourg
Malta
6.2257
5.7222
6.3075
8.17
9.64
12.3
Poland
n/a
n/a
5.2862
5.9061
6.1896
8.764
Portugal
n/a
n/a
13.6812
12.7
11.75
13.22
Romania
n/a
n/a
n/a
n/a
4.0269
7.6042
Slovakia
5.1169
5.4106
8.1761
7.4034
7.8158
10.75
Slovenia
n/a
n/a
n/a
n/a
6.8442
9.64
Spain
9.1614
8.8493
11.0556
10.43
10.2548
12.271
Sweden
7.2149
6.7932
9.1292
9.8547
11.7158
15.0889
United Kingdom
6.3222
5.9752
6.2697
6.559
6.9131
11.1997
7.22
6.81
8.49
8.37
8.84
12.17
Netherlands
EU 15
Source: Eurostat

May 2010
Page 41
Table 4: Average gas supply tariffs for industrial customers in

EU member states 1997 2007 (in Euro/GJ)
41
(old Eurostat methodology: Industry - I3-1 (Annual consumption: 41 860 GJ Gross calorific value))
Country
1997
1999
2001
2003
2005
2007
Austria
4.5878
4.231
5.5275
5.46
6.14
8.91
Belgium
4.1601
3.4631
6.3188
5.42
5.27
6.89
Bulgaria
n/a
n/a
n/a
n/a
3.7773
5.2173
Cyprus
n/a
n/a
n/a
n/a
n/a
n/a
Czech Republic
n/a
n/a
3.8764
4.1359
5.1086
6.5632
4.0346
2.6474
5.9886
5.2608
6.0077
5.7688
Estonia
n/a
n/a
n/a
2.9128
2.752
3.6909
Finland
3.9751
2.5094
7.0824
6.37
6.43
7.61
France
3.5837
3.3874
5.9394
5.46
6.22
7.63
Germany
4.96
4.213
7.7563
6.73
7.76
12.15
Greece
n/a
n/a
n/a
n/a
n/a
n/a
Hungary
2.8841
2.9077
4.0882
5.1994
5.8067
9.4769
Ireland
3.8275
3.0855
4.6472
4.94
n/a
n/a
Italy
4.4223
3.4783
6.5817
5.38
6.094
8.458
Latvia
n/a
n/a
n/a
n/a
3.4755
5.2903
Lithuania
n/a
n/a
n/a
4.2052
3.6058
6.0208
5.0115
4.6887
6.8914
6.17
6.9452
9.854
Denmark
Luxembourg
Malta
3.7181
3.0902
5.4045
n/a
6.39
8.4
Poland
n/a
n/a
5.6023
5.594
5.3047
7.5448
Portugal
n/a
n/a
6.8832
6.39
6.03
7.76
Romania
n/a
n/a
n/a
2.2933
3.6785
7.3193
Slovakia
3.4451
3.8927
7.6631
4.4602
5.0965
7.33
Slovenia
n/a
n/a
n/a
n/a
5.0813
7.9998
Spain
3.7346
2.8386
5.5365
4.81
4.6832
7.0736
Sweden
4.8605
3.3702
9.5334
6.8024
8.0795
11.0579
United Kingdom
2.8935
3.154
4.0123
4.8698
5.811
10.5515
4.03
3.49
6.12
5.56
6.23
9.11
Netherlands
EU 15
Source: Eurostat
41
Load factor: 200 days, 1 600 hours; for Belgium: fixed supply (non-erasable) for non-specific applications that can easily be substituted by residual fuel oils (CNE 1 P 1)

May 2010
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3.3
Tariffs and Competition
To facilitate competition a number of obligations have been set for distribution pipeline operators by EU legislation. According to the internal market Directive of 2003,
all distribution system operators (DSOs) with more than 100,000 customers are required to unbundle their distribution pipeline business from their supply business
segments in all EU member states. In some countries legal unbundling requirements
are extended even further to all DSOs (Table 5). Due to the small market size (e.g.
Finland, the Baltic countries) or the fragmented market structure with a large number
of small municipal distribution networks (e.g. Germany, Italy, Czech Republic), small
DSOs with less than 100,000 customers account for the majority of gas customers in
many countries. Table 5 provides an overview of the status quo of the unbundling
measures in the member states of the EU.
One indication for competition in gas supply (retail stage) could be the switching of
customers to another supplier. Since July 2007 all EU member states are required to
open their retail markets for all customers; derogations from market opening exist
only for Finland, Latvia, Portugal and Hungary. However, even in countries who have
opened their retail gas markets relatively early, customer switching remains quite
low.

May 2010
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Table 5: Unbundling of gas DSOs in EU member states in 2008
Country
Number of
DSOs
Number of
DSOs legally
unbundled
Application
of 100,000
customer exemption
Number of
DSOs with less
than 100,000
customers
Austria
20
14
Belgium
18
18
n/a
Bulgaria
32
32
Cyprus
n/a
n/a
n/a
Czech
Republic
91
83
Denmark
Estonia
27
27
Finland
32
32
France
24
21
Germany
686
145
659
Great Britain
Greece
Hungary
10
Ireland
295
292
214
Latvia
Lithuania
Luxembourg
Italy
Malta
Netherlands
12
12
Northern
Ireland
Poland
Portugal
11
Romania
38
38
36
Slovakia
46
45
Slovenia
17
17
Spain
20
20
13
Sweden
Source: DG Energy Benchmarking Report 2009

May 2010
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3.4
Tariffs and Efficiency
The regulatory arrangements usually incorporate incentives to regulated service providers to increase their efficiency. For example, the German regulator determines the
efficiency score (and the annual efficiency increase requirement) by a benchmarking
exercise using two mathematical methods (econometric and non-parametric). For the
first regulatory period (started in 2009) the average efficiency score of the German
gas distribution companies amounted to 87.3%. The annual efficiency increase requirement for the first regulatory period calculates as (100%-Individual efficiency
score)/10.42
Another aspect of economic efficiency is related to tariff structure. An efficient tariff
structure should signal to users the marginal costs that they impose on the regulated
company and encourage the operator to utilize its assets optimally. Although the
long-run marginal cost pricing represents the first-best economic solution, most regulators apply average-cost pricing using different cost allocation schemes. The main
motivation for using this approach is simplicity and transparency. The average cost
pricing does not require forward looking modelling and forecasting future investments
and demand development. It has the advantage of being easily audited because the
data should be available from the historic cost records and regulatory reporting. The
major disadvantage is that the average cost model is not forward looking and may fail
to provide adequate price signals.
3.5
Tariffs and Investment
The inclusion of capital costs (depreciation and return on assets) in the regulated tariffs aims to recognise the owners investment in the regulated company and the capital intensive nature of network infrastructure businesses. Failure to include adequate
capital related costs as part of the tariffs of the regulated business risks a reduction in
investment in the industry. This could ultimately lead to reductions in cost coverage
and quality levels, and hence to a reduction in security of supply in the medium and
long term.
Given the capital intensive nature of many (but not all) of the regulated activities, the
return on asset accounts for a significant share of the allowed revenue. Regulators
42
The details of the German incentive regulation are set out in the Incentive Regulation Ordinance of
2007 Verordnung ber die Anreizregulierung der Energieversorgungsnetze (Anreizregulierungsverordnung - ARegV), 29.10.2007. The inefficiencies determined in the first benchmarking are to be eliminated over the first two regulatory periods of 5 years each (= 10 years).

May 2010
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should continuously encourage efficient investment in the regulated gas networks.

They should set the rate of return at a level that reflects a commercial return for the
regulated business, and enforce proper arrangements on how to establish the regulatory asset base and adjust its value over time, reflecting the investment process.
Most European regulators allow ex-ante inclusion of the capital expenditures in the
regulatory asset base. This is the model used in the building blocks approach. As has
been explained earlier, the company is asked to provide the regulator with an overview of its intended investments during the next regulatory period at the start of the
regulatory period. The regulator may then develop a view of which investments to
include in the regulatory asset base or simply accept the companys projection as it
is. The major motivation is that failure to include adequate capital costs as part of the
revenue requirement of the regulated company will discourage investments and may
endanger the quality of supply. Logically the regulator insists on allowing only efficient investments. Engineers' reports, benchmarking against other businesses and
the submission of business plans can assist in forecasting investment requirements,
but it is inevitable that there will be divergences between expectations and outcomes.
In contrast, the German regulator does not need to provide a view on whether a
given investment proposal should be allowed or not. Rather, the regulator considers
the actual total costs (including investments) incurred by the utility and sets the efficiency increase factor based on a benchmarking analysis of these costs. The threat
that capital costs of investments may be rejected, or partially disallowed, in the process of benchmarking would provide an incentive to the regulated company to only
undertake efficient investment. Such an incentive is necessary because the regulated
company is likely to hold better information than the regulator about the prospective
efficiency of a proposed investment. Therefore, by making the company accept the
consequences of its investment decisions, the probability that inefficient investment
will take place is weakened. On the other hand, the regulatory threat that capital
costs of investments can be disallowed due to the ex-post benchmarking could discourage regulated companies from implementing even good investment projects.
This is especially the case when regulators want to set incentives for investment in
new infrastructure such as the gasification of (parts of) the country.
3.6
EU Quality Regulation
This section provides an overview on what measures are taken by the EU to ensure
and enhance quality in the area of gas distribution and supply.

May 2010
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As already explained in section 2.3, the term gas quality in a broad view comprises
the following topics:
Security of gas supply
Technical gas quality and safety standards
Quality of service
Reliability of supply
According to Directive 2003/55/EC security' means both security of supply of natural

gas and technical safety (Article 2 par. 32):
Security of supply is further addressed under Article 3 of the Directive as

one aspect of the public service obligation that also may include long-term
planning measures. Article 5 evaluates monitoring security of supply and Article 21 relates to investment in new infrastructure and security of supply.
On technical rules and safety Directive 2003/55/EC Article 6 states: Member States shall ensure that technical safety criteria are defined and that
technical rules establishing the minimum technical design and operational requirements for the connection to the system of LNG facilities, storage facilities, other transmission or distribution systems, and direct lines, are developed and made public. These technical rules shall ensure the interoperability
of systems and shall be objective and non-discriminatory.
Security of supply regulation was addressed in the Green Paper "Towards a European strategy for the security of energy supply (COM (2000) 769) and further elaborated in the following acts:
Directive 2004/67/EC of the European Parliament and the Council of 26 April

2004 concerning measures to safeguard security of natural gas supply (OJ L
127, 29.4.2004, p. 92)
Council Regulation (EC) No 736/96 of 22 April 1996 on notifying the Commission of investment projects of interest to the Community in the petroleum,
natural gas and electricity sectors
Communication from the Commission to the European Council and the European Parliament: An Energy Policy for Europe (COM (2007) 001)

May 2010
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Due to the fears of gas shortage in January 2009 the Commission has prepared a
proposal for a Regulation concerning the security of gas supply that strengthens
Regulation 736/96.
Within the EU Directives security of supply contains three major elements: transportation capacity, storage and sources of supply. The issues related to transportation
capacity are related to capacity adequacy which is part of network reliability. The
storage and sources of supply are related to short-term balancing and gas supply
contracts. This report does not further discuss the issues related to storage and
sources of supply as they are beyond the scope of work.
Technical codes and standards have been more and more harmonised over the
last years within the EU under the umbrella of the European Committee for Standardisation (CEN). CEN is responsible for defining the necessary standards to be
used to reach the optimum level of technical safety and reliability of gas supply as
well as technical and commercial interoperability of gas networks in Europe. Marcogaz is the technical association of the European Gas Industry that is contributing to
the standardisation process.
The member states of the Energy Community are aware of the technical standards
for gas. As part of the Treaty establishing the Energy Community, the Secretariat of
the Energy Community issued a list with Generally Applicable Standards of the European Community that shall be adopted by the Contracting Parties of the Energy
Community.43 The Generally Applicable Standards also comprise the standards/recommendations issued by the European Association for the Streamlining of
Energy Exchanges (Easeegas) that aim to promote the simplification and streamlining of both the physical transfer and the trading of gas across Europe as well as simplified business processes.
The overall background on the regulation of commercial quality and reliability has
been provided in section 2.3 of this report. There are only a few examples of a functional gas quality regulation by regulators in Europe. E.g. Italy has extensive legislation for quality regulation in the area of gas44 and the German regulator is currently
conducting a consultation with industry regarding a quality regulation scheme. In the
43
For the list of standards see Energy Community (2007): Generally Applicable Standards Natural
Gas Reg.No: MC2/4-3/04-04-07ECS.
44
See: REGOLAZIONE DELLA QUALITA DEI SERVIZI DI DISTRIBUZIONE E MISURA DEL GAS
PER IL PERIODO DI REGOLAZIONE 2009-2012. (RQDG) (Versione integrata con le modifiche apportate con la deliberazione 23 dicembre 2008, ARG/gas 200/08) In vigore dall1 luglio 2009.
For recent quality indicators see also: Autorit per l'energia elettrica e il gas (2009), Annual Report on
the state of services and the regulatory activities, 31 March 2009

May 2010
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following section the regulation of commercial quality and reliability in the UK is

summarised.
Example: Quality of Service and Reliability Regulation in the UK
Ofgem monitors and controls the following aspects of quality of supply:
Reliability measured by interruptions
Quality of service measured by customer satisfaction
Interruptions are distinguished in planned and unplanned interruptions. For the UK

the following aggregated numbers are reported:
Table 6: Reported number of interruptions per 100 customers in UK

2003-04
2004-05
2005-06
2006-07
2007-08
0.79
1.04
1.37
1.77
1.99
Unplanned
interruptions
0.14
0.25
0.24
0.33
0.40
Total
0.92
1.29
1.61
2.10
2.40
Planned
interruptions
Source: Ofgem (2008): Gas distribution quality of service report 17 December 2008, Ref 164/08, p. 10.
In order to monitor the quality of service, Ofgem asks the distributors to carry out
quarterly postal surveys on their customers. There are two different surveys:
Survey that covers customers whose gas supply has been subject to an unplanned interruption and
Survey that covers customers who have experienced a planned interruption
The surveys are conducted by independent third parties.

Questions addressed in the surveys are
the duration of the interruption
advanced notification of the interruption (for planned interruptions)
communication from the GDN

May 2010
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the skill and professionalism of the people who carried out the work; and
the overall quality of the work.
Customers are asked to rate their level of satisfaction on a five point scale, where 1
is very dissatisfied and 5 is very satisfied. The final score is a combined score form
the different questions. The following tables (Table 7 and Table 8) show the result of
these surveys over the last three years.
Financial implications for the network operator in the form of penalty payments to
single customers arise in case they do not meet the guaranteed standards of performance as indicated in Table 9. The respective payments are fixed for one regulatory period.
Table 7: Customer satisfaction repairs of unplanned interruption UK

Distribution Net-
2005-2006 aver-
2006-2007 aver-
2007-2008 aver-
work Operator
age
age
age
East of England
4.01
4.08
4.14
London
3.70
3.66
3.68
North West
3.94
3.88
4.04
West Midlands
4.09
4.00
4.09
North of England
4.04
4.02
4.07
Scotland
3.94
3.93
3.89
South of England
4.02
3.98
3.91
Wales & West
4.20
3.88
3.91

May 2010
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Table 8: Customer satisfaction planned interruption / replacements UK

Distribution Network Operator
2005-2006 average
2006-2007 average
2007-2008 average
East of England
3.94
3.99
4.08
London
3.68
3.66
3.68
North West
3.70
3.77
3.96
West Midlands
3.94
4.00
3.93
North of England
3.74
3.92
3.92
Scotland
3.97
4.00
4.01
South of England
3.90
4.00
4.01
Wales & West
4.01
3.95
4.13

May 2010
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Table 9: Guaranteed Standards of Performance / Penalty payments UK

Regulation
Guaranteed standard
GT must restore customers gas supply

within 24 hours following an unplanned
interruption. Further compensation must
be paid for each additional period of 24
Regulation 7
hours until supply is restored, subject to
Supply Restoration a cap. If the interruption is caused by
another GT, the other GT is either required to make the payment to the GT to
whose network the customer is connected or to the customer directly.
Regulation 8
Reinstatement of
customer's
premises
GT must reinstate customer's premises

within 5 working days. Further compensation must be paid for each additional
period of 5 working days.
GT must provide alternative cooking and

heating facilities to priority domestic customers when supply to the customers'
Regulation 9
premises is discontinued. GT must proPriority domestic vide these facilities within 4 hours for
planned and unplanned interruptions afcustomers
fecting less than 250 consumers, or
within 8 hours for an unplanned interruption affecting 250 or more customers.
GTs must provide a quotation for providing a new or altering an existing connection within:
6 working days for standard connections
Regulation 10
11 working days for non standard
Connections
275kWh connections
Provision of quota- 21 working days non standard
>275kWh connections
tions
Further compensation must be paid for
each additional day that failure continues
subject to a cap. If the quotation is inaccurate it is treated as if it was not provided on time.
Regulation 10
Connections
Accuracy of quotations
Compensation if
not met
30 (domestic)
50 (small nondomestic).
Cap of 1000
50 (domestic)
100 (nondomestic).
24 (domestic) if
claimed by the customer within 3
months
10, or 20 for non

standard >275 kWh
connections. Cap is
lesser of 250 (or
500 for non standard >275 kWh connections) or contract
sum
Where a customer challenges a quotation under the GTs published accuracy

Amount of any overscheme and the quotation is found to be
charge
inaccurate the GT shall refund the
amount of any overcharge.

May 2010
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Regulation 10
Connections
Response to land
enquiries
Regulation 10
Connections
Timing of work
Regulation 10
Connections
Completing the
work
Regulation 12
Payments
Regulation 10A
Notification of
planned interruption
Regulation 10B
Responding to
complaints
GT must respond to land enquiries in

respect of a new connection or alteration
40
Cap is 250 (or
of an existing connection within 5 working days. Further compensation must be 500 for >275 kWh
customers)
paid for each additional day that failure
continues subject to a cap.
GT must offer a date for commencement
20 (275 kWh)
of the work and substantial completion
40 (>275 kWh)
within 20 working days of the customer
Cap is lesser of
accepting the quotation. Further com250 (or 500 for
pensation must be paid for each addi>275 kWh customtional day that failure continues subject
ers) or contract sum
to a cap.
Initial payment between 20-150
GT must substantially complete a con(depending on quonection on the date agreed with the cus- tation amount). Cap
varies depending on
tomer. Further compensation must be
paid for each additional day that failure
quotation amount,
continues subject to a cap.
up to 9000 for
quotes between
50k-100k
GTs must make payment required under
the guaranteed standards to the customer within 20 working days from when
the payment became due. Payments to
20
other GTs under Reg. 7 (Supply restoration) must be made within 10 working
days of receiving notification of the interruption.
GTs must notify consumers at least 5
working days in advance of a planned
supply interruption.
20 (domestic)
50 (non-domestic)
if claimed by the
customer
GTs must respond to a complaint within

10 or 20 working days depending on
whether a site visit or making enquiries
of third parties is required. Further compensation must be paid for each additional period of 5 working days until the
substantive response is provided, subject to a cap.
20 (domestic and
non-domestic).
Cap of 100.
Source: Ofgem (2007): Gas Distribution Price Control Review Final Proposals. 3 December 2007, Ref
285/07, p. 54/55.

