On 1 October 2020, the Resolution of the National Commission for State Regulation of Energy and Public Utilities (the "NEURC", "Regulator") "On Amendments to the Gas Transmission System Code and the Gas Storages Code" No. 1779 dated 30 September 2020 ("Resolution") entered into force. The Resolution (i) postpones the implementation of a balancing neutrality payment in the Ukrainian gas market, which must be paid by the gas transmission system (GTS) operator to the customers of transmission services or levied from customers in favor of the GTS operator and (ii) prohibits the GTS operator from using its own gas from the gas storage facility to balance the system.
Balancing neutrality payment
The GTS Code lays down the principle of balancing neutrality, which means that the GTS operator should not receive financial benefits or suffer financial losses due to system balancing. In this regard, if the costs of the GTS operator exceed revenues, the balancing neutrality payment will be charged from the customers of transmission services, otherwise such a payment will be paid by the GTS operator to the customers.
The GTS Code provides for the following stages of implementation of the balance neutrality payment:
Stage I: 2019 - 2020, 2020 - 2021 gas years (from 1 March 2020). The GTS operator, by the 21st day of the month following the reporting month, publishes the calculation and value of the rate of the balancing neutrality payment for the month for an informative purpose without collection and payment.
Stage II: 2021 - 2022 gas years (from 1 October 2021). The GTS operator, by the 21st day of the month following the reporting month, publishes the calculation and the rate of the balancing neutrality payment for the month, but this payment is charged/paid for all months of the gas year once a year.
Stage III: 2022 - 2023 and subsequent gas years (from 1 October 2022). The GTS operator, by the 21st day of the month following the reporting month, provides customers with natural gas transmission services, an invoice to pay the balancing neutrality payment for the month, or the GTS operator, by the 25th day of the month following the reporting month, pays balancing neutrality payment for gas month.
However, according to the existing legislation, the costs of the GTS operator related to imbalances settlements can only be partially covered by the imbalance payment and the neutrality payment and may be borne by the customers