SA’s big piped-gas price restructuring comes under the spotlight

12th March 2013 By: Terence Creamer - Creamer Media Editor

The National Energy Regulator of South Africa (Nersa) hopes to finalise its decision on Sasol Gas’ application for a determination regarding maximum piped-gas prices that can be charged from March 26, 2014, before the end of the month, despite having extended the period for public comment and consultation.

A March decision would ensure regulatory certainty by allowing a full 12-month period for the industry to negotiate and implement the new dispensation, but depends on the inputs received during the consultation process.

Alternatively, the recommendations may be tabled at the next Energy Regulator meeting.

Regulator Member Ethèl Teljeur tells Engineering News Online that the process is essentially a price-restructuring exercise, precipitated by the fact that the existing pricing arrangement is due to expire towards the end of March next year.

The current arrangement was introduced as part of a special dispensation associated with the introduction of natural gas into South Africa from Mozambique in 2004. Under the dispensation, Sasol Gas based its pricing on the customer’s available alternative fuel source.

That led to a number of anomalies, including discriminatory pricing practices that are out of kilter with South Africa’s gas legislation, which stipulates nondiscriminatory pricing. Such discriminatory pricing led to significant price discrepancies between near-identical customers, ignoring geographic location, volume, load profile and other objective features and was at the basis of numerous customer complaints.

The Gas Act also states that the regulator should approve maximum prices in circumstances where inadequate competition prevails – a reality that persists, owing to Sasol Gas’ dominance as the supplier of natural and synthetic gas.

Teljeur says the aim, however, is not to set actual prices to be paid during the period, as these will be determined through subsequent contractual negotiations between Sasol Gas and its customers. Unlike the Electricity Regulation Act, in terms of which Nersa regulates electricity prices, the Gas Act does not give the regulator the power to set prices, but merely to approve maximum prices.

As a consequence, prices for individual customers may either remain at the current levels, rise in some instances and/or decrease on others, depending on how far current prices are removed from Nersa’s maximum prices, as Sasol Gas transitions to the nondiscriminatory pricing regime.

In the coming weeks, Nersa will adjudicate Sasol Gas’ application for maximum prices of piped-gas for six categories of consumers for the period from March 26, 2014, through to June 30, 2017. It will also approve a transmission tariff for piped-gas for the period March 26, 2014 to June 30, 2015.

Nersa requested Sasol Gas to make its submission a year in advance of the introduction of the new pricing regime in an effort to facilitate consultation and ensure there was sufficient time for the contractual negotiations to be concluded following the determination.

The company submitted its applications on December 24, 2012, and despite the fact that a second public hearing is set for March 20, Teljeur is hopeful that a decision will be made at the regulator’s upcoming meeting scheduled for March 26.

Should this prove impossible, a decision would be made at the April meeting, which would provide Sasol Gas and its customers just under a year to conclude their commercial arrangements.

Teljeur does not expect the transmission tariff proposals to be highly contested, but is fully aware that there are some concerns about Sasol Gas’ maximum-prices proposal.

The proposed maximum prices have been developed using weighted price indicators derived from various fuel alternatives, including coal, electricity, liquid petroleum gas, diesel and heavy fuel oil. It also includes a trading margin.

The formula is applied across six classes of consumers, with class one representing small consumers of between 1 GJ and 400 GJ a year and class six representing large users, consuming more than 4-million gigajoules yearly, with prices being updated quarterly.

In its application, Sasol Gas is proposing an initial rate of R118/GJ for class one and two consumers, R109/GJ for class three, R99/GJ for class four, R89/GJ for class five and R80/GJ for class six consumers.

Actual contract prices cannot exceed the maximum price threshold set for the various categories.

Teljeur says the decisions will be made in accordance with the Tariff Guidelines for Gas Transmission and Storage and the Methodology for Approving Maximum Prices for Piped-Gas, approved May 1, 2009, and October 28, 2011, respectively.

She says both methodologies were approved following extensive consultation with stakeholders initiated in 2008 with regard to the tariff guidelines and in 2010 with regard to the maximum prices methodology – the latter involved three consultation documents, nine stakeholder workshops and three public hearings.

The new methodology will provide regulatory certainty to all industry players and provide a level playing field, both between customers and between suppliers, and remove competitive disadvantages caused by unduly discriminatory prices that result from the current pricing regime.