May 2010
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3.7
EU Measures to protect Vulnerable Customers
This chapter provides an overview of the relevant EU measures to protect vulnerable

customers.
The term vulnerable customer is explicitly mentioned but not defined in EU documents and EU legislation. Furthermore vulnerable customers are dealt with under the
provisions of customer protection as a whole. We summarise here the main provisions on the EU side and provide an overview of the legislation dealing with vulnerable customers.
Formal EU provisions for the protection of gas market customers are contained in
Directive 2003/55/EC and in particular set out in Article 3 (Public service obligations
and customer protection). The Directive stresses the importance of customer protection. Member States need to take appropriate measures to protect final customers. In
particular, they have to ensure that there are adequate safeguards to protect vulnerable customers. Member States are required to ensure high levels of consumer protection especially regarding transparency of contractual terms and conditions, general information and dispute settlement mechanisms.
The new Gas Directive 2009/73/EC 13 July 2009 concerning common rules for the
internal market in natural gas and repealing Directive 2003/55/EC enforces the position of vulnerable customers and the necessity to support them. In its preamble it
says: Energy poverty is a growing problem in the Community. Member States which
are affected and which have not yet done so should, therefore, develop national action plans or other appropriate frameworks to tackle energy poverty, aiming at decreasing the number of people suffering such situation. In any event, Member States
should ensure the necessary energy supply for vulnerable customers. In doing so, an
integrated approach, such as in the framework of social policy, could be used and
measures could include social policies or energy efficiency improvements for housing. At the very least, this Directive should allow national policies in favour of vulnerable customers.
Article 3 or the new Directive focuses on customer protection and public service obligations. In clause 3 it provides an idea of what the concept of vulnerability may include: In this context, each Member State shall define the concept of vulnerable customers which may refer to energy poverty and, inter alia, to the prohibition of
disconnection of gas to such customers in critical times. Member States shall ensure
that rights and obligations linked to vulnerable customers are applied. In particular,
they shall take appropriate measures to protect final customers in remote areas who
are connected to the gas system. Member States may appoint a supplier of last resort to customers connected to the gas system. They shall ensure high levels of conStudy on Regulation of Tariffs and Quality of the
May 2010
Page 54
sumer protection, particularly with respect to transparency regarding contractual

terms and conditions, general information and dispute settlement mechanisms.
Member States shall ensure that the eligible customer is in fact able easily to switch
to a new supplier.
Below we list customer groups that may need specific support and protection. However this does not necessary mean that all of them should be considered vulnerable:
Customers who do not choose a supplier: When opening up the gas market, in some cases customers may not opt for their right to switch a supplier.
They may simply not be aware of the possibility to do so or perhaps do not
know or are not capable of performing a switch. Irrespectively, by not expressing their right to choose, they may be confronted with difficulties, as
technically speaking, these customers no longer have a supplier to provide
them with gas or face higher prices. For this case the regulation may foresee
a default supplier, i.e. a supplier to which a customer is attributed when he
does not choose a supplier.
Customers whose supplier goes bankrupt run the risk of not being supplied with gas. Being interrupted of gas supply due to circumstances not attributable to the customer is socially unacceptable. Mechanisms need to be
devised therefore to make sure that customers facing supplier bankruptcy are
continued to be supplied with gas. For this case the regulation may foresee a
supplier of last resort, i.e. a supplier to which a customer is attributed when
his supplier goes bankrupt / is no longer able to supply him/her.
Customers who are poor: Some customers may not be in the position to afford consumption of gas due to poverty constraints.
Customers with financial problems: Such customers may need some form
of protection in order to overcome their (temporary) financial problems. Note
that the issue of financial problems is not the same as the issue of poor customers. That is, a customer experiencing financial problems may not necessarily need to be poor. Similarly, a poor customer may not necessarily need to
face financial problems.
Customers with physical handicaps or health problems have certain restrictions that need to be taken into consideration. For example, blind people
may not be able to read their bill if this is not printed in Braille or available via
audio. Similarly, persons with a physical handicap may not be able to access
their gas meter or breaker for meter reading or in case of emergencies. For
such customers, special requirements may need to be set in place.

May 2010
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Customers receiving poor quality of service: Prices and quality together

determine the value for money that customer receive. Quality of service has
many different dimensions. In this particular case we are considering only the
dimension related to gas supply. Quality of service for supply considers issues such as accuracy of metering and the bill as well as keeping appointments etc. The regulator may require certain minimum standards for certain
quality indicators and penalise the supply company in the case of not meeting
them.
Customers who want to complain: Customers should be in the position to

complain about the level of service that they receive from their suppliers.
Such complaining can be done directly to the supplier or to another body such
as the regulator. Alternatively, a dedicated institute or body can be set up to
register and follow up such complaints e.g. a consumer watchdog.
Customers who are in a dispute: Disputes may arise between customers

and other parties such as suppliers and grid companies. It may be very costly
for a customer to bring such a dispute to the regular courts due to the high
transaction and legal costs involved. In such cases, an independent body
empowered to solve the dispute may be a more appropriate solution.
In July 2009 ERGEG published a Status review of the definitions of vulnerable customer, default supplier and supplier of last resort45 in which definitions and measure
taken by the Member State are analysed. The main results are:
The term vulnerable customers is not commonly known or used in the

Member States. Eight countries (Belgium, Bulgaria, Great Britain, Greece,
Hungary, Ireland, Italy and Slovenia) state that they apply the terminology
while within the other 19 countries the term is not commonly used.
When analysing the support system for financially weak customers, it has to
be taken into account that in some countries support is not provided towards
single products (e.g. reduced tariff for gas supply) but in a more general support for low income groups. E.g. the total amount that is spent on low income
households in the general social support system in Germany is calculated
considering a provision for heating costs, electricity etc.
45
ERGEG (2009): Status review of the definitions of vulnerable customer, default supplier and supplier
of last resort Ref: E09-CEM-26-04, 16 July 2009.

May 2010
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The following table summarises in which Member State a special mandatory economic support system for gas supply for certain customers groups is in place.
Table 10: Countries with specific support system for gas consumers
Country
Yes
Austria
Belgium
Bulgaria
Croatia
Czech Republic
Denmark
Estonia
Finland
France
Germany
Great Britain
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Netherlands
Norway
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden
x
X
X
-
Total
No
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
16
Source: ERGEG (2009): Status review of the definitions of vulnerable customer, default supplier and
supplier of last resort Ref: E09-CEM-26-04, 16 July 2009. p. 12

May 2010
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Table 11: Customer Categories that are included in a support system

All
houseCountry
holds
with a
defined
low
income
Austria
Belgium
Senior
citizens
with a
defined
low
income
Households with
All
senior
citizens
children
with a
defined
low
income
Disabled
persons
with a
defined
low
income
All
disabled
persons
Other
Bulgaria
France
Great
Britain
Hungary
Ireland
Italy
Romania
Total
X
1
Source: ERGEG (2009): Status review of the definitions of vulnerable customer, default supplier and
supplier of last resort Ref: E09-CEM-26-04, 16 July 2009. p. 14
The specific measures that are undertaken in these countries are as follows:
Belgium, Estonia: Specific regulated supply price
Great Britain, France: Specific prices for certain customer groups
Austria: Heating Act allows special payments for heating costs to protect people from severe hardship
Great Britain: Suppliers provide support including social tariffs and rebates for
some customers on voluntary basis. Winter fuel and cold weather payments
from the government. In addition government grants are provided for home
energy efficiency improvements for elderly people and low income households.
Ireland: Subsidy from the government for gas customers covering up to 545
Euro of gas and gas standing charges.

May 2010
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4.
Romania: Financial benefits for heating (gas) for customers who have a defined low income.
Gas Tariff Methodologies and Regulations in the

Energy Community Contracting Parties and Observer
Countries
In order to analyse the status quo of gas tariff methodologies and regulations in the
EC questionnaires46 on gas distribution tariff levels, tariff and quality regulation have
been sent out to the regulatory authorities of 14 jurisdictions. In addition to the Contracting Parties47 and Observer Countries48 of the Energy Community, responses
from the regulators of Austria and Slovenia have been received and also included in
this study (Figure 5). Given the constitutional structure of Bosnia and Herzegovina
results for the Federation BiH and the Republika Srpska of Bosnia and Herzegovina
are displayed separately in this report.
In the following chapter the gas distribution sectors and regulations of these 14 jurisdictions are analysed and compared to the best practices in the European Union as
described in the previous chapter. All data shown (apart from Table 12 and Table 13)
is taken from the questionnaires that have been filled out by the respective regulators
and returned to the Consultant.
Completed questionnaires have been received from 13 jurisdictions. It has to be
taken into account that not all Contracting Parties have a fully developed gas market
yet. Therefore, not all questions have been answered by all regulators, in particular
responses to the current distribution and end-user tariff levels, and quality of supply
regulations have only been answered by a few respondents. No answers to the questionnaire have been given by Montenegro, which currently does not have a natural
gas market and therefore could not provide any answers to the questions. Except for
the Federation BiH of Bosnia and Herzegovina, where currently no natural gas regulator exists and the questionnaire was answered by incumbent Sarajevogas Ltd. Sa-
46
The questionnaire and the detailed replies to the questions by all participants are included in Annexes
B and C of this report.
47
Croatia, Bosnia and Herzegovina, Serbia, Montenegro, United Nations interim administration in Kosovo pursuant to the United Nations Security Council Resolution 1244 (UNMIK), Albania, Moldova and
the former Yugoslav Republic of Macedonia (FYR of Macedonia).
48
Ukraine, Georgia and Turkey.

May 2010
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rajevo, responses have been received by the respective regulators. Questions that
have not been answered by the respective respondents have generally been marked
with the - sign.
Figure 5: Regulators participating in the questionnaire and analysed for this

report
Energy Community
Contracting Parties
Energy Community
Observer Countries
EU member states
Ukraine
Austria
Moldova
Slovenia
Croatia
Bosnia and Serbia
Herzegovina
Montenegro UNMIK
FYR of
Albania Macedonia

Georgia
Turkey
May 2010
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4.1
Gas markets in the Energy Community
The natural gas markets in the countries of the Energy Community show quite different levels and stages of development. While jurisdictions like Serbia, Croatia,
Ukraine, Moldova, Georgia and Turkey have well developed gas transmission and
distribution networks, no gas sector has been developed in UNMIK and Montenegro.
Albanias transmission network has fallen into disrepair and only a few industrial sites
use the very limited domestic gas production; the FYR of Macedonia has no (significant) distribution network yet, while gas distribution in Bosnia and Herzegovina is
primarily focused on a few industrial customers and household customers in its capital Sarajevo (Table 12). Accordingly per capita natural gas consumption levels are
highest in Ukraine, Croatia and Turkey, with levels in Ukraine (1758 m per capita)
significantly above the EU average of 1065 m per capita (Table 13). These different
levels are primarily driven by historic developments and can be partly linked to the
availability of domestic resources as well as winter climate conditions, whereas country size and population density do not seem to have a consistent impact on the historic development of the natural gas markets across the 13 jurisdictions. Also some
of the Contracting Parties have well developed district heating sectors, which compete with natural gas on the heat market. In Contracting Parties countries or parts of
them that are not currently connected to natural gas or to district heating systems, oil,
electricity and wood are used as alternative sources of heating.49
Upstream natural gas production does exist in seven out of the 13 jurisdictions, but
only three of them have substantial natural gas resources - namely Serbia, Croatia
and Ukraine - and only the latter two currently have significant domestic gas production capacities. Croatia and Turkey each have one underground gas storage facility,
whereas Ukraine and Austria have 13 and six gas storages with a total capacity of
32.5 and 4.09 billion m respectively. An underground gas storage site of 0.8 billion
m is currently under construction in Serbia.
Natural gas imports are currently primarily delivered from Russian and Azerbaijani
sources. Two LNG terminals are currently in operation in Turkey, which supply natural gas from Algeria. A number of large scale gas transmission projects are currently
being developed or considered in this area such as the Nabucco, Southstream and
Whitestream pipeline projects, the Turkey-Greece-Italy interconnector and the Trans-
49
District heating has been identified as a significant competitor to natural gas on the heat market by 8
of the respondents to the questionnaire. Oil, wood and electricity have been outlined as significant competitors to gas by all respondents except Turkey (Moldova and Georgia only identified wood and in the
later case also electricity as competitors, but not oil).

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Adriatic pipeline. Pipeline connections are also being considered between Azerbaijan
and Turkmenistan and Kazakhstan respectively, as well as from Turkey to Iran, and
Iraq to Syria, which would diversify gas supplies and increase security of supply significantly. In addition, new LNG terminals are being considered in Croatia and Albania. Interconnections between the Contracting Parties of the Energy Community will
be further expanded and strengthened through the Energy Community Gas Ring
concept, including the Ionian-Adriatic pipeline, which would also connect Albania,
FYR of Macedonia, Montenegro and UNMIK with the European natural gas network.
Also within the jurisdictions, plans for a further increase in gasification have been outlined by Croatia, Bosnia and Herzegovina, Moldova and Slovenia in their replies to
the questionnaire.
Table 12: Overview on the natural gas sectors
Sources: Energy Community (2008): National Reports for Albania, Bosnia and Herzegovina,
Croatia, UNMIK, FYR of Macedonia, Montenegro and Serbia; 2008 Reports of ANRE, EMRA,
E-Control and the Energy Agency of the Republic of Slovenia; Eurostat; Albpetrol website;
Banovac, Eraldo (2009): South East Europe Case-Study: Impact of Regulation on Gas Infrastructure Investments in the Regional Gas Market Integration, presentation at the 24th World
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Gas Conference; Pirani, Simon (2007): Ukraine's Gas Sector, The Oxford Institute for Energy Studies, June 2007; Data on natural gas reserves have been taken from publications of
the Energy Information Administration.
Table 13: Overview on the natural gas consumption
Sources: see Table 12
4.2
Regulation
Apart from Montenegro and the Federation BiH of Bosnia and Herzegovina, all of the
13 jurisdictions in this survey have established an independent regulator for the natural gas sector (Table 14)50. Both Albania and UNMIK, even though they have not developed a local gas market yet, have already created a regulator responsible for the
natural gas market. In Bosnia and Herzegovina a regulator has been established in
50
Montenegro has however established a regulatory authority for the electricity sector.

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the Republika Srpska, while in the Federation Bosnia i Herzegovina as well as in

Bosnia and Herzegovina a working group has been established at state level to draft
gas legislation. In Albania a natural gas law was adopted in 2008, the details of the
specific rules and regulations are currently developed by the regulator.
Table 14: Regulation in the natural gas market
Table 14 shows that regulation focuses mainly on transmission and distribution services. End-user tariffs are regulated in seven, connection to the network in six and
storage services in five jurisdictions. In Serbia the wholesale energy price is also
regulated.
Tariff methodologies are developed and set by the regulator in all jurisdictions apart
from the Federation BiH of Bosnia and Herzegovina, which is still lacking a regulatory
framework. In the Federation BiH distribution tariff methodologies are developed by
the regulated company and approved by the cantonal authority (Table 15).

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Table 15: Determination of tariff methodologies, structures and levels
The regulatory agencies also play an important part in the regulation of tariff structures. In six jurisdictions (HR, UNMIK, MK, GE, MD, AT) tariff structures are both developed and adopted by the regulator. In Serbia tariff structures are also developed
by the regulator, but approved by the Government. In the other five jurisdictions that
have implemented tariff regulation, tariff structures are first developed by the gas
companies, who then apply to the regulator or the ministry for final approval. In four
out of these five jurisdictions the regulator checks and decides on the approval of the
tariff structures, while in two jurisdictions the final approval of tariff structures is given
by the ministry.

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In 12 jurisdictions tariff levels are approved by the regulator and/or the respective
ministry (Bosnia and Herzegovina, Serbia and Croatia), whereas in nine of these jurisdictions approval is decided after an application by the respective gas company
(Table 16). In Croatia tariff levels can either be calculated by the regulator or the gas
company; approval of the tariff levels in Croatia is given by the Ministry and the Government based on a consultation with the gas company or the regulator respectively.
Among the regulatory regimes rate-of-return regulation is the dominant form not only
in transmission, but also for distribution networks (eight jurisdictions) and end-user
tariffs (seven jurisdictions). Cost-based regimes are also used in the Federation BiH,
the FYR of Macedonia and Moldova. Cap regulation is applied in Ukraine (end-user
tariffs), Slovenia (distribution) and Turkey (connection). Only Austria (2-5 years) and
Moldova (5 years) apply longer regulatory periods, while in all other jurisdictions
regulations are only set for one year.
The regulated rates of returns show a great variation between 0% (Federation BiH)
and 14.61% (Moldova). Although similar in name, regulatory regimes often vary quite
significantly in detail between countries. Differences for example typically exist with
regards to the asset valuation concepts and the elements included in the regulatory
asset base. While some of the returns reported here seem to refer to the rate of return on capital, other regulators provide a figure for the return on the total costs.
Capital investments in different regulatory and economic environments also influenced by the form of ownership (state private) and the level of development of the
natural gas network do have different risk levels, which would also be reflected in
different rate of return levels. One therefore has to be very careful when interpreting
the differences in the regulated rate of returns.

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Table 16: Regulatory regimes
While in the European Union legal unbundling has been made obligatory for all gas
distribution network operators with more than 100,000 customers, Serbia, Ukraine
and the Republika Srpska of Bosnia and Herzegovina currently only apply the
weaker form of accounting unbundling for their gas DSOs (Table 17). Georgia and
the Federation BiH of Bosnia and Herzegovina currently require no unbundling of
network and supply from their DSOs. In the European Union all gas DSOs with more
than 100,000 customers are required to legally unbundle their network business from
any supply or production activities.
A benchmarking of the gas distribution network operators is currently conducted by
the regulators in eight jurisdictions. In three jurisdictions no benchmarking of the distribution network operators is currently carried out (the Federation BiH of Bosnia and
Herzegovina, Georgia and Turkey). While some jurisdictions such as Croatia, Serbia,
Moldova, Turkey and Ukraine have a large number of DSOs operating in their jurisStudy on Regulation of Tariffs and Quality of the
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dictions and can therefore conduct their benchmarking of DSOs at national level,
other jurisdictions in the area have to base the benchmarking on a comparison of
their DSOs with other natural gas DSOs in neighbouring jurisdictions.
Table 17: Unbundling and benchmarking
4.3
Distribution Tariffs Including Connection (Methodology, Levels)
Only two jurisdictions apply a single charge in their distribution tariff methodology
(Turkey and Ukraine with a demand and an energy dependent charge only), whereas
five jurisdictions rely on two tariff elements in their distribution charge (Croatia, FYR
of Macedonia, Serbia, Austria and Slovenia, see Table 18). All three tariff elements
a demand dependent, an energy dependent and a fixed customer dependent charge
are used in Bosnia and Herzegovina.
In all jurisdictions, with the exception of Moldova, distribution tariffs vary across different distribution network operators. Distribution tariffs vary for customer types in
seven jurisdictions, while variation for different consumption levels is only applied in
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five out of a total of ten jurisdictions. In the Republika Srpska, gas companies may
apply to set different distribution tariffs for different time periods according to the gas
tariff methodology; in all other jurisdictions no differentiation of distribution tariffs for
time periods exist.
Table 18: Elements of distribution tariffs51
With minor exceptions all jurisdictions include the same elements in the cost base of
the distribution tariffs (Table 19). Operating expenditures (OPEX) and depreciation
are included in all 11 jurisdictions in the cost base of the distribution tariffs, a return
51
Distribution tariffs in Austria consist either of a combination of a demand dependent charge and an
energy dependent charge or of a fixed customer dependent charge and an energy dependent charge.
The differentiation is a result from metering.

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on assets and technical losses in nine jurisdictions and taxes in eight jurisdictions.
Commercial losses are only acknowledged as part of the cost base in Croatia.
Table 19: Costs included in the cost base of distribution tariffs
Information on distribution tariff levels was only provided by seven of the participating
jurisdictions including both the Republika Srpska and the Federation BiH of Bosnia
and Herzegovina (Table 20). While in some jurisdictions only a small number of distribution companies operate in the natural gas market in Bosnia and Herzegovina,
Serbia and Georgia more than of the total energy is distributed by a single distribution company customers in other jurisdictions are served by a large number of distribution network operators such as Croatia and Ukraine with 38 and 53 network
operators respectively.
Tariff levels in Bosnia and Herzegovina vary quite significantly between industrial and
household customers, whereby as is also the case in Croatia and Serbia albeit to a
smaller extent distribution tariffs for household customers are significantly lower.
No differences in the level of distribution charges between industrial and household
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customers exist in Ukraine and Georgia (who only applies a single tariff for all customers). In Slovenia household customers pay a slightly higher distribution charge
than industrial customers.
Table 20: Distribution tariff levels in 2009
Figures for Croatia and Georgia for 2008 and 2007 respectively
Standard procedures for network connection have been reported by ten jurisdictions,
but only four jurisdictions also calculate standardised connection charges (Table 21).
Levels of standard connection charges show a large spread across the five jurisdictions and also between household, commercial and industrial customers within the
jurisdictions. Differences in the level of connection charges between the jurisdictions
might be explained by a different scope of cost elements included in the connection
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charges; however most jurisdictions report similar cost elements, such as the costs of
the construction work and the costs of the material and equipment. In addition four
jurisdictions (Bosnia and Herzegovina, Moldova, Austria and Slovenia) also report
that connection costs refer to connection assets only, while three jurisdictions (Serbia, Georgia and Turkey) also include assets and investments deeper in the network
in the calculation of the connection charges.
Table 21: Standard connection charges
Figures for Turkey have been reported in $ and have been converted into applying the EuroDollar exchange rate of the 31st of December 2009 provided by the European Central Bank
4.4
End-user tariffs (methodology, levels)
Fixed customer dependent charges are included in the end-user tariffs of eight jurisdictions; five jurisdictions also include energy dependent charges and five jurisdictions also apply demand dependent charges (Table 22). All three types of charges
are applied in the end-user tariffs in both Bosnia and Herzegovina and Serbia. Enduser tariffs vary by customer type in seven out of nine jurisdictions. Variations by
consumption level and geographical areas are experienced in three jurisdictions respectively. In the Republika Srpska of Bosnia and Herzegovina the gas companies
may also apply tariffs for different time periods.

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Table 22: Elements of end-user tariffs
End-user tariff data was provided by six jurisdictions participating in the questionnaire: Bosnia and Herzegovina, Croatia, Serbia, Georgia and Slovenia (Table 23). In
the Republika Srpska of Bosnia and Herzegovina industrial customers pay higher
end-user tariffs than household customers, whereas in Serbia, Georgia and Slovenia
industrial customers pay lower end-user tariffs than households. Across the jurisdictions end-user tariffs have been particularly low in Georgia, while end-users in Slovenia and the Republika Srpska of Bosnia and Herzegovina paid particularly higher
prices. Variations in the end-user tariffs between the dates reflect differences in the
procurement costs of natural gas as well as changes in the exchange rate of the
Euro (as was particularly stated by Serbia) and not (necessarily) seasonal variations
between winter and summer months.

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Table 23: Average end-user tariff levels for household and industrial customers
without taxes in /Joule
* old Eurostat category D3: annual consumption = 83.7 GJ and I3-1: annual consumption =
41,860 GJ; load factor: 200 days, 1,600 hours
Commodity prices make up the largest share of the end-user tariffs in the analysed
jurisdictions, ranging from 50% (Slovenia) to over 92% (Moldova) (Table 24). Transmission and end-user supply prices only account for up to 9% or 6% respectively and
distribution tariffs range from 4% to 37.3% of the total end-user price.

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Table 24: Shares of commodity, transmission, distribution, end-user supply,

taxes and VAT and other elements in end-user tariffs52
End-user tariffs generally incorporate the costs of energy purchase, the operational
expenditures and the asset depreciation of the end-user supply business including a
profit allowance and taxes (excluding VAT, Table 25). The profit allowance is expressed as return on assets of the end-user supply business in five jurisdictions.
In 4 jurisdictions also the costs of commercial losses and in two jurisdictions the
costs of technical losses are included in the end-user tariffs. Elements of marginal
costs are used in the pricing process of Turkey and Slovenia.
Automatic adjustment provisions for end user tariffs have been adopted in three jurisdictions; five jurisdictions do not apply such a mechanism. Adjustments of enduser tariffs typically include all or part of the changes in the wholesale, commodity or
import price of natural gas.
End-users are grouped into customer categories split by household and industrial
customers in three jurisdictions. Different non-household categories have been established in Bosnia and Herzegovina and Georgia; Ukraine does apply four groups of
52
Croatia: 2% (other) - Natural gas storage (included in wholesale supply price together with commodity).
FYR of Macedonia: 0.04% (other) - Price for supplying tariff consumers connected to the system at
transport level.

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household customers. Separate tariffs for district heating companies are used in
Bosnia and Herzegovina and Serbia.
Table 25: Automatic adjustment mechanisms for end-user prices and end-user
categories

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All natural gas customers are free to choose their supplier in the EU member states
Austria and Slovenia,53 as well as Croatia, Moldova and Georgia (Table 26). Industrial customers are allowed to switch their gas supplier in the Republika Srpska of
Bosnia and Herzegovina, Serbia, Turkey and Ukraine. A complete market opening
including household customers is scheduled for 2015 in the Republika Srpska of
Bosnia and Herzegovina and Serbia; however no date for a complete opening of retail markets currently exists in the Federation BiH of Bosnia and Herzegovina and
Turkey. A full opening of retail markets is also an obligation of the Energy Community
Treaty. Each Contracting Party must ensure that all non-household customers are
able to switch their supplier from 1 January 2008 and all other customers should be
able to do so from 1 January 2015.54
Eligible customers who have not switched their supplier continue to be regulated in
five jurisdictions, but not in the Republika Srpska of Bosnia and Herzegovina, Turkey
and Slovenia.
53
In the European Union free customer choice for all customers had to be implemented by July 2007
(derogations for Finland, Latvia and Portugal). Directive 2003/55/EC of the European Parliament and of
the Council of 26 June 2003 concerning common rules for the internal market in natural gas and repealing Directive 98/30/EC.
54
Council Decision 2006/500/EC of 29 May 2006 on the conclusion by the European Community of the
Energy Community Treaty.

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Table 26: Customer choice
4.5
Quality of supply
Technical quality (gas quality and pressure) of natural gas are regulated in six jurisdictions; commercial quality and gas safety are also regulated in five of these jurisdictions. Standards and norms are commonly used in the quality of supply regulation
(Table 27). Both Ukraine and Slovenia also rely on the instrument of performance
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publication in their quality regulation; incentive schemes are not used for quality regulation across the region yet. If quality standards are not met by the regulated companies financial penalties are incurred by the company in Moldova and Ukraine. In contrast Bosnia and Herzegovina, Croatia and Slovenia explicitly state that quality
regulation has no financial impact for the regulated company.
Table 27: Application of quality of supply regulation
A wide range of quality indicators for commercial quality and gas safety are used in
the Federation BiH of Bosnia and Herzegovina and Moldova (Table 28 and Table
29). Information on the accuracy of bills is also compiled in Serbia. Commercial quality indicators are published in the Federation BiH of Bosnia and Herzegovina as well
as Moldova, as are the gas safety indicators in the Federation BiH of Bosnia and
Herzegovina. Information on both groups of indicators is also made public in Ukraine.
Reliability indicators are used in the quality of supply regulation in the Federation BiH
of Bosnia and Croatia (Table 30). Most respondents to the questionnaire did not proStudy on Regulation of Tariffs and Quality of the
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vide any information on whether or not they apply indicators in the three areas of
quality.
Table 28: Quality indicators included in the regulation of commercial quality
Table 29: Quality indicators included in the regulation of gas safety

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Table 30: Quality indicators included in the regulation of reliability
Indicators of technical quality are included in the regulation of quality in five jurisdictions (Republika Srpska and Federation BiH of Bosnia and Herzegovina, Croatia,
Moldova and Ukraine; Table 31). With the exception of Croatia and the Republika
Srpska of Bosnia and Herzegovina, information on technical quality indicators is
made public in three of these jurisdictions.

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Table 31: Quality indicators included in the regulation of technical quality
Advance information for customers on planned interruptions such as maintenance

work is required by regulation or legislation in nine jurisdictions and provided one to
three days in advance (Table 32). In Ukraine and Austria advance information on
planned interruptions takes place five days in advance and in Slovenia customers are
informed seven days in advance. The average time needed for the connection of a
new customer shows a large range from four days (Moldova) to up to three months
(Austria). Average times for the fixing of unscheduled interruptions have been reported with four hours (Federation BiH of Bosnia and Herzegovina), 4.11 hours (Slovenia) and 8.2 hours (Croatia).

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Table 32: Indicators of commercial quality
4.6
Vulnerable customers
Vulnerable customers are specifically defined in the energy legislation in four jurisdictions, namely in Albania, the Federation BiH of Bosnia and Herzegovina, Moldova
and Slovenia (Table 33). Low income and disabled customers are particularly considered as vulnerable. In Moldova the definition of vulnerability is also extended to
single pensioners, families with more than four children, military personnel and policemen. Vulnerable customers are supported through cash subsidies in three jurisdictions and through the social security schemes in Slovenia (Table 34). No supporting mechanisms for vulnerable customers are provided in Serbia, Georgia and the
Republika Srpska of Bosnia and Herzegovina. In the Federation BiH of Bosnia and
Herzegovina a specific social allowance is given to vulnerable customers during winter months. Both Ukraine and Slovenia have implemented special provisions that
customers who use gas for heating cannot be disconnected in winter months,
whereas no such provisions are in place in five other jurisdictions.

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Table 33: Definition of vulnerable customers

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Table 34: Support mechanisms for vulnerable customers
Vulnerable customers that cannot or do not pay their bill are disconnected in seven
jurisdictions (Table 35). The only exception is Slovenia, where customers who provide significant proof of their status of vulnerability are not disconnected, whereas
customers who receive payments through the social security scheme are regarded
as vulnerable by definition.

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Table 35: Consequences if vulnerable customer can / does not pay its bill
With the exception of Austria, both meter readings and invoicing are carried out on a
monthly basis (Table 36). The collection rate (the percentage of customers who pay
their invoices) is provided by five jurisdictions. While Georgia reports a relatively low
rate of only 70%, all other four jurisdictions report a collection rate between 90% and
98%.

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Table 36: Average frequency of meter readings and invoicing and the
collection rate

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5.
Recommendations
The structural indicators of the natural gas market in the previous section reveal quite
different developments and situations in the 14 analysed jurisdictions. This section
outlines some of the major shortcomings identified for the natural gas markets of the
Contracting Parties and Observer Countries of the Energy Community in the previous
chapter. Based on these findings we suggest improvements in the remainder of this
section for the jurisdictions analysed. Priorities for implementation as well as the
relevance of the suggestions in individual jurisdictions depend on the specific conditions and developments of the gas market in each jurisdiction. Also, while many of
these recommendations can be clearly drawn from the collected data, other aspects
would require a more detailed investigation of the specific situation in the jurisdictions.
Natural gas networks are natural monopolies. Making them equally accessible to all
parties requires their regulation as stipulated by the European legislation on energy
sector liberalisation. The regulatory control aims at ensuring that the regulated companies operate efficiently, charge fair prices, provide adequate quality of supply and
grant equal and non-discriminatory network access to all sector participants. Regulatory control has to be exercised by an independent body in order to avoid discretionary interventions by the government and to limit lobbying and influence by the regulated firms trying to capture special privileges and benefits. Regulatory authorities are
established in all Contracting Parties, except for Bosnia and Herzegovina for which a
regulatory authority at national level is missing so far; on entity level an independent
regulator has only been established for the Republika Srpska of Bosnia and Herzegovina but not for the Federation BiH. We recommend the implementation of the
necessary regulatory framework and the establishment of an independent regulatory authority on national level.
In order to be effective, regulatory authorities should have independent decisionmaking and enforcement powers. A strengthening of the independence and powers
of the regulatory authorities has been outlined in Article 41 of Directive 2009/73/EC.55
The Directive particularly requires that regulators have the power to set regulated
transmission and distribution network tariffs or at least to approve the methodologies
for calculating them prior to their enforcement; issue binding decisions on energy
companies; and impose effective, proportionate and dissuasive penalties on energy
55

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companies that fail to comply with their obligations. The related principles are already
required by the 2nd Gas Directive 2003/55/EC and thereby applicable in the Energy
Community Contracting Parties56. If such measures are not already implemented in
the Contracting Parties of the Energy Community, both the independence and the
decision making powers of the regulators should be strengthened.
In a liberalised gas industry with functional competitive wholesale and retail
markets, regulation should focus on the monopoly network business only. The
end-user prices would be subject to monitoring and ex-post control by the national
competition authorities. However, gradual liberalisation of retail markets - as foreseen
by the liberalisation legislation still require regulated energy prices for those customers that are not (yet) entitled to choose their suppliers (captive consumers). The
regulation should balance between the aim of ensuring that captive consumers are
not charged excessively by their suppliers and the need to set the prices at a costreflective level in order to avoid price distortions and creating market entry barriers
for new suppliers. Once the competition on the retail markets has started functioning effectively the regulation on end-user prices can be gradually phased
out.
The applied tariff systems vary significantly between the Contracting Parties. In general the effectiveness of a tariff system depends on practicalities such as metering
and availability of data, and the ability of the system to reflect the efficient costs including a fair rate of return. Article 3 of Regulation (EC) 1775/2005 provides more
details with this respect. Most of the analysed jurisdictions currently charge their
household customers end-user tariffs (significantly) below the European average of
the 15 old EU member states (EU 15), while for industrial customers end-user tariffs
tend to be above the EU average (EU 15) in some jurisdictions and below in other
jurisdictions. In fact, while industrial customers in some EU 15 countries have already
significantly benefited from lower tariffs through competition (to a larger extent than
household customers), industrial customers in many Contracting Parties and Observer countries of the Energy Community appear to continue cross-subsidising tariffs of household customers.
Such cross-subsidies between user groups could be a signal of allocative inefficiencies resulting from a deviation of tariffs from their cost-reflective level. Such crosssubsidies set wrong economic incentives for customers to increase (decrease) their
quantity demanded to a level above (below) their optimal consumption level. Cross-
56
rd
The 3 legislative package (Gas Directive 2009/73/EC) only strengthen and deepens these principles.

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subsidies between customer groups should be avoided and are also a violation
of the requirements of Article 3 of Gas Regulation (EC) No 1775/2005.57
Economic regulation aims at establishing the efficient revenue needed by the regulated businesses in order to provide regulated services in a reliable and economic
way. If the regulator forces the companies to permanently charge network tariffs below the cost reflective price level, it would endanger a proper network maintenance
and investment policy. Similarly, keeping regulated energy prices lower than the cost
reflective level would discourage the entry of new suppliers and may thereby compromise the national energy strategies on market opening and establishment of competitive markets: non-cost reflective energy prices will cause distortions in the price
signals, and thus in the overall policy for open access and fair competition. The regulators of the jurisdictions should strive to adopt end-user prices as well as
network tariffs that reflect the underlying costs of supplying natural gas to
specific groups of customers.
It is acknowledged that the convergence to a cost reflective level requires time. Even
if the regulated network companies are allowed to impose cost reflective charges, but
the regulated retail supply businesses continue to operate under low or/and crosssubsidised charges for final consumers, the risk would be transferred to the retail
supply businesses. The interlinked nature of the pricing relationships would require
an integrated approach towards the elimination of the distortions and introduction of
cost reflective prices. Accordingly the current price level should be gradually adjusted to reach the efficient cost reflective price level. As a first step it is essential for the regulator to calculate the cost reflective level. The path and the
convergence speed should then be ideally agreed with the Government to ensure effective political support in the implementation process58.
While the need for protection of vulnerable customers is acknowledged, support should be carried out by introducing support schemes in the general social welfare system. Providing support in this way would address all customers defined as vulnerable59 instead of exclusively being granted to specific groups (e.g.
energy consumers). Vulnerable customers require support in general rather than
support related to consumption of specific goods or products, i.e. the classification of
vulnerability has to be adequate and carefully thought. In any case, support
57
Regulation (EC) No 1775/2005 of the European Parliament and of the Council of 28 September 2005
on conditions for access to the natural gas transmission networks (2005)
58
Related political support should in principle be expectable having in mind the commitment expressed via signature of the Energy Community Treaty and adjustments of legislation in the jurisdictions.
59
rd
A related definition on national level is required by the 3 legislative package.

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schemes should not lead to distortion of competition for the reasons explained earlier, setting price below their cost-reflective level is not an appropriate instrument for protection of vulnerable customers.
Opening up end-user markets for competition to all customers, while limiting tariff
regulation to the natural monopolies of gas transmission and distribution, will exert
significant pressure on end-user tariff levels to be more in line with the underlying
costs of supply. A full opening of retail markets is an obligation of the Energy Community Treaty, which requires each Contracting Party to ensure that all nonhousehold customers are able to switch their supplier from 1 January 2008 and all
other customers should be enabled to do so from 1 January 2015.60 Both industrial
and household customers are however still not allowed to switch their supplier freely
in many Contracting Parties and Observer countries of the Energy Community. Actual or potential customer switching in many gas markets in the Contracting Parties of
the Energy Community is currently limited by the small number of suppliers. An opening of retail markets to all customers is however a necessary requirement for the
market entry of new suppliers and the development of competition. The Contracting
Parties and Observer countries of the Energy Community will need to implement the necessary steps for a full market opening by 1 January 2015 at the
latest.
Energy Community legislation requires the Contracting Parties to follow strict legal
unbundling rules for all distribution network operators with more than 100,000 customers.61 A number of jurisdictions in the area of the Energy Community have however hardly implemented accounting unbundling for their natural gas DSOs. To avoid
discriminatory practices by incumbent natural gas companies and enable third-party
access and competition, the distribution and transmission services need to be effectively unbundled from other competitive business areas. This will prevent the supplier
from allocating costs from the eligible customers to regulated customers, so it can
offer a cheaper supply to the eligible customers than its competitors. The implementation of legal unbundling of gas distribution operators is not only an obligation to the Contracting Parties of the Energy Community, but also a necessary
requirement for the market entry of new suppliers and increased competition.
Gas distribution is not yet developed in all or parts of many jurisdictions of the Energy
Community. In order to increase gasification and develop area-wide gas distribution,
60
61

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large investments in the pipeline network would be required. Therefore the allowed
revenues of any regulatory regime should include the capital costs of efficient investments. Potential investors should be enabled to earn an adequate return on their
assets. A stable and credible regulatory framework is also necessary for investors, as
investments in new gas pipelines are generally capital intense and have a long asset
life. This will strengthen their confidence and encourage new investments.
New gas distribution grids however have necessarily low numbers of customers at
the beginning whilst having to compete with other established energy sources at the
same time. Costs per customer normally decrease when network utilisation and the
number of customers increase. Distribution network charges will therefore be necessarily higher for new gas distribution areas than they are in regions with significant
penetration of gas. Regulators may look for long-term price arrangements to ensure
smoother price paths over time.
Regulators might also consider applying special incentives to encourage the
construction of new infrastructure. A possible option could be for example a
higher rate of return for new distribution networks than for existing distribution
networks, or a competitive tendering of gas distribution concessions.62 The
tendering of existing distribution infrastructure can be further linked with the obligations for the successful bidder to further expand the gas distribution network.
As regards quality of supply a number of jurisdictions in the Energy Community regulate technical quality and specific elements of gas safety. Reliability and commercial
quality on the other hand are only regulated in a few jurisdictions in the region. Nonetheless both areas of quality are of great relevance to the customers. The United
Kingdom could be considered as a possible best practice here in Europe with regards to the regulation of reliability and commercial quality. In a first step, both aspects of quality should be given more attention by making it mandatory for natural
gas distribution and retail companies to publish quality of supply indicators to
exert more public control on natural gas companies to provide better levels of
quality of supply. Also the implementation of independent consumer complaint
bodies and hotlines could be valuable channels to address quality issues. In a sec-
62
Similarly two recent ECRB publications recommend the introduction of regulatory investment incentives: ECRB, Regulatory Framework for the Development of the Energy Community Gas Ring
Discussion Paper on the Regulatory Instruments and Steps Necessary for the Development of the Natural Gas Market and Cross-Border Investments in the Energy Community (March 2010) and ECRB, Cooperation of Regulators with Regard to Cross Border Investment Projects Regulatory Instruments for
Promoting New Investments Assessment of Existing Mechanisms Recommendations (March 2010),
based on the ECRB recommendations the Energy Community has recently launched a study on the
details of possible regulatory investment incentives.

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ond step, specific financial incentives, penalties and rewards should be given
to the natural gas companies for achieving or failing to meet pre-determined
quality of supply targets.
Only limited information on selected commercial quality indicators has been provided
by the respondents of the questionnaire. Compared to the EU member states of Austria and Slovenia, average times needed for the connection of new customers and
the fixing of unscheduled interruptions tend to be much longer and advance information on scheduled maintenance work is given at much shorter notice in the Contracting Parties and Observer countries of the Energy Community.
Given the currently low(er) levels of commercial service quality in the Contracting
Parties and Observer countries of the Energy Community and the possibly increased
pressure for quality through increased competition in the future, gas customers in the
analysed jurisdictions would significantly benefit from implementation of quality regulation as outlined above. Increased reliability in distribution pipelines should thereby
be regarded independently from security of supply and reliability in the operation of
transmission, storage and LNG terminals.

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Annex A: Case Studies
A.1 Slovenia
General Sector Overview
Slovenia has no significant domestic natural gas production; its natural gas supply is
entirely covered through imports from Russia (54%), Algeria (32%) and other European countries (14% via Austria; source: Geoplin).
Importation, transportation and system operation of natural gas in Slovenia are carried out by Geoplin and its subsidiary companies Geoplin plinovodi d.o.o (Slovenias
gas transmission system operator) and Geocom d.o.o. (gas trading). Large industrial
customers connected directly to the transportation network (162 customers with a
consumption of 773 million m in 2008) are also supplied by Geoplin (who holds a
share of around 70% of the retail market). Slovenias gas transportation network is
980km in length and is interconnected with neighbouring Austria, Italy and Croatia.
Household and small industrial end-users are supplied by one of the 17 distribution
companies, serving 68 municipalities and operating a pipeline network of more than
3,770km. In 2008 124,262 household customers consumed 301 million m of natural
gas in Slovenia (Source: Energy Agency of the Republic of Slovenia). Household
customers accounted for 90% of all customers, but only for 40% of the total natural
gas supply in Slovenia in 2008. Only two gas distribution companies are majority
owned by foreign shareholders, whereas the others are majority owned by municipalities (7) or Slovenian legal entities (8).

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Figure 6: The Slovenian gas network
HUNGARY
ITALY
Source: Gas Infrastructure Europe
Figure 7: Natural gas transport routes to Slovenia
Source: Geoplin

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Regulation of Distribution and Supply Tariffs

The legislative basis for the Slovenian gas structure is the Energy Act of 2004 (further amended in 2007 and 2008),63 which implemented several EU Energy Directives
into national (Slovenian) law. The procedure for issuing and revoking licenses is further detailed in Ordinances 21/2001, 31/2001 and 66/05. Further rules and ordinances lay out the technical requirements of gas pipelines and the security of the
natural gas supply.64
The supervision of the Slovenian energy sector is carried out by the Slovenian Energy Agency.65 The Agency has been operating since 2001 as an independent energy regulator and is in charge of the electricity, natural gas and district heating sectors. Concerning the natural gas sector the Agency has issued general acts
including:
the methodology for calculating the network charge (the Official Gazette of
the Republic of Slovenia, Nos. 87/05, 102/05);
the methodology for setting the network charge, the criteria for determining
eligible costs, and the system for calculating these costs (the Official Gazette
of the Republic of Slovenia, Nos. 87/05, 102/05);
the methodology for setting general conditions for the supply and consumption of natural gas from a distribution network (the Official Gazette of the Republic of Slovenia, Nos. 87/05, 102/05); and
the methodology for the preparation of tariff systems (the Official Gazette of
the Republic of Slovenia, Nos. 87/05, 102/05).
The Energy Agency also decides on the issuing and revoking of licences, on thirdparty access disputes and disputes on use-of-network charges, and on appeals
against decisions regarding connection approval. Licences are required to take up
any activity in the gas sector ranging from gas production, transport, distribution,
supply and storage to gas trading. For the construction of gas facilities an approval
63
Energy act, the Official Gazette of the Republic of Slovenia, Nos. 27/07 (EZ-UPB2), 70/08 (EZ-C)
Rules Nos. 60/01, 54/02, 26/02, 54/02 and Ordinance No. 8/07.
65
Decision on the establishment of the Energy Agency of the Republic of Slovenia, the Official Gazette
of the Republic of Slovenia, Nos. 63/04, 95/04
64

May 2010
Page 96
by the Ministry of the Economy is also required. According to the Energy Act natural
gas distribution and supply are specified as optional local commercial public services.
Gas distribution and transportation network tariffs are subject to price-cap regulation,
while end-user tariffs in line with EU legislation (Directive 2003/55/EC) are no
longer regulated in Slovenia. Retail markets were opened for non-household customers in 2004 and since July 2007 all customers have been free to change their
natural gas supplier in Slovenia.
All gas distribution companies in Slovenia have less than 100,000 customers and are
therefore not subject to legal unbundling requirements, but only required to unbundle
the accounts of their distribution and supply activities.
Distribution network access charges consist of the use-of-network charge, which is
determined by the regulator, and a supplementary charge, determined by the government, which covers the costs for the operation of the Energy Agency, the costs for
the release of long-term transmission capacities, and the costs of suppliers resulting
from the continuity of the energy supply.
The distribution use-of-network charges are determined by the two methodologies for
calculating and setting the network charge mentioned above and consist of the costs
for the use of the transmission network, the price for the distribution of natural gas
and the price for metering. Distribution charges are set on a unified level for individual customer groups and geographic areas and are limited by a price-cap regime
with a regulatory period of one year.
The gas distribution networks tariffs in individual municipalities are determined in
specific Acts issued by the Energy Agency for the distribution networks in each municipality. In 2008 34 of these acts were issued for 68 local communities by the Energy Agency. In the same way individual System Operation Instructions and General
Conditions for Supply and Consumption are issued by the distribution system operators and approved by the Energy Agency for specific local areas. Network tariff levels
do vary significantly in Slovenia as the approved network tariff levels for specific distribution areas reflect the different cost levels in each area.
Use-of-network charges are also disclosed separately from the natural gas price on
the end-user customer bills. For household customers the network charge covers on
average about one quarter of the total price, as do excise duties, value-added tax
and other taxes. The natural gas price itself accounts for only half of the total enduser price. Based on their annual consumption in m five industrial customer groups
and three household customer groups have been established in Slovenia (see Table
37).
May 2010
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Table 37: Standard customer groups in Slovenia

Customer Group
Consumption in sm
from
to
I1
26,435
I2
26,435
264,349
I3
264,349
2,643,489
I4
2,643,489
26,434,886
I5
26,434,886
105,739,542
D1
529
D2
529
5,287
5,287
D3
Source: Energy Agency
Besides monitoring unbundling requirements, transparency and competition, the Energy Agency also monitors the time needed for repairs on the transmission and distribution networks and the time needed for connecting to a network. For the gas
transport network planned maintenance interruptions of 60 hours were reported for
2008 by the regulator, where the longest interruption was 24 hours and the shortest
18 minutes. According to the Slovenian Energy Agency no unexpected interruptions
took place in the gas transportation network in 2008. For the gas distribution network
58 unexpected interruptions with a total length of 199 hours were reported for 2008.
On average planned maintenance work was completed in 8 hours, but in a small
number of cases maintenance work did take up to a few days. To get connected to a
gas distribution network, new customers have to obtain approval from the distribution
network operator, which on average takes 24 days. In its 2008 report on the Slovenian energy sector the Energy Agency also mentioned cases where connection approval took up to 180 days. The physical connection took on average 8 days.
In 2008 244 km of new distribution pipelines were constructed in Slovenia and a total
of 3838 new customers were connected to the distribution network. Figure 8 shows
the number of new customers connected to each distribution network in Slovenia between 2005 and 2008.

May 2010
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Figure 8: Number of new customers connected to the distribution network in

2005-2008
Source: Energy Agency
According to the Energy Act all network users have the further right to appeal against
a decision of a system operator at the Energy Agency. The Act also sets out certain
measures for the protection of vulnerable customers. A system operator should not
interrupt the supply of gas if it threatens the life and health of a customer or persons
living with the customer. The costs of the supply of vulnerable customers are covered
through the use-of-network charges and carried out by the supplier of last resort. Furthermore, general customer rights for individual household customers are determined
in the Consumer Protection Act.

May 2010
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A.2 Romania
The Romanian gas transportation and distribution infrastructure is well developed
throughout the country as Romania has significant domestic resources of natural gas
and therefore gas has already been intensively used in the industrial sector for a long
time. The market penetration for natural gas was also promoted in the 1980s by a
government policy driven to achieve self-sufficiency. Due to intensive production,
natural gas from Romanian production has seen a steady decline and imports of gas
(almost completely from Russian sources) now account for 29% (2008). Interconnections of the Romanian gas network currently exist with Ukraine, Bulgaria and
Moldova; connections with Hungary and Serbia are currently under consideration (as
are further connections with Ukraine and Bulgaria). If the current annual production of
107 TWh (2007) continues, Romanias gas reserves of 150 billion m would be depleted in 15-20 years. In the residential market, district heating remains a competitor
to a further expansion of the natural gas distribution network.
Currently seven production companies,66 one transport company, three underground
storage operators,67 36 distribution companies and 76 wholesale supply companies
operate in the Romanian market. The transportation network of 13,100km (including
560 km of transit pipes) is operated by the state-owned SNTGN Transgaz S.A. Medias, which is only active in the transportation business (full ownership unbundling).
The distribution pipeline network has a length of 32,000km and is operated by 36
companies who are in the majority privately owned. The largest two distribution operators, GDF Suez Energy Romania S.A. and E.ON Gaz Romania S.A., control 85%
of the distribution network and supply around 45% of the end-users.
66
Petrom S.A., Romgaz S.A., Amromco Energy LLC, Toreador Resources Corp., Wintershall S.A.,
Aurelian Oil&Gas Romania S.R.L, whereas Petrom and Romgaz account for 98% of the Romanian production.
67
Romgaz S.A., Amgaz S.A. and Depomures S.A.

May 2010
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Figure 9: The Romanian gas network

UKRAINE
HUNGARY
SERBIA
BULGARIA

The basis for the regulation of the Romanian gas sector is set out in the Natural Gas
Law no. 351/2004 (amended in 2005), which implemented the provisions of the
European Directive 2003/55/EC into Romanian law.
Transport and distribution network charges as well as access to gas storage are
regulated by the Romanian Energy Regulatory Authority, ANRE.68 The main tasks of
ANRE in the natural gas sector include:
propose, enforce and review (tariff) regulations
establish methods and criteria for approving and setting the prices
68
Prior to 2007, the regulation of the electricity and gas markets had been carried out by different agencies. Autoritatea Nationala de Reglementare in domeniul Energiei (ANRE) established 1998 was in
charge of the electricity sector, while Autoritatea Nationala de Reglementare in Domeniul Energiei
domeniul Gazelor Naturale (ANRGN) established in 2000 was in charge of the regulation of the
natural gas markets. ANRE is entirely financed through tariffs paid for granting authorisations and licenses and for performing services.

May 2010
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issue, grant, suspend and revoke authorisations and licenses
approve framework contracts in the natural gas sector
monitor compliance of authorised and licensed companies
The operation of a distribution network requires an operational license issued by

ANRE and a concession by the Ministry of Economy. The details for the granting of
approvals and permits are further set out in Government Resolution No. 784/2000.
All distribution network operators are required to provide discrimination free network
access and connection to third parties as set out in the Network Code (approved by
Order ANRE no. 54/2007). The procedures for granting network access have to be
made public by the distribution network operator. According to the Gas Law access
to the network can be refused if the distribution network operator has insufficient facilities to match the request or if the gas quality standards do not meet the minimal
requirements regarding safety and environmental protection.
Retail markets have been gradually opened since 2001 and since July 2007 all end
customers have been able to switch their natural gas supplier (Government Decision
no. 638/2007). End-user tariffs of customers who have not switched their supplier
continue to be regulated by ANRE, usually on a quarterly basis. Wholesale trading
and supply to end-users who have switched their supplier are regarded as competitive and therefore unregulated. At the end of 2008 there were 1,048 eligible customers in Romania with a consumption of 89 million MWh. In 2008 regulated end-user
prices increased by 21% on average (Source ANRE). Regulated gas end-user prices
consist of the gas procurement costs, the transport and distribution tariff and the retail margin (see Figure 10). Supply tariffs are differentiated for five customer groups
based on their annual average consumption and for customers connected directly to
the transport or distribution networks.
34 out of 36 distribution companies in Romania have less than 100,000 customers
and are therefore not subject to legal unbundling requirements, but only required to
unbundle the accounts of their distribution and supply activities; GDF Suez Energy
Romania and E.ON Gaz Romania have been legally unbundled since 2007 and 2008
respectively.

May 2010
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Figure 10: Evolution of gas tariffs in Lei / 1000 m 2000-2009
Source: ANRE
Pret mediu achizitie gaz naturale: Average price for the procurement of natural gas
Cost mediu transport: Average transport costs
Cost mediu distributie: Average distribution costs
Cost mediu furnizare: Average supply costs
Pret mediu final reglementat pentru gazelle naturale: Final average regulated price for natural gas
Gas distribution network and regulated supply tariffs are regulated through a pricecap mechanism for a regulatory period of 5 years. The second regulatory period
started in 2007 and will last until 2012.69 The price caps for distribution and supply
activities are set according to Decision ANRGN no. 1078/2003 on approval of the Criteria and methods for approval of regulated prices and tariffs in natural gas sector.
Price caps are adjusted for efficiency increases, forecasted annual inflation and cost
generating elements, such as network development investments, increase customer
numbers and increased distribution volume. In the first regulatory period (only) differences between the collected and the estimated revenue of the previous year are corrected through the allowed weighted average tariff. Also tariffs are being recalculated
69
The gas transportation network is regulated by a revenue cap regime with the first regulatory period
having started in July 2004. Gas storage tariffs have been regulated from April 2004 onwards. The first
regulatory period for distribution and supply tariffs started in January 2005 and only covered 3 years
(regarded as transit stage), as was the case for transportation and storage.

May 2010
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each year, so that the actual allowed revenues are equal to the regulated costs. The
rate-of-return for the first and the second regulatory period is set at 11.7% and 8.63%
respectively for all gas distribution companies. Distribution charges are set for each
distribution company at a uniform level based on volumes distributed and differentiated for five customer categories.
Regulated prices and tariffs in the natural gas sector are approved by the order of the
president of the Regulatory Authority and are published in Romanias Official Gazette. Decisions and orders of ANRE can be appealed at the Bucharest Court of Appeal within 60 days following publication in Romanias Official Gazette.
For each gas distribution network a supplier of last resort is appointed by ANRE (Decision No. 1000/2006). An ultimate supply is compulsory for domestic customers and
public institutions such as hospitals, schools and kindergartens. Ultimate supply is
provided for a period of 90 days, after which the customer either has to switch supplier or pay the regulated supply tariff. In addition these categories of consumers and
beneficiaries of social protection programmes or disabled people are further protected from having their gas supply cut off during emergencies and the cold season
(from October to March) according to Law no. 346/2007 concerning measures to
ensure the security of natural gas supply.70
Vulnerable customers needing financial aid for the payment of their electricity bills
(i.e. customers with an average income per family member that is less than the national minimum income) also benefited in 2007 from a sub-category of regulated tariffs for residential customers the social tariffs. Thus, in 2007, 15.63% of residential
customers were invoiced on social tariffs.
70
Suppliers of regulated end-users are also required to store a minimum stock of natural gas in underground storages to cover peak demand in winter. Overall 12.5% of the total gas volume supplied to customers has to be covered by the minimum gas stocks. The public service obligations are also addressed
in ANRGN Decision No. 182/2005 approving the Framework Contract for natural gas regulated supply to
captive customers, with subsequent amendments and ANRGN Decision No. 308/2005 approving the
General Contracting Conditions for natural gas captive customers, with subsequent amendments.

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A.3 Portugal
Portugal has no natural gas resources and all gas is imported: the natural gas is imported from Algeria (transited via Spain) and the liquefied natural gas (LNG) is imported from Nigeria (via the Sines terminal). Galp Energia has four long-term contracts71 for natural gas supply, which corresponds to around 6 bcm /year.
Portugal uses both underground storage facilities in Carrio and LNG tanks in the
Sines terminal for the storage of natural gas. There are two operators active in the
underground gas storage sector: REN Armazenagem and Transgs Armazenagem.
Natural gas transmission activities are carried out under an exclusive concession
granted by the Portuguese State (40 years) to the system operator REN Gasodutos.
The natural gas is injected into the transmission network through three entry points
(Figure 11): Campo Grande entry point, LNG terminal located at Sines and
Valena do Minho entry point. The gas transmission network consists of 1.218km of
high pressure pipelines including 172 pipeline stations.
71
These contracts last for 20 years each.

May 2010
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Figure 11: The Portuguese gas network
The distribution network comprises of medium pressure and low pressure pipelines
and serves the residential sector, commercial and small and medium-sized industry
sectors. In 2007, the industry consumed 31.7% while the commercial and residential
sectors consumed 11.2%.72
Natural gas distribution is organised into six local distribution companies under 40
year concessions awarded by the State and five autonomous network operators administered under 20 year licensing agreements. The six concession holders are Beirags, Lisboags, Lusitaniags, Portgs, Setgs and Tagusgs. The five autonomous network operators are Diabags, Sonorgs, Duriensegs, Medigs and
Paxgs.73
72
73
International Energy Agency (IEA) (2009), Energy Policies of IEA Countries, Portugal 2009 Review.
Source: ERSE website

May 2010
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Since July 2007, regional distribution concessionaires and the licensees for local distribution with more than 100,000 customers required to supply gas through legally
unbundled companies are: Portgs, Lisboags, Setgs and Lusitaniags.74 Lisboags, Portgs, Setgs and Lusitaniags held the following market shares: 30.08%,
29.06%, 21.65% and 8.23%, respectively.75
The supply activity consists of buying and selling natural gas for supply to end users
or other agents through bilateral contracts or participation in other markets. Currently,
there are three natural gas retailers and 12 last-resort retailers.76 The activities of
supply of natural gas are scheduled to be fully open to competition by 2010.

The Portuguese Energy Regulator (ERSE) began to establish tariffs for each regulated activity in the natural gas sector in 2007. Furthermore, only in the second gas
year77 (2008-2009) did ERSE regulate the activities of natural gas distribution and
natural gas last resort supply, establishing the distribution use of network tariff, last
resort supply tariff and last resort end-user tariff.
The beginning of the retail market liberalisation in the natural gas sector was January
2008. Customers with annual natural gas consumption greater than 1 million m3 were
deemed eligible in January 2008 and a third party access regime was fully implemented in July 2008. Eligible customers have the option to be supplied by a retailer
or by a last resort supplier (under regulated tariffs). Since July 2008, the responsibility for the end-user price approval was transferred to ERSE78, who determines and
approves the end-user tariffs for last-resort suppliers and also the access tariffs to
the distribution network.
The Tariff Regulations for the Natural Gas Sector establish the calculation methods
for the natural gas tariffs and prices, as well as the forms of regulation for the allowed
revenue for the regulated companies. The basic approach for regulation of natural
gas tariffs consists of rate of return regulation. Natural gas tariffs are established
74
Entidade Reguladora dos Servios Energticos (ERSE) (2009), Relatrio Annual para a Comisso
Europeia, Julho 2009.
75
Entidade Reguladora dos Servios Energticos (ERSE) (2008), Relatrio Annual para a Comisso
Europeia, Julho 2008.
76
77
Each gas year runs from 1 July to 30 June of the following year.
78
In 2007, end-user prices were approved by the Ministry of Economy and Innovation on the basis of
proposals submitted by the concession and licence holders.

May 2010
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once a year and adjusted on a quarterly basis. Tariff prices are established for each
activity in such a way that their structure reflects that of marginal or incremental costs
and also enables the recovery of income allowed in each activity.
The distribution use of network tariffs consists of:
Distribution use of network tariff in MP (medium pressure): applies to supplies in

MP and LP (low pressure), and
Distribution use of network tariff in LP: applies to supplies in LP.
Concerning the tariff structure, the distribution use of network tariffs are made of the
following elements:
Capacity charge defined in (/kWh/day)/month;
Energy charge differentiated by peak and off-peak hours expressed in /kWh;

and
Fixed charge expressed in /month (Source: ERSE 2008a).
The last resort supply tariff consists of a fixed term element expressed in /month
differentiated by levels of consumption:
Annual supplies of less than or equal to 10,000 m3/year; and
Annual supplies of more than 10,000 m3/year and less than 2 million m3/year.
End-user regulated tariffs result from the sum of regulated tariffs determined for each
activity of the natural gas value chain: wholesale energy price, retail, distribution and
transmission networks and system management (Figure 12). Calculation of end-user
tariffs charged by the last resort supplier to its customers is based on the tariffs by
activity included in Network Access, plus the Energy Tariff and the Supply Tariff.

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Figure 12: End-user regulated tariffs

Natural Gas Acquisition
Terminal Use
Storage Use
Energy Tariff
(Regulated)
Transport
Transport
Use Network
HP
Global Use
System
Distribution
Supply
Distribution Use
Network
Commercial Cost
Network Access Tariff

(Regulated)
Supply Tariff
(Regulated)
Last Resort Supplier

End-User Tariff (Regulated)
Figure 13 and Figure 14 show the breakdown and the structure of the average price
of end-user tariffs for gas year 2008-2009.
Figure 13: Average price of end-user tariffs (2008-2009)
Legend: Comercializao=Supply; Uso Rede Distribuio=Distribution Use of Network Charges; Uso

Rede de Transporte=Transmission Use of Network Charges, Uso Global Sistema=Global Use of System; Energia=Energy.
Source: ERSE 2009

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Figure 14: Structure of the average price of end-user tariffs (2008-2009)
Source: ERSE 2009
The relevant document on connection charges is the Commercial Relations Regulations approved by ERSE.79
The network connection may require the payment of three types of charges related to
network augmentations, connection works and changes to the existing connections.
Costs related to connection works shall be supported by the network operator taking
into account approved maximum lengths. When the physical extension of the connection work exceeds the approved maximum length the difference is considered as
network augmentation cost. The network augmentation costs must be paid by applicants to network connections and in case of connections for shared use the payment
conditions shall be defined by agreement between the parties. The costs incurred
with necessary changes in the existing connections will be determined on an individual basis and shall be supported by the applicant.
The regulations state that the system operator must inform and advise the network
connection applicant, especially in regards to the pressure level appropriate to the
connection. The system operator has to submit an estimate for the requested connection, which shall contain the following information:
Identification of the connection elements required;
79
Entidade Reguladora dos Servios Energticos (ERSE) (2008), Regulamento de Relaes Comerciais do Sector do Gs Natural, May 2008.

May 2010
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Identification of the network connection point;
Type, quantity and cost of the main materials, equipment and human resources;
Terms of payment; and
A date by which the connection will be established.
The Quality of Service Regulations for the natural gas sector came into force in July
2007. The regulation on quality of service for the natural gas sector covers four main
areas: continuity of service, characteristics of natural gas, pressure of the natural gas
and commercial quality.80
Table 38 shows some indicators concerning the continuity of supply in the distribution
network for gas year 2007-2008.
80
Entidade Reguladora dos Servios Energticos (ERSE) (2009), Relatrio da Qualidade de Servio do
Sector do Gs Natural, Ano Gs 2007-2008, June 2009.

May 2010
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Table 38: Quality of supply in the distribution network (gas year 2007-2008)
Annual
values
(gas year
2007-2008)
From
January to
June 2008
Average duration by
customer
(minutes per
interruption)
Average
no. of interruptions
(minutes
per interruption)
Network
Operator
No.
Interruptions
Average no.
interruptions
by 1000 customers
Setgs
6,875
53
17
313
Portgs
2,744
15
177
Beirags
219
105
Tagusgs
205
10
289
Duriensegs
148
111
Dianags
30
59
6,480
Sonorgs
Medigs
Lisboags
GDL
30,866
68
19
296
Lusitaniags
0.01
0.001
87
Source: ERSE 2009
During the gas year 2007-2008, the distribution network operators monitored the
pressure levels in some distribution network points. According to the type of network
points, the monitoring activity took place on a continuous basis over the years or for a
certain time period. The values of pressure recorded for all distribution networks have
not shown any anomalous situation and were conforming to regulatory and contractual values of pressure.
The distribution network operators met the established response times for emergency situations at a rate higher than the standard. None of the distribution network
operators has sent information on the annual frequency of reading of household and
small business meters. The last resort suppliers performed better than the standard
imposed in the Quality of Supply Regulations regarding response time to customer
queries (phone calls).
May 2010
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Annex B: Questionnaire

May 2010
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Questionnaire on Tariffs and Quality of Service

in Gas Distribution and Supply
KEMA Consulting has been asked by the Energy Community Regulatory Board to
carry out a study on the current regulation of gas distribution and gas end-user supply in the Energy Community member and observer countries. The aim of this project
is to enable participating regulators to evaluate and adopt the gas tariff structures
and quality measures necessary for a secure, efficient, competitive and affordable
energy supply in their respective countries.
As part of this project KEMA is carrying out the following questionnaire to collect information on the current gas tariff levels, tariff methodologies, tariff regulations, quality of services and measures to protect vulnerable customers. Not all questions do
apply for all countries in the same way, since the gas markets in the Energy Community member countries show quite different levels of development. Please answer
therefore only those questions that do apply to the situation in your country. If you do
apply a different methodology for distribution and end-user tariffs please indicate
which alternative methodology you use.
Please return this questionnaire via e-mail by 22.1.2010 at the latest.

Please indicate below your name and contact details:
Name: ...
Entity: ...
Telephone: .
E-Mail: ...
If you have any questions, please contact:
Dr. Daniel Grote
KEMA Consulting GmbH
Kurt-Schumacher-Str. 8
D-53113 Bonn
Tel:
+49 228 - 4469 0 49
Fax: +49 228 - 4469 0 99
E-Mail: daniel.grote@kema.com

May 2010
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A) General questions
1.
Do you have a natural gas sector?
a)
Yes
b)
No
2.
If there is no gas sector, are there any plans to connect your country to natural
gas?
a)
Yes (please specify) _________________________________________

__________________________________________________________
__________________________________________________________
b)
No
3.
Is there significant competition to gas from other sources on the heat market
(e.g. district heating, wood, oil, electricity)?
District
Heating
Wood
Oil
Electricity
a)
Yes
b)
No
4.
Do you have a national regulator for natural gas?
a)
Yes
b)
No
5.
Do you have any regional regulator that has jurisdiction in natural gas?
a)
Yes
b)
No

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6. If no (regulator), are preparatory steps already carried out for the regulation of
the gas sector (legislation, determination that the electricity regulator would take over
responsibility for gas regulation etc.)?
a)
Yes (please specify) ______________________________________

_______________________________________________________
_______________________________________________________
b)
No
7.
Do you have gas distribution?
a)
Yes
b)
No
8.
Up to which pressure level are gas pipelines regarded as distribution network

pipelines?
Gas distribution pipelines are defined as pipelines operated below _________ bar.
B) Gas regulation
9.
Which natural gas tariffs are regulated?
a)
Commodity / wholesale
b)
Cross-border transmission
c)
Transmission
d)
Distribution
e)
End-user
f)
Connection
g)
Storage
h)
No regulation

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10. Is the tariff methodology

a)
Developed and set by the regulator
b)
Developed and set by the Ministry
c)
Developed by the companies and approved by the regulator
d)
Developed and set by the companies
e)
Other (please specify) ___________________________________
11. Who determines the tariff structure?

Distribution
a)
Sector specific regulatory agency
b)
Ministry of
c)
Gas companies
d)
Gas companies apply, regulator approves
e)
Gas companies apply, regulator checks,
End-user Connection
______________________
Ministry approves
f)
Other (please specify) _________________________________________________
12. Who determines the tariff levels?

Distribution
a)
Sector specific regulatory agency
b)
Ministry of
c)
Gas companies
d)
Gas companies apply, regulator approves
e)
Gas companies apply, regulator checks,
End-user Connection
______________________
Ministry approves
f)

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13. What regulatory regime is applied for Distribution, End-user, and Connection
Charges?
Rate-of-Return
Revenue-Cap
Price-Cap
Other
(please specify)
a)
Distribution tariffs
_________________
b)
End-user tariffs
_________________
c)
Connection charges
_________________
14. What is the regulatory period?

The regulatory period is ____________ years
15. In the case of cap regulation, what adjustment factors are included in the regime?
Distribution
End-user
a)
Inflation
b)
Industry-wide (general) productivity growth
c)
Company-specific efficiency improvement targets
d)
Network development investment costs
e)
Changes in the number of customers
f)
Changes in the distributed volume
g)
16. What unbundling requirements do apply for gas distribution system operators
(DSOs) with more than 100,000 customers?
a)
Ownership unbundling
b)
Legal unbundling
c)
Accounting unbundling
d)
No unbundling requirements

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17. Does the regulator carry out a benchmarking of distribution network operators?
a)
Yes
b)
No
C) Gas Tariffs
General gas tariff methodology
18. Do separate natural gas tariffs exist for

a)
Cross-border transmission
b)
Transmission
c)
Distribution
d)
End-user
e)
Connection
f)
Storage
Or is there a single tariff for
g)
All services
h)
Other (please specify) ______________________________________________
Gas Distribution Tariffs (including connection charges)
19. Do distribution tariffs consist of a

a)
demand dependent charge
b)
energy dependent charge
c)
a fixed customer dependent charge

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20. Do distribution tariffs vary for different

a)
time periods (if yes, please indicate: summer, winter; day, night)
a.
Yes, _________________________________________________________
b.
No
b)
consumption levels (if yes, please indicate)
a.
Yes, _________________________________________________________
b.
No
c)
Types of customers (if yes, please indicate: industrial, commercial, household,

others)
a.
Yes, _________________________________________________________
b.
No
d)
geographical areas (if yes, please indicate the number of areas)
a.
Yes, _________________________________________________________
b.
No
21. What costs are included in the cost base of the distribution tariffs?
a)
Operational expenditure of the network
b)
Return on network assets
c)
Depreciation of network assets
d)
Taxes
e)
Cost of energy to cover technical network losses
f)
Cost of energy to cover commercial losses
g)
Other (please specify) __________________________________________________
22. What is the rate of return?

The rate of return is _________%.

May 2010
Page 120
23. Are any elements of marginal costs used in the pricing process?
a)
Yes
b)
No
24. Would you shortly describe the major principles of cost allocation to calculate
distribution tariffs?
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
25. What are the approximate distribution network tariffs in /Joule for the two largest companies (using the Eurostat customer groups I4, I1, D3)?
Company name: ________________________________________________________
Approximate market share (in % of total energy distributed): ___________________
Large users
(standard consumer I4=annual
consumption of
418.6 GJ)
Medium commercial
(standard consumer
I1 = annual consumption of 418,600 GJ)
Small commercial/
household
(standard consumer D3
= annual consumption of
83,7 GJ)
2007
2008
2009
Company name: ________________________________________________________

Approximate market share (in % of total energy distributed): ___________________
Large users
(standard consumer I4=annual
consumption
of 418.6 GJ)
Medium commercial
(standard consumer
I1 = annual consumption of 418,600 GJ)
Small commercial/
household
(standard consumer D3
= annual consumption of
83,7 GJ)
2007
2008
2009

May 2010
Page 121
26. Do different distribution tariffs apply for different distribution system operators?
a)
Yes
b)
No
27. Is there a standard procedure for network connection?

a)
Yes
b)
No
28. Are there standardised (non-individual) connection charges?

a)
Yes
b)
No
29. What are the levels of the standardised connection charges for different customer groups in in 2007, 2008 and 2009?
Customer Group
2007
2008
2009
30. What cost components are included in the connection charge?

_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________

May 2010
Page 122
31. Do these connection costs refer to the connection assets only or also to assets /
investments deeper in the network?
a)
Yes
b)
No
End-user tariffs
32. Do end-user tariffs consist of a

a)
demand dependent charge
b)
energy dependent charge
c)
a fixed customer dependent charge
33. Do end-user tariffs vary for different
a)
time periods (if yes, please indicate: summer, winter; day, night)
a.
Yes, _________________________________________________________
b.
No
b)
consumption levels (if yes, please indicate)
a.
Yes, _________________________________________________________
b.
No
c)
Types of customers (if yes, please indicate: industrial, commercial, household,

others)
a.
Yes, _________________________________________________________
b.
No
d)
geographical areas (if yes, please indicate the number of areas)
a.
Yes, _________________________________________________________
b.
No

May 2010
Page 123
34. What costs are included in the cost base of the end-user tariffs?
a)
Cost of energy purchase
b)
Operational expenditure of the end-user supply business
c)
Return on assets of the end-user supply business
d)
Profit margin
e)
Depreciation of assets of the end-user supply business
f)
Taxes (excluding VAT)
g)
Cost of energy to cover technical network losses
h)
Cost of energy to cover commercial losses
i)
Other (please specify) _________________________________________
35. Please indicate the percentage of the commodity price, the transmission and distribution charges, and the end-user supply cost in the end-user price.
Commodity
__________%
Transmission
__________%
Distribution
__________%
End-user supply
__________%
Other (please specify)
__________% _____________________________
36. Are any elements of marginal costs used in the pricing process?
a)
Yes
b)
No
37. Would you shortly describe the major principles of cost allocation to calculate
end-user tariffs?
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________

May 2010
Page 124
38. Are there any automatic adjustment provisions for end-user tariffs?
a)
Yes (please specify), _______________________________________________
b)
No
39. Please indicate the average regulated and non-regulated end-user tariff levels
without taxes for household customers in /Joule following the new Eurostat tariff methodology.
(Eurostat category Band D2;
annual consumption = 20 GJ < Consumption < 200 GJ)
1.1.2007
1.7.2007
1.1.2008
1.7.2008
1.1.2009
1.7.2009
Non-regulated
tariff level
Regulated tariff level
If tariff data for the new Eurostat tariff methodology is not available, you may use the
old Eurostat tariff methodology (Eurostat category D3; annual consumption = 83.70
GJ) alternatively,
if you do so please indicate here
40. Please indicate the average end-user tariff levels without taxes for industrial customers in /Joule following the new Eurostat tariff methodology.
(Eurostat category Band I3;
annual consumption = 10 000 GJ < Consumption < 100 000 GJ)
1.1.2007
1.7.2007
1.1.2008
1.7.2008
1.1.2009 1.7.2009
Tariff Level
If tariff data for the new Eurostat tariff methodology is not available, you may use the
old Eurostat tariff methodology (Eurostat category I3-1; annual consumption = 41,860
GJ; load factor: 200 days, 1 600 hours) alternatively,
if you do so please indicate here

May 2010
Page 125
41. What customer classes (user categories) with which consumption levels are
used for end-user tariffs?
Customer category
Consumption level in GJ
42. Are customers free to choose their gas supplier?

a)
No, customers are not allowed to choose their supplier
b)
Only large industrial customers connected to the transmission network

with an annual supply of __________ m/year or more
c)
Only medium industrial and commercial customers

with an annual supply of __________ m/year or more
d)
All customers are free to choose their supplier
43. a) If customers are free to choose, since which year are they allowed to do so?
a.
Large industrial customers since
_____________
b.
Household customers since
_____________
c.
The eligible consumption in m/year in 2009 is
_____________
b)
If customers are not free to choose, are there any plans, from when onwards will
they be allowed to do so?
a.
Large industrial customers from
_____________
b.
Household customers from
_____________
c.
No date for an opening of retail markets exists
44. If some or all end-users are eligible to switch their supplier, do tariffs of eligible
customers that do not switch their supplier continue to be regulated?
a)
Yes
b)
No

May 2010
Page 126
D) Quality of supply
45. Do you currently regulate quality of supply?
a)
Gas safety
b)
Reliability
c)
Technical quality (gas quality and pressure)
d)
Commercial quality
46. How do you regulate quality of supply?

Standards /
Performance
Incentive
Norms
Publication
Schemes
Other
(please specify)
a)
Gas safety
_________________
b)
Reliability
_________________
c)
Technical quality
_________________
d)
Commercial quality
_________________
47. Does the regulation on quality of supply have an impact on the financial position
(e.g. by using penalties and rewards) of the companies?
Yes
a)
Gas safety
b)
Reliability
c)
Technical quality (gas quality and pressure)
d)
Commercial quality

No
May 2010
Page 127
48. a) Does the regulation of commercial quality include the following indicators?
a.
Customer satisfaction
b.
Customer complaint rates
c.
The average time of companies to answer to emergency calls
d.
The average time of companies to answer customer enquiries
e.
The average time for advance notification of planned interruptions
f.
The accuracy of bills
g.
The availability of customer service centres
h.
b)
If yes, is this information made publicly available
a.
Yes
b.
No
49. a) Does the regulation of gas safety include the following indicators?
a.
Total number of incidents
b.
Number of third party damage incidents
c.
Number of ruptures, spills, leaks and releases
d.
Number of fatalities
e.
Natural gas and methane emissions from pipelines
f.
Frequency of pipeline inspections
g.
b)
a.
Yes
b.
No

May 2010
Page 128
50. a) Does the regulation of reliability include the following indicators?

a.
Number of planned interruptions per customer / year
b.
Number of unplanned interruptions per customer / year
c.
Average duration of interruptions
d.
Average number of customer minutes lost per interruption
e.
b)
a.
Yes
b.
No
51. a) Does the regulation of gas quality (technical quality) include the
indicators?
a.
Wobbe Index
b.
Heating or Caloric Value
c.
Specific Gravity / Relative Density
d.
CARI (Combustion Air Requirement Index)
e.
Odorisation levels
f.
Chemical properties (content of Hydrogen, Sulphur, Water, Oxygen, CO2)
g.
b)
a.
Yes
b.
No
following
52. What is the average time for the connection of a new customer (from the point of
time connection is requested by the customer to the point of time when natural gas is
delivered to the customer)?
The average time for the connection of a new customer is _________________
May 2010
Page 129
53. What is the average time until an unscheduled interruption is fixed (from the
point of time the interruption is detected to the point of time when natural gas is delivered to the customer again)?
The average time for fixing an unscheduled interruption is _________________
54. a) Are gas distributors required to provide advance information on planned interruptions (maintenance work)?
a)
Yes
b)
No
b)
If yes, on average how many days in advance is this information provided to customers?
On average information on interruption is provided ___________ days in advance
55. Are there any specific measures in your country to increase gasification (if yes,
please indicate)?
a)
Yes, _________________________________________________________
b)
No
E) Vulnerable customers
56. In the context of energy, what customers are considered as vulnerable in the legislative framework?
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________

May 2010
Page 130
57. Are there any supporting mechanisms for vulnerable customers?

a)
There are no specific mechanisms
b)
Vouchers
c)
Lower tariffs
d)
Cash subsidies
e)
Energy costs are included in the social security schemes
f)
58. a) Do specific tariffs apply for vulnerable customers?

a.
Yes
b.
No
b)
If yes, would you describe the nature of the tariffs?
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
59. Are there special provisions in winter months that customers that use gas for
heating cannot be disconnected?
a)
Yes
b)
No
60. What is the average frequency of meter readings?

a)
Monthly
b)
Quarterly
c)
Yearly
d)

May 2010
Page 131
61. What is the average invoicing period (frequency of bills send out to customers)?
a)
Monthly
b)
Quarterly
c)
Yearly
d)
62. What is the collection rate (i.e. the percentage of customers that pay their invoices)?
The payment rate is ___________ %
63. What happens if a vulnerable customer cannot / does not pay its bill?
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________

May 2010
Page 132
Annex C: Answers received from participating regulators
Question
Albania
Austria
No
Yes
1)
Do you have a natural gas

sector?
2)
TAP; LNG;
If there is no gas sector, are
Regazification
there any plans to connect your plant; Energy
country to natural gas?
Community
Ring (IAP)
3)
Is there significant competition

to gas from other sources on
the heat market (e.g. district
heating, wood, oil, electricity)?
4)
5)
Do you have a national

regulator for natural gas?
Do you have any regional
regulator that has jurisdiction
in natural gas?
Wood, Oil,
Electricity
Bosnia and
Bosnia and
Herzegovina Herzegovina
(Republika (Federeation
Srbska)
of BiH)
Yes
District Heating, District Heating,

Wood, Oil,
Wood, Oil,
Electricity
Electricity
Yes
Croatia
Georgia
FYR of
Macedonia
Yes
Yes
Yes
Wood,
Electricity
District Heating,
Wood, Oil,
Electricity
District Heating, District Heating,

Wood, Oil,
Wood, Oil,
Electricity
Electricity
Yes
Yes
No
No
Yes
Yes
Yes
No
No
Yes
No
No
No
No

May 2010
Page133
Question
1)
2)
3)
4)
5)
Moldova
Serbia
Slovenia
Turkey
UNMIK
Ukraine
Yes
Yes
Yes
Yes
No
Yes
Do you have a natural gas

sector?
If there is no gas sector, are
there any plans to connect your
country to natural gas?
Energy Community
Gas Ring
Is there significant competition

to gas from other sources on
District Heating,
the heat market (e.g. district
Wood
heating, wood, oil, electricity)?
Do you have a national
regulator for natural gas?
Do you have any regional
regulator that has jurisdiction
in natural gas?

District Heating,
District
Wood, Oil,
Heating, Wood,
Electricity
Oil, Electricity
Wood Oil
Electricity
District Heating,
Oil, Electricity
No
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
No
No
No
May 2010
Page134
Question
Albania
6)
If no (regulator), are
preparatory steps already
carried out for the regulation of
the gas sector (legislation,
determination that the
electricity regulator would take
over responsibility for gas
regulation etc.)?
Yes
7)
No
8)
Up to which pressure level are

gas pipelines regarded as
distribution network pipelines?
9)
Developed and
set by the
regulator

Croatia
Georgia
FYR of
Macedonia
Yes, a working
group whose task
will be to draft gas
legislation for the
Federation of BIH
is being
established. WG
for national
legislation exists
Yes
Cross-border
transmission;
Transmission;
Distribution;
Connection
Which natural gas tariffs are

regulated?
10) Tariff methodology
Austria
Bosnia and
Bosnia and
of BiH)
Srbska)
Yes
Yes
Yes
Yes
Yes
6 bar
16 bar
7 bar (on
average)
1.2 Mpa
3-4bar
no regulation
Transmission;
Distribution;
End-user;
Storage
Transmission;
Distribution; Enduser; Connection;
Storage
Developed and
Developed and set
set by the
by the regulator
regulator
Commodity /
Transmission;
wholesale;
Distribution;
Transmission;
End-user;
Distribution; EndConnection
user
Developed by the
Developed and Developed and
company and
Developed and set
set by the
set by the
approved by
by the regulator
regulator
regulator
cantonal authority
May 2010
Page135
Question
6)
If no (regulator), are
preparatory steps already
carried out for the regulation of
the gas sector (legislation,
determination that the
electricity regulator would take
over responsibility for gas
regulation etc.)?
7)
8)
Up to which pressure level are

gas pipelines regarded as
distribution network pipelines?
9)
Which natural gas tariffs are

regulated?
10) Tariff methodology
Moldova
Serbia
Slovenia
Turkey
UNMIK
Ukraine
Yes
Yes
Yes
Yes
No
Yes
12 bar
16 bar
ther is no limit
between pressure
in distribution and
transmission
pipelines
4 bar
12 bar
Transmission;
Distribution;
End-user;
Connection
Commodity /
wholesale;
Transmission;
Distribution; Enduser; Storage
Transmission;
Distribution
Transmission;
Distribution;
Connection;
Storage
Transmission;
Distribution;
End-user;
Storage
Developed and
set by the
regulator
Developed by the Developed and set Developed and set

regulator
by the regulator
by the regulator

Developed and
set by the
regulator
May 2010
Page136
Question
Who determines the tariff

11)
structure?

12)
levels?
Albania
Austria
Bosnia and
Bosnia and
Srbska)
of BiH)
Sector specific
Gas companies
Gas companies
regulatory
apply, regulator
apply, regulator
agency
checks, Ministry
approves
(distribution and
approves
connection)
Sector specific
Gas companies
Gas companies
regulatory
apply, regulator
apply, regulator
agency
checks, Ministry
approves
(distribution and
approves
connection)
What regulatory regime is

13) applied for Distribution, Enduser, and Connection Charges?

rate-of-return
(distribution
and
connection)
rate-of-return
(distribution and
end-user tariffs);
direct cost
(connection)
Croatia
Georgia
FYR of
Macedonia
Developed by the
company and
approved by
cantonal authority
Sector specific
regulatory
agency
(distribution,
end-user)
relevant cantonal
ministry, on a
company's
proposal
1) Gas
companies
apply, Ministry
+ Government
approve based Sector specific
on opinion of
regulatory
Ministry of
regulator
agency; Gas
Economy
2) Regulator
companies
(distribution, endcalculates,
apply, regulator
user)
Ministry +
approves
Government
approve based
on opinion of
gas company
direct cost
Sector specific
Sector specific
regulatory agency
regulatory
(distribution, endagency
user)
rate-of-return
rate-of-return
(distribution and
(distribution
end-user tariffs);
and end-user
not yet defined
tariffs)
(connection)
price-cap
(distribution and
end-user tariffs)
May 2010
Page137
Question

11)
structure?
12)

levels?
Moldova
Sector specific
regulatory
agency
Sector specific
regulatory
agency
What regulatory regime is

13) applied for Distribution, Enduser, and Connection Charges?

All justified
costs
Serbia
Developed by the
regulator,
Government
approves
Gas companies
apply, regulator
gives opinion
(checks),
Government
approves
Slovenia
Sector specific
regulatory agency
Gas companies
apply, regulator
approves
Turkey
UNMIK
Ukraine
Gas companies
apply, regulator
approves
Sector specific
regulatory
agency AND
Sector specific
Gas companies
regulatory agency
apply, regulator
approves
(distribution)
Gas companies
apply, regulator
approves
Sector specific
regulatory
agency AND
Gas companies
Sector specific
apply, regulator
regulatory agency
approves
(distribution +
end-user
supply)
(Distribution) rate(Distribution) rateof-return; (Endof-return (cost-plus revenue-cap; priceuser tariffs) rate-ofmethod); (End-user
cap (both for
return;
tariffs) cost-plus Distribution only)
(Connection) pricemethod
cap
(Distribution)
rate-of-return;
(End-user)
price-cap
May 2010
Page138
Question
Albania
14) What is the regulatory period?
Austria
5 years
Bosnia and
Bosnia and
Srbska)
of BiH)
not defined
not defined (since

2000 tariffs for
distribution and
supply have not
been changed)
Croatia
Georgia
FYR of
Macedonia
1 year
1 year
3 years
Inflation; Industrywide (general)

productivity
growth; Network
development
investment costs;
Changes in the
distributed
volume
(distribution)
In the case of cap regulation,

15) what adjustment factors are
included in the regime?
What unbundling requirements

do apply for gas distribution
16)
system operators (DSOs) with
more than 100,000 customers?
Legal +
accounting
unbundling
Accounting
unbundling
No unbundling
requirements
legal unbundling
No unbundling
requirements
No unbundling
requirements
Does the regulator carry out a

17) benchmarking of distribution
network operators?
Yes
Yes
No
Yes
No
Yes

May 2010
Page139
Question
Moldova
Serbia
Slovenia
Turkey
5 years
1 year
1 year
1 year
14) What is the regulatory period?
In the case of cap regulation,

15) what adjustment factors are
included in the regime?
Distribution and
end-user:
Inflation;
Industry-wide
productivity
growth;
Companyspecific
efficiency
improvement
targets; network
development
investment costs
(distribution
only); Changes
in the number of
customers;
Changes in the
distributed
volume
UNMIK
Ukraine
1 year
Distribution
and end-user:
Inflation (enduser only);
Changes in the
number of
customers;
Changes in the
distributed
volume; Other
Distribution:
Inflation; network
Distribution:
development
Inflation; network
investment costs;
development
Changes in the
investment costs;
number of
Changes in the
customers;
distributed volume
Changes in the
distributed volume
What unbundling requirements

do apply for gas distribution
16)
system operators (DSOs) with
more than 100,000 customers?
Legal +
accounting
unbundling
Accounting
unbundling
Legal unbundling
Legal + accounting
unbundling
Accounting
unbundling
Accounting
unbundling
Does the regulator carry out a

17) benchmarking of distribution
network operators?
Yes
Yes
Yes
No
No
Yes

May 2010
Page140
Question
Albania
Austria
Bosnia and
Bosnia and
of BiH)
Srbska)
Georgia
FYR of
Macedonia
Transmission;
Distribution
End-user;
Storage
Transmission;
Distribution
End-user;
Storage
Transmission;
Distribution
End-user
Separate natural gas tariffs

18)
exist for
Cross-border
transmission;
Transmission;
Distribution
Connection;
Storage
19) Distribution tariffs consist of a
energy +
demand
demand
demand dependent demand dependent
dependent
dependent
charge; energy
charge; energy
charge;
charge; or
dependent charge; dependent charge;
energy +
fixed customer
fixed customer
fixed customer
fixed customer
dependent
dependent charge dependent charge
charge
dependent
charge
20)
Distribution tariffs vary for

different

Consumption
levels;
Types of
customers;
Geographical
areas
Transmission;
Distribution;
End-user;
Connection;
Storage
Type of
customers;
Geographical
areas
single tariff for

distribution +
supply and single
tariff for
commodity +
transmission
Croatia
Consumption
levels;
Types of
customers
Consumption
levels;
Types of
customers;
Geographical
areas
demand
dependent charge;
fixed customer
dependent charge
Types of
customers
No
May 2010
Page141
Question
18)
Separate natural gas tariffs

exist for
Moldova
Transmission;
Distribution
End-user;
Connection
Distribution tariffs vary for

different
Slovenia
Turkey
Transmission;
Distribution
End-user; Storage
Cross-border
transmission;
Transmission;
Distribution
Transmission;
Distribution;
Connection;
Storage
demand dependent
charge; energy
dependent charge
19) Distribution tariffs consist of a
20)
Serbia
Types of
customers

Types of customers
energy dependent
demand dependent
charge;
charge
fixed customer
dependent charge
Consumption
levels;
Geographical
areas
Consumption
levels;
Types of
customers;
Geographical areas
UNMIK
Ukraine
Transmission;
Distribution
End-user;
Storage
energy
dependent
charge
Geographical
areas (53)
May 2010
Page142
Question
Albania
What costs are included in the

21) cost base of the distribution
tariffs?
22) What is the rate of return?
Are any elements of marginal

23) costs used in the pricing
process?

Austria
Operational
expenditure of
the network;
Return on
network assets;
Depreciation of
network assets
Bosnia and
Bosnia and
Srbska)
of BiH)
Croatia
Operational
expenditure of
Operational
Operational
the network;
expenditure of the expenditure of the
Return on
network; Return
network; Return network assets;
on network assets; on network assets; Depreciation of
Depreciation of
Depreciation of network assets;
network assets;
network assets;
Cost of energy
Taxes; Cost of
Taxes; Cost of
to cover
energy to cover
energy to cover
technical
technical network technical network network losses;
losses
losses
Cost of energy
to cover
commercial
losses
6,97 %
approved in the
tariff proceeding
at request of the
applicant
0%
rate of return is
determined on
an individual
level for each
DSO
No
No
No
No
Georgia
FYR of
Macedonia
Operational
expenditure of
the network;
Return on
network assets;
Depreciation of
network assets;
Taxes; Cost of
energy to cover
technical
network losses
Operational
expenditure of the
network; Return
on network assets;
Depreciation of
network assets;
Taxes; Cost of
energy to cover
technical network
losses
12%
9%
No
No
May 2010
Page143
Question

21) cost base of the distribution
tariffs?
Moldova
Serbia
Operational
Operational
expenditure of
expenditure of the
the network;
network; Return on
Return on
network assets;
network assets;
Depreciation of
Depreciation of
network assets;
network assets;
Taxes; Cost of
Taxes; Cost of
energy to cover
energy to cover
technical network
technical
losses
network losses
22) What is the rate of return?

process?

Slovenia
Turkey
Operational
Operational
expenditure of the expenditure of the
network; Return network; Return
on network assets; on network assets;
Depreciation of
Depreciation of
network assets;
network assets;
Taxes; Cost of
Taxes; Cost of
energy to cover
energy to cover
technical network technical network
losses
losses
0.1461
7.50%
ca. 6%
No
No
Yes
UNMIK
Ukraine
Operational
expenditure of
the network;
Depreciation of
network assets;
Taxes; Cost of
energy to cover
technical
network losses
5%
No
Yes
May 2010
Page144
Question
24)
Albania
Would you shortly describe the

major principles of cost
allocation to calculate
distribution tariffs?

Austria
Bosnia and
Bosnia and
of BiH)
Srbska)
Operational
expenditures of
the network
operation are
allocated to a
fixed customer
dependent charge
according to the
Costs divided by methodology.
Other costs are
Quantity =
allocated to
Tariffs
demand dependent
charge and energy
dependent charge.
It is possible to
make allocation
from one tariff
element to
another.
All cost related to

distribution and
supply company
are analyzed.
There exist certain
cross subsidies
among different
customer groups
Croatia
Georgia
FYR of
Macedonia
Methodology
used for
Regulated
establishing
maximum price of
tariff items for
the company
gas distribution
performing
based on justidistribution and
fiable business
operation of the
Distribution
expenses,
natural gas
costs are
maintenance
distribution
splitted
expenses,
system should
according to
replacement,
cover costs for
customer
facility
distribution,
categories
construction or
operation of the
(pressure
recon-struction
natural gas
levels),
and
distribution
according to the
environmental
value of assets system, supply
protection,
needed fo each with natural gas
including a
to tariff customers
respective
reasonable
connected to the
category
deadline for
distri-bution
recovery of
system of natural
funds invested in
gas and ensure
energy facilities,
regulated return
machines and
on assets
networks
(distribution)
May 2010
Page145
Question
Moldova
1) real costs for

distribution and
delivery of gas to
customers or other
distributors
2) covering costs,
necessary to carry out
under normal
conditions of
Would you
regulated activities
shortly describe
3) covering costs for
the major
assuring gas safety
principles of
24)
and environmental
cost allocation
to calculate
protection
distribution
4) carry out an
tariffs?
efficient and profitable
activity allowing
possibilities to recover
the justified and
proven investments in
development,
rehabilitation and
extension of natural
gas networks

Serbia
Slovenia
Turkey
The cost of
Maximally allowed
investments
revenue, allotted on
(CAPEX) are
tariff elements
collected between
(70% to tariff
Smaller customers
eligible and nonelement "energy"
have higher rates
eligible customers
and 30% to tariff
and payable
due to annual peak
element
according to
consumptions of
"capacity"), in
energy used and
these groups.
tariff systems has
lump sum. Big
OPEX is allocated
been allocated on
customers pay
regarding to the
the users (the group
respect to the
data, which is the
of users) according
leased capacity and
main factor in that
to their
energy used.
epense, such as
consumption
number of
(quantity, capacity
customers, amount
and connection
of gas, etc.
point)
UNMIK
Ukraine
operating costs,
taxes, budget
allocations, profit
May 2010
Page146
Question
Albania
Austria
Bosnia and
Bosnia and
Srbska)
of BiH)
SARAJEVO-GAS
A.D. ISTONO Sarajevogas Ltd.
SARAJEVO
Sarajevo (93.8%
(1.5 % market
market share)
share)
2.62 /GJ (I4);

2.62 /GJ (I1);
1.33 /GJ (D3)
Croatia
Georgia
Gradska plinara
KazTrans Gas
Zagreb Ltd.
Tbilisi JSC
Zagreb (34,4 %
(72% market
market share in
share)
2008)
see details in the see details in the see details in

main part of the main part of the the main part of
report
report
the report
What are the approximate

distribution network tariffs in
25)
/Joule for the two largest
companies (using the Eurostat
customer groups I4, I1, D3)?
Zvornik stan a.d.
Zvornik (1.5 %
market share)
2.85 /GJ (I4);

2.85 /GJ (I1);
2.85 /GJ (D3)

HEP - PLIN Ltd.

Osijek (13.1 %
market share in
2008)
Kutaisi Gaz
JSC
see details in the see details in

main part of the the main part of
report
the report
FYR of
Macedonia
Development of
distribution of
natural gas is on
very beginning
phase. Energy
Regulatory
Commission in
March 2009 were
issued licenses for
natural gas
distribution, for
operation of
natural gas
distribution
system and for
supplier of tariff
customers,
connected on
distribution
system for ,,Free
technological
industrial
development zone
in Skopje,,. Till
now only 2
industrial
consumers are
connected. There
are no households
connected to the
distribution
network.
May 2010
Page147
Question
Moldova
Serbia
Slovenia
n/a
Srbijagas, Novi
Sad (75% market
share)
Energetika
Ljubljana
What are the approximate

distribution network tariffs in
25)
/Joule for the two largest
companies (using the Eurostat
customer groups I4, I1, D3)?

see details in the

main part of the
report
Novi Sad - Gas,
Novi Sad (6%
market share)
see details in the
main part of the
report
see details in the

main part of the
report
Adriaplin
see details in the
main part of the
report
Turkey
UNMIK
Ukraine
Company 1
(6.8% market
share
see details in
the main part of
the report
Company 1
(6.85% market
share
see details in
the main part of
the report
May 2010
Page148
Question
Albania
Do different distribution tariffs

26) apply for different distribution
system operators?
Austria
Bosnia and
Bosnia and
Srbska)
of BiH)
Croatia
Georgia
FYR of
Macedonia
Yes
Yes
Yes
Yes
Yes
Yes
Is there a standard procedure

for network connection?
Yes
Yes
Yes
Yes
Yes
Yes
Are there standardised (non28) individual) connection

charges?
No
No
Yes
No
Yes
No
not defined
Household
20-40 (2008
and 2009); nonhousehold 200400 (2008
and 2009)
27)
What are the levels of the

standardised connection
29) charges for different customer
groups in in 2007, 2008 and
2009?

household
650household,
850 (2009);
commercial,
commercial 750- industrial, distric
1000 (2009)
heat
May 2010
Page149
Question
Moldova
Serbia
Slovenia
Turkey
No
Yes
Yes
Yes
Yes
Is there a standard procedure

for network connection?
Yes
Yes
Yes
Yes
Yes
Are there standardised (non28) individual) connection

charges?
Yes
Yes
No
Yes
No
Do different distribution tariffs

26) apply for different distribution
system operators?
27)
What are the levels of the

standardised connection
29) charges for different customer
groups in in 2007, 2008 and
2009?
Households 170
(2008 and
2009)

UNMIK
Ukraine
Non-elibile: 180 $
(2007, 2008,
2009);
Commercial: Cost
+10%
May 2010
Page150
Question
What cost
components are
30)
included in the
connection charge?
Albania
Austria
Bosnia and
Herzegovina
(Republika
Srbska)
Main cost
components
included in
connection charge
are: energy
The setting up
connection
of the
conditions,
connection to
engineering project
the distribution
costs, power
network
consent issuance,
construction work,
mounting work,
material,
connection fee, etc.

Bosnia and
Herzegovina
(Federeation of
BiH)
For household and

commercial customers:
engineering project
costs, approval,
construction work,
mounting work, material
For industrial and district
heat: energy connection
conditions, engineering
project costs, approval,
construction work,
mounting work, material
Croatia
n/a
Georgia
FYR of
Macedonia
Charge for
connection assets
main-tenance and
operation; Gross connection asset value,
based on the value of
Modern Equi-valent
Assets (MEA); Life
span of con-nection
assets in compliance
with the stipu-lated
physical
minimum annual
connection and
depre-ciation rate;
montage
Weighted average
cost of capital, for the
natural gas
distribution company;
Net asset value, based
on the value of
Modern Equivalent
Assets (MEA); Costs
for connection assets
operation and
maintenance;
May 2010
Page151
Question
What cost components are

30) included in the connection
charge?
Moldova
Serbia
Slovenia
Turkey
UNMIK
Ukraine
1) Costs of design
preparation and of
gathering required
documentation
2) Costs of
purchasing devices,
equipment, and
material
3) Costs of works 1) construction of
costs of work,
4) Costs of
a connecting
materials, fuel
specialists and
pipeline
2)
connection tariffs
used for
operational works install the main
are not cost based
transport, energy required to connect
pipe prison
used
a facility to the
3) measuring
system
device
5) Part of system
costs incurred as a
prerequisite for
connecting a
facility to the
distribution or
transmission
network

May 2010
Page152
Question
Albania
Do these connection costs refer

to the connection assets only or
31)
also to assets / investments
deeper in the network?
32) End-user tariffs consist of a
End-user tariffs vary for

33)
different

Austria
Yes
Bosnia and
Bosnia and
Srbska)
of BiH)
Yes
Yes
demand dependent demand dependent

charge; energy
charge; energy
dependent charge; dependent charge;
fixed customer
fixed customer
dependent charge dependent charge
Type of
customers;
Geographical
areas
Croatia
Consumption
levels;
Types of
customers
Georgia
FYR of
Macedonia
No
Yes
demand
dependent
charge; fixed
customer
dependent
charge
Geographical
areas
demand
dependent charge;
fixed customer
dependent charge
Types of
customers
No
May 2010
Page153
Question
Moldova
Serbia
Slovenia
Turkey
Yes
Yes
Yes
No
Do these connection costs refer

to the connection assets only or
31)
also to assets / investments
deeper in the network?
32) End-user tariffs consist of a
33)
End-user tariffs vary for

different
fixed customer
dependent
charge
Types of
customers

Consumption
levels
Ukraine
energy
dependent
charge
(households
and religious
organisations
(except
amounts used
for commercial
and industrial
activities));
fixed customer
dependent
charge
demand dependent
energy dependent
charge; energy
charge; fixed
dependent charge;
customer
fixed customer
dependent charge
dependent charge
Types of customers
UNMIK
Consumption
levels;
Types of
customers;
Geographical areas
Consumption
levels; Types of
customers
May 2010
Page154
Question
Albania

34) cost base of the end-user
tariffs?

Austria
Bosnia and
Bosnia and
Srbska)
of BiH)
Cost of energy
purchase;
Operational
expenditure of the
end-user supply
business; Return
on assets of the
end-user supply
business; Profit
margin;
Depreciation of
assets of the enduser supply
business; Taxes
(excluding VAT);
Cost of energy to
cover technical
network losses
Cost of energy
purchase;
Operational
expenditure of the
end-user supply
business; Return
on assets of the
end-user supply
business; Profit
margin;
Depreciation of
business; Taxes
(excluding VAT);
Cost of energy to
cover technical
network losses
Croatia
Georgia
Cost of energy Cost of energy

purchase;
purchase;
Operational
Operational
expenditure of expenditure of
the end-user
the end-user
supply
supply business;
Return on assets business; Profit
margin;
of the end-user
supply business; Depreciation of
assets of the
Profit margin;
Depreciation of end-user supply
assets of the endbusiness; Taxes
user supply
(excluding
business; Cost of VAT); Cost of
energy to cover energy to cover
commercial
commercial
losses
losses
FYR of
Macedonia
Cost of energy
purchase;
Operational
expenditure of the
end-user supply
business; Return
on assets of the
end-user supply
business;
Depreciation of
business; Cost of
energy to cover
commercial losses
May 2010
Page155
Question
Moldova
Cost of energy
purchase;
Operational
expenditure of
the end-user
supply business;
Return on assets
of the end-user
What costs are included in the supply business;
Profit margin;
34) cost base of the end-user
Depreciation of
tariffs?
business; Taxes
(excluding
VAT); Cost of
energy to cover
technical
network losses

Serbia
Slovenia
Cost of energy
purchase;
Cost of energy
Operational
purchase;
expenditure of the
Operational
end-user supply
expenditure of the
business; Return
end-user supply
on assets of the
business; Profit
end-user supply
margin;
business; Profit
Depreciation of
margin;
assets of the endDepreciation of
user supply
assets of the endbusiness; Taxes
user supply
(excluding VAT)
business; Taxes
(excluding VAT)
Turkey
Cost of energy
purchase;
Operational
expenditure of the
end-user supply
business; Return
on assets of the
end-user supply
business;
Depreciation of
business; Taxes
(excluding VAT);
Cost of energy to
cover technical
network losses
UNMIK
Ukraine
Cost of energy
purchase;
Operational
expenditure of
the end-user
supply
business; Profit
margin;
Depreciation of
assets of the
end-user supply
business; Taxes
(excluding
VAT); Cost of
energy to cover
technical
network losses;
Finacial Costs
(excluding
costs of a
qualifying
asset)
May 2010
Page156
Question
Albania
Please indicate the percentage

of the commodity price, the
transmission and distribution
35)
charges, and the end-user
supply cost in the end-user
price.

process?

Austria
Bosnia and
Bosnia and
Srbska)
of BiH)
Croatia
Georgia
Commodity
share of single
71%,
tariff D&S in the
Transmission
Commodity
end user price is 9%, Distribution
56%,
10.3%
14%, End-user
Commodity 77%,
Transmission
(household),
supply 4%,
Distribution 17%,
3.2%,
31.6%
Natural gas
End-user supply
Distribution
(commercial),
storage
6%
37.3%, End11.9% (district
(included in
user supply
heat), 30.7%
wholesale
3.5%
(industrial), 19.3% supply price
(large)
together with
commodity) 2%
No
No
No
No
FYR of
Macedonia
Commodity
74.17%,
Transmission
10.57%,
Distribution and
End-user supply
16.21%, price for
supplying the
tariff consumers
which are
connected on the
system for
transport of
natural gas 0.04%
No
May 2010
Page157
Question
Please indicate the percentage
of the commodity price, the
transmission and distribution
35)
charges, and the end-user
supply cost in the end-user
price.
Moldova
Serbia
Commodity
92.1%%,
Commodity 88.2%,
Transmission
Transmission
0.7%,
3.7%, Distribution
Distribution
5.6%, End-user
4.0%,
supply 2.5%
End-user supply
3.3%

process?

No
No
Slovenia
Turkey
Commodity 50%,
Transmission 6%,
Distribution 20%,
Taxes and VAT
24%
Yes
UNMIK
Ukraine
see details in
the main part of
the report
No
Yes
May 2010
Page158
Question
Albania
Would you shortly describe the

major principles of cost
37)
allocation to calculate end-user
tariffs?

Austria
Bosnia and
Bosnia and
Srbska)
of BiH)
Commodity and
transmission costs
(equal for all
End-user supply
categories) are
cost are allocated
added to D&S
to energy
tariffs. There exist
dependent charge
certain cross
subsidies among
different customer
groups.
Croatia
Georgia
Methodology
used for
establishing
tariff items of
Tariff system
based on
justifiable
business
expenses,
maintenance
expenses,
replacement,
facility
according to
construction or pressure levels
reconstruc- tion
and
environmental
protection, including reasonable deadline for
recovery of
funds in-vested
in fa-cilities and
equipment
required for
provision
FYR of
Macedonia
The operational
costs, pursuant
with the
methodology,
shall mean costs
for the operation
and maintenance
of the company
regulated activity,
in accordance
with the technical
standards
applicable in the
Republic of
Macedonia and
which reflect
standardised costs
for providing the
regulated activity
May 2010
Page159
Question
Moldova
1) real costs for

distribution and
delivery of gas to
customers or other
distributors
2) covering costs,
necessary to carry out
under normal
conditions of
Would you
regulated activities
shortly describe
3) covering costs for
the major
assuring gas safety
37) principles of
and environmental
cost allocation
protection
to calculate end4) carry out an
user tariffs?
efficient and profitable
activity allowing
possibilities to recover
the justified and
proven investments in
development,
rehabilitation and
extension of natural
gas networks

Serbia
Maximally allowed
revenue, allotted on
tariff elements
("energy",
"capacity" and
"charge per
delivery point") in
tariff systems has
been allocated on
the tariff buyers
(the group of tariff
buyers) according
to their
consumption
(quantity, capacity
and connection
point)
Slovenia
Turkey
UNMIK
Ukraine
Commodity,
Transmission;
Distribution; Enduser supply; Target
premium; VAT
May 2010
Page160
Question
Albania
Are there any automatic

38) adjustment provisions for enduser tariffs?
Austria
Bosnia and
Bosnia and
of BiH)
Srbska)
yes, any change of
yes, more/less 5% commodity and
of the gas
transmission part
procurement price is automatically
(commodity)
reflected in enduser tariffs
Croatia
No
Georgia
FYR of
Macedonia
No
change in the
import price of
natural gas
(quartly)
Please indicate the average

regulated and non-regulated
end-user tariff levels without
taxes for household customers
39) in /Joule following the new
Eurostat tariff methodology.
annual consumption = 20 GJ <
Consumption < 200 GJ)
see details in the

main part of the
report
see details in the see details in the see details in

main part of the main part of the the main part of
report
report
the report
Please indicate the average enduser tariff levels without taxes

for industrial customers in
/Joule following the new
40) Eurostat tariff methodology.
annual consumption = 10 000
GJ < consumption < 100 000
GJ)
see details in the

main part of the
report
see details in the see details in

main part of the the main part of
report
the report

May 2010
Page161
Question
Moldova
Are there any automatic

38) adjustment provisions for enduser tariffs?
No
Serbia
Slovenia
yes, change in the

price of imported Yes, depending on
natural gas, in
prices in the
dinars, of more
wholesale market
than 3%
Turkey
No
UNMIK
Ukraine
No
Please indicate the average

regulated and non-regulated
end-user tariff levels without
taxes for household customers
39) in /Joule following the new
Eurostat tariff methodology.
annual consumption = 20 GJ <
Consumption < 200 GJ)
see details in the

main part of the
report
see details in the

main part of the
report
see details in
the main part of
the report
Please indicate the average enduser tariff levels without taxes

for industrial customers in
/Joule following the new
40) Eurostat tariff methodology.
annual consumption = 10 000
GJ < consumption < 100 000
GJ)
see details in the

main part of the
report
see details in the

main part of the
report
see details in
the main part of
the report

May 2010
Page162
Question
Albania
Austria
Bosnia and
Bosnia and
Srbska)
of BiH)
What customer classes (user

categories) with which
41)
consumption levels are used
for end-user tariffs?
All customers
are free to
choose their
supplier
household,
household,
commercial,
commercial,
industrial, district industrial, district
heating, large
heating
(above 5 million
(consumption
Sm3)
level not defined)
Are customers free to choose

42)
their gas supplier?
All customers
since 2002
Only large and

medium industrial
and commercial
customers
a) If customers are free to

43) choose, since which year are
they allowed to do so?

Large industrial
customers since
1.1.2008;
household
customers will be
eligible on
1.1.2015
No
Croatia
Georgia
FYR of
Macedonia
households
household (low
pressure 11725009; nonhousehold (low
pressure 5025000;
medium
pressure 10050000; high
pressure 30150000)
only 2 industrial
consumers, there
are no households
connected to the
distribution
network
All customers
are free to
choose their
supplier
All customers
are free to
choose their
supplier
No
Large industrial
customers since
1.8.2007;
Household
Large industrial
customers since
customers since
1.8.2008; In
2008
2009 100% of
customers
eligible (but no
switching yet)
May 2010
Page163
Question
What customer classes (user
categories) with which
41)
consumption levels are used
for end-user tariffs?
42)
Are customers free to choose

their gas supplier?
a) If customers are free to

43) choose, since which year are
they allowed to do so?
Moldova
Serbia
n/a
Households, other
buyers, district
heating systems,
uniform
consumption,
uneven
consumption
4 household
categories:
2500 m
2500-6000 m
6000-12000m
> 12000 m
Medium industrial
all customers
and commercial
except households All customers are
customers with an
consuming less
free to choose
annual supply of
than 50,000
their supplier
800,00 m/year or
m/year
more
All customers
are free to
choose their
supplier except
households,
religious
organisations
and budget
institutions
All customers
are free to
choose their
supplier
Large industrial
Large industrial customers since
and household 2008; The eligible
customers since consumption in
1998
m/year in 2009 is
50000 m/year

Slovenia
Large industrial
customers since
1.7.2004;
Household
customers since
1.7.2007
Turkey
UNMIK
Ukraine
eligible
consumption in
m/year in 2009 is
1,000,000
May 2010
Page164
Question
Albania
Austria
Bosnia and
Herzegovina
(Republika
Srbska)
b) If customers are
not free to choose,
are there any plans,
from when onwards
will they be allowed
to do so?
If some or all endusers are eligible to

switch their supplier,
do tariffs of eligible
44)
customers that do not
switch their supplier
continue to be
regulated?
Do you currently
45) regulate quality of
supply?

Bosnia and
Herzegovina
(Federeation of
BiH)
Croatia
Georgia
According to
Energy Law,
different
consumers can
change sup-plier.
Until now only
one supplier in
Republic of
Macedonia. From
be-ginning of
2008 market open
for consumers
connected to
transmission
(industry and
district heating).
For consumers
connected to
distribution full
market open by
beginning of 2015.
No date for an opening

of retail markets exists
No
Technical quality
(gas quality and
pressure)
FYR of
Macedonia
Yes
Yes
Gas safety;
Gas safety;
Reliability;
Gas safety; Reliability;
Reliability;
Technical quality
Technical quality (gas
Technical quality
(gas quality and
quality and pressure);
(gas quality and
pressure);
Commercial quality
pressure);
Commercial
Commercial quality
quality
Yes
Technical quality
(gas quality and
pressure)
May 2010
Page165
Question
Moldova
b) If customers are not free to

choose, are there any plans,
from when onwards will they
be allowed to do so?
Slovenia
Yes
Do you currently regulate

quality of supply?
Gas safety;
Technical
quality (gas
quality and
pressure);
Commercial
quality

Yes
Turkey
UNMIK
Ukraine
no date for an
opening of retail
markets
Households from
2015
If some or all end-users are

eligible to switch their
supplier, do tariffs of eligible
44)
customers that do not switch
their supplier continue to be
regulated?
45)
Serbia
No
Gas safety;
Reliability;
Technical quality
(gas quality and
pressure)
No
Yes
Gas safety;
Reliability;
Technical
quality (gas
quality and
pressure)
May 2010
Page166
Question
46)
Albania
How do you regulate quality of

supply?

Austria
Bosnia and
Bosnia and
Srbska)
of BiH)
Technical quality
(standards /
norms)
Gas safety;
Reliability;
Technical quality
(standards /
norms);
Commercial
quality
(performance
publication)
Croatia
Georgia
Gas safety;
Reliability;
Technical
quality;
Commercial
quality
(secondary
legislation)
According to
Energy Law,
ERC obligation
to regulate
quality of
service. The
Rulebook for
regulation of
quality of
services for
natural gas is
planned by
ERC for the
end of 2010.
Network code
for transport of
natural gas, in
this moment
only regulates
the technical
quality of
natural gas
FYR of
Macedonia
May 2010
Page167
46)
Question
Moldova
How do you regulate quality of

supply?
Gas safety;
Technical
quality;
Commercial
quality
(standards /
norms)

Serbia
Slovenia
Gas safety;
Reliability;
Gas safety;
Technical quality
Technical quality
(standards/norms
(standards / norms)
+ performance
publication)
Turkey
UNMIK
Ukraine
Gas safety;
Reliability;
Technical
quality
(standards /
norms +
performance
publication)
May 2010
Page168
Question
Albania
Does the regulation on quality

of supply have an impact on
47) the financial position (e.g. by
using penalties and rewards) of
the companies?
a) Does the regulation of

48) commercial quality include the
following indicators?
b) If yes, is this information

made publicly available

Austria
Bosnia and
Bosnia and
Srbska)
of BiH)
No
Croatia
No
No
customer
satisfaction,
customer
complaint rates,
the average time of
companies to
answer to
emergency calls,
the average time of
companies to
answer customer
enquiries, the
average time for
advance
notification of
planned
interruptions, the
accuracy of bills,
the availability of
customer service
centres
Quality of gas
supply,
including quality
of service,
reliability of
delivery and
quality of gas is
prescribed by
General
Conditions on
Natural Gas
Supply, Network
Rules for the
Transmission
System and
Network Rules
For The Gas
Distribution
System.
yes
no
Georgia
FYR of
Macedonia
All of above
mentioned
indicators which
are included in
the Commercial
quality will be
described in the
Rulebook for
regulation of
quality of services
for natural gas
May 2010
Page169
Question
Moldova
Does the regulation on quality

of supply have an impact on
47) the financial position (e.g. by
using penalties and rewards) of
the companies?
Yes
Customer
complaint rates;
The average
time of
companies to
answer customer
enquiries; The
average time for
48) commercial quality include the
advance
notification of
planned
interruptions;
The accuracy of
bills; The
availability of
customer service
centres

Serbia
Yes
Slovenia
No
The accuracy of
bills
Turkey
UNMIK
Ukraine
Yes
Customer
satisfaction;
The average
time of
companies to
answer to
emergency
calls; The
average time
for advance
notification of
planned
interruptions;
The accuracy of
bills
Yes
May 2010
Page170
Question
Albania
a) Does the regulation of gas

49) safety include the following
indicators?


Austria
Bosnia and
Bosnia and
Srbska)
of BiH)
Croatia
total number of
incidents; number
of third party
damage incidents;
number of
ruptures, spills,
leaks and releases;
number of
fatalities; natural
gas and methane
emissions from
pipelines;
frequency of
pipeline
inspections
Quality of gas
supply,
including quality
of service,
reliability of
delivery and
quality of gas is
prescribed by
General
Conditions on
Natural Gas
Supply, Network
Rules for the
Transmission
System and
Network Rules
For The Gas
Distribution
System.
yes
no
Georgia
FYR of
Macedonia
All of above
mentioned
indicators which
are included in
the gas safety
quality will be
described in the
Rulebook for
regulation of
quality of services
for natural gas
May 2010
Page171
Question

49) safety include the following
indicators?

Moldova
Serbia
Slovenia
Total number of
incidents;
Number of
ruptures, spills,
leaks and
releases;
Number of
fatalities;
Natural gas and
methane
emissions from
pipelines;
Frequency of
pipeline
inspections
No

Turkey
UNMIK
Ukraine
Frequency of
pipeline
inspections
No
Yes
May 2010
Page172
Question
Albania
Austria
Bosnia and
Bosnia and
of BiH)
Srbska)

50) reliability include the
Moldova
number of
unplanned
interruptions per
customer / year;
average duration
of interruptions
yes
no

Slovenia
Turkey
UNMIK
FYR of
Macedonia
All of above
mentioned
indicators which
are included in
the reliability will
be described in
the Rulebook for
regulation of
quality of services
for natural gas
Ukraine
Number of
planned
interruptions
per customer /
year; Number
of unplanned
interruptions
per customer /
year

50) reliability include the

Serbia
Georgia
number of planned
interruptions per
customer / year;
number of
unplanned
interruptions per
customer / year;
average duration
of interruptions;
average number of
customer minutes
lost per
interruption

Question
Croatia
No
Yes
May 2010
Page173
Question
Albania

quality (technical quality)
51)
include the following
indicators?


Austria
Bosnia and
Bosnia and
of BiH)
Srbska)
Croatia
Wobbe Index;
Heating or
Wobbe Index;
Caloric Value;
Heating or Caloric
Specific Gravity
Value; Specific
Heating or Caloric
/ Relative
Gravity / Relative
Value;
Density;
Density; CARI;
Odorisation levels
Odorisation
Odorisation levels;
levels; Chemical
Chemical
properties
properties
(secondary
legislation)
yes (Heating or
Caloric Value only
information
available upon a
request)
no
Georgia
FYR of
Macedonia
All of above
mentioned
indicators which
are included in
the gas quality
will be described
in the Rulebook
for regulation of
quality of services
for natural gas.
According the
Network code for
transport of
natural gas, in this
moment only is
regulated some of
indicators which
are included in
the technical
quality of natural
gas.
Yes
May 2010
Page174
Question

quality (technical quality)
51)
include the following
indicators?
Moldova
Serbia
Slovenia
Turkey
UNMIK
Ukraine
Wobbe Index;
Heating or
Caloric Value;
Specific Gravity
/ Relative
Density; CARI;
Odorisation
levels; Chemical
properties
Heating or
Caloric Value;
Odorisation
levels;
Chemical
properties
Yes
Yes


May 2010
Page175
Question
Albania
What is the average time for

the connection of a new
customer (from the point of
52) time connection is requested
by the customer to the point of
time when natural gas is

Austria
Bosnia and
Bosnia and
Srbska)
of BiH)
Croatia
The average
time for the
connection of a
new customer on
gas transmission
system is 49
The average
time for the
The average time The average time days and average
time for the
connection of a for the connection for the connection
new customer is of a new customer of a new customer connection to
the gas
approximately 1is 30 days
is 60 days
distribution
3 months
system is 14
days (average
for all 38
DSOs) (data for
2008).
Georgia
FYR of
Macedonia
In order to
connect to the
System, the
energy subject
must address
request to
Transporter
pertaining to
issuance of an
approval for
connection at the
gas pipeline
network. Within
period of 30 days
from date of
submission of
request referring
to connection to
System,
Transporter shall
inform applicant
in writing by
issuing an
adequate solution
May 2010
Page176
Question
Moldova
What is the average time for

the connection of a new
The average
customer (from the point of
time for the
52) time connection is requested
connection of a
by the customer to the point of new customer is
time when natural gas is
4 days

Serbia
Slovenia
Turkey
UNMIK
Ukraine
The average time The average time

for the connection for the connection
of a new customer of a new customer
is 8 days
is 30 days
May 2010
Page177
Question
Albania
Austria
Bosnia and
Bosnia and
Srbska)
of BiH)
What is the average time until

an unscheduled interruption is
fixed (from the point of time
53) the interruption is detected to
the point of time when natural
gas is delivered to the customer
again)?
The average
time for fixing
an unscheduled
interruption is
not defined
no relevant data
a) Are gas distributors required

to provide advance information
54)
on planned interruptions
(maintenance work)?
Yes
Yes

Croatia
Georgia
FYR of
Macedonia
The average
time for fixing
an unscheduled
The average time interruption is
for fixing an
18,5 hours in gas
unscheduled
transmission
interruption is 4 system and 8,2
hours
hours in
distribution
systems (data for
2008).
Yes
Yes
May 2010
Page178
Question
Moldova
What is the average time until

an unscheduled interruption is
fixed (from the point of time
53) the interruption is detected to
the point of time when natural
gas is delivered to the customer
again)?
n/a
a) Are gas distributors required

to provide advance information
54)
on planned interruptions
(maintenance work)?
Yes

Serbia
Slovenia
Turkey
UNMIK
Ukraine
The average time

for fixing an
unscheduled
interruption is
4.11 hours
Yes
Yes
Yes
Yes
May 2010
Page179
Question
Albania
Croatia
On average
On average
On average
information on
information on
information on
interruption is
interruption is
interruption is
provided at least
provided
provided minimum
5 days in
minimum 1 days
1 days in advance
advance
in advance
b) If yes, on average how many

days in advance is this
information provided to
customers?
Question
Austria
Bosnia and
Bosnia and
of BiH)
Srbska)
Moldova
Serbia
Slovenia
Turkey
On average
On average
On average
On average
b) If yes, on average how many
information on
information on
information on
information on
days in advance is this
interruption is
interruption is
interruption is
interruption is
information provided to
provided 3 days provided at least provided 7 days in provided 3 days in
customers?
advance
advance
in advance
one day in advance

Georgia
FYR of
Macedonia
legislation does
not consider
this issue
With the Grid

Code for
distribution of
natural gas this
issue will be
explained
UNMIK
Ukraine
On average
information on
interruption is
provided 5 days
in advance
May 2010
Page180
Question
Albania
Are there any

specific measures in
your country to
55)
increase gasification
(if yes, please
indicate)?
Question
Are there any specific
measures in your country to
55)
increase gasification (if yes,
please indicate)?
Austria
Bosnia and
Herzegovina
(Republika
Srbska)
No
Moldova
Yes, the
Government
Plan on
Gasification

No
Bosnia and
Herzegovina
(Federeation
of BiH)
Croatia
Georgia
FYR of
Macedonia
Yes, there are

obligations for
TSO and DSO's to
adopt development
plans that are
approved by the
Ministry with an
Yes, further
opinion from the
gasification of
Regulator. Also,
regions currently
Energy Strategy of
without gas supply
Republic of Croatia
emphasizes an
importance of
further gasification
of the rest of the
regions through
different schemes.
Serbia
Slovenia
Turkey
No
Yes, advertising of
natural gas,
optional gas
network sites
No
UNMIK
Ukraine
May 2010
Page181
Question
In the context of
energy, what
customers are
56) considered as
vulnerable in the
legislative
framework?
Albania
Austria
Bosnia and
Herzegovina
(Republika
Srbska)
Bosnia and
Herzegovina
(Federeation of
BiH)
Sarajevo Canton
definition includes the
following categories:
1) households whose
total revenue per
In Austria
member of the
customers are
household does not
protected via the
exceed 36
general social
2) single member
system. In addition
pensioner less than 85,
to the general
support mechanisms No customers are two member pensioner
household with revenue
considered as
there is a heating
less than 113
vulnerable
allowance for
3) households in which
customers
people in need.
one or more persons
There are no
benefits from assistance
specific measures
and care of other people
within the energy
who are deaf and whose
system for
income is less than 62
vulnerable
4) households where one
customers.
of members are 100%
disabled regardless of
the income per family
member

Croatia
Georgia
FYR of
Macedonia
Definition of
vulnerable
customers is not
covered by energy
legislative
framework. Lowincome and
vulnerable
customers rights
are covered by
social welfare and
social security
legislation.
There are no
specific
mechanisms
In our legislation
we haven't
vulnerable
customers for
natural gas
May 2010
Page182
Question
Moldova
Serbia
Slovenia
(Regulation on the
functioning of the
natural gas market)
Natural gas supply
to consumers as
they supply of
handicapped persons
In the gas sector natural gas in (time
In the context of from birth, disabled
there is no
of year,
energy, what
workers, disabled
definition of
temperature
customers are
veterans, single
vulnerable
conditions,
56) considered as
pensioners, families,
customers and
housing, financial
vulnerable in the
having 4 or more
there is no support situation ...) not fall
legislative
children, military
schema for such
below the amount
framework?
personnel, policemen,
kind of customers that is absolutely
....
necessary that are
not threatened the
life and health of
the consumer or
persons who live
with him

Turkey
There is no
definition in the
natural gas
legislation for
vulnerable
customers
UNMIK
Ukraine
The term "vulnerable
customers" is not
defined by legislation in
Ukraine. However, the
State within the general
social protection system
provides benefits for
some categories of
housholds in terms of
payments for natural
gas and provides
subsisdies to reimburse
costs of housing and
communal services that
allows households of
natural gas to pay
natural gas supply
services at a lower
price. The stae policy in
the sphere of social
protection is realizing
by the Ministry of
Labour and Social
Policy of Ukraine
May 2010
Page183
Question
Albania
Austria
Are there any supporting

57) mechanisms for vulnerable
customers?
58)
a) Do specific tariffs apply for

vulnerable customers?
Bosnia and
Bosnia and
Srbska)
of BiH)
There are no
specific
mechanisms
No
No
Croatia
In Sarajevo Canton
there is social
allowance during 5
winter months
(26). Funds are
from cantonal
government
budget. If
allowance is used
Cash subsidies
for electricity,
district heating or
gas, the amount is
credited to the
designated invoice.
Otherwise, the
allowance is paid
to the vulnerable
customer in cash.
No
No
Georgia
FYR of
Macedonia
No
There are no
specific
mechanisms
No
b) If yes, would you describe

the nature of the tariffs?

May 2010
Page184
Question
Moldova
Serbia
Slovenia
Cash subsidies
There are no
specific
mechanisms
Energy costs are

included in the
social security
schemes
Cash subsidies
a) Do specific tariffs apply for

vulnerable customers?
No
No
No
No
b) If yes, would you describe

the nature of the tariffs?
n/a
Are there any supporting

57) mechanisms for vulnerable
customers?
58)

Turkey
UNMIK
Ukraine
May 2010
Page185
Question
Albania
Are there special provisions in

winter months that customers
59)
that use gas for heating can not
be disconnected?
Austria
Bosnia and
Bosnia and
Srbska)
of BiH)
No
No
No
What is the average frequency

of meter readings?
yearly
monthly
monthly
What is the average invoicing

61) period (frequency of bills send
out to customers)?
yearly
monthly
monthly
What is the collection rate (i.e.

62) the percentage of customers
that pay their invoices)?
The payment
rate is not
available
no relevant data
98%
60)

Croatia
Georgia
No
monthly
FYR of
Macedonia
No
monthly
monthly
monthly
monthly
70%
May 2010
Page186
Question
Moldova
Are there special provisions in

winter months that customers
59)
that use gas for heating can not
be disconnected?
60)
What is the average frequency

of meter readings?
Serbia
No
monthly
No
Slovenia
Turkey
UNMIK
Ukraine
Yes
Yes
monthly, yearly
monthly
What is the average invoicing

61) period (frequency of bills send
out to customers)?
monthly
monthly
monthly
monthly (and
according to
contract)
What is the collection rate (i.e.

62) the percentage of customers
that pay their invoices)?
0.96
monthly
ca. 90%
92%

May 2010
Page187
Question
Albania
What happens if a vulnerable

63) customer cannot / does not pay
its bill?

Austria
Bosnia and
Bosnia and
of BiH)
Srbska)
First the
customers
receive one or
more reminders.
Often customers
A vulnerable
ask in this case
Customer has been
customer is
for payment by
disconnected from
disconnected from
instalments. If
the network
the network.
they do not pay
at all, the
customer can be
disconnected
after receiving a
special warning.
Croatia
Georgia
FYR of
Macedonia
will be
disconnected
May 2010
Page188
Question
What happens if a vulnerable

63) customer cannot / does not pay
its bill?
Moldova
will be
disconnected

Serbia
Slovenia
Vulnerable
customers wishing
to exercise the
right to supply,
upon receipt of the
notice of
disconnection in
fourteen days to
bring in the system
operator, the
network which is
connected, an
application for
recognition of this
right and submit
the necessary
proof. It is
considered that the
consumer meets
the condition of
the poor economic
situation, if the
recipient of
financial social
assistance.
Turkey
UNMIK
Ukraine
Disconnection
or agreement
for debt
restructuring
May 2010
Page189

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Study on Regulation of Tariffs and

Quality of the Gas Distribution

Service in the Energy Community

KEMA Consulting GmbH

This report was financed by the Energy Community.

Study on Regulation of Tariffs and Quality

KEMA Consulting GmbH, Kurt-Schumacher-Str. 8, D-53113 Bonn

Experience you can trust

Study on Regulation of Tariffs and Quality of the

Study on Regulation of Tariffs and Quality of the

Figure 1: Areas of Regulation Gas....................................................................................... 4

Study on Regulation of Tariffs and Quality of the

Table 1: Regulation of gas end-user prices in EU member states in 2008 ........................... 38

Study on Regulation of Tariffs and Quality of the

Study on Regulation of Tariffs and Quality of the

Study on Regulation of Tariffs and Quality of the

Theory of Gas Tariff Methodologies and Regulations

This section presents fundamental background information on tariff regulation and

Study on Regulation of Tariffs and Quality of the

The major regulatory objectives are to:

protect consumer interests and eliminate monopoly inefficiency

ensure financial viability of industry participants by allowing them to recover

Study on Regulation of Tariffs and Quality of the

Figure 1: Areas of Regulation Gas

Gas Transmission / System operation

Metering and Billing

Gas Production / Import

Several storages exist

A sufficient number of storage facilities are equally accessible5:

Technical access is possible

Storage and network capacities are available.

Study on Regulation of Tariffs and Quality of the

System Services and Ancillary Services

Ancillary services are those services procured by transmission system operators

Gas Transmission and Distribution

Study on Regulation of Tariffs and Quality of the

Gas Wholesale and Retail Supply

Access to gas pipelines, including both non-discriminatory access rules and

Existence of competitive (liquid) gas markets.

Study on Regulation of Tariffs and Quality of the

Metering and Billing

Reasons and Options for Unbundling

Study on Regulation of Tariffs and Quality of the

In order to promote transparency, to disentangle the interests of network operators

Accounting unbundling requires natural gas undertakings to keep separate accounts

Study on Regulation of Tariffs and Quality of the

and electricity transmission networks as the preferred regulatory regime of vertical

Rate of return regulation, referred to sometimes as cost plus regulation;

Cap regulation, referred to sometimes as RPI-X or incentive regulation.

Rate of Return Regulation

Study on Regulation of Tariffs and Quality of the

It provides little or no incentive to control costs, let alone reduce them.

It provides an incentive for the service provider to over-invest in capital

Study on Regulation of Tariffs and Quality of the

For the purpose of this report, we divide revenue caps into:

Study on Regulation of Tariffs and Quality of the

Ways of Setting the Caps

Price versus Revenue Caps

Rate of Return versus Cap Regulation

OPEXt + Depreciationt + RAt

required revenue (in year t)

operation and maintenance costs (in year t)

regulated depreciation (in year t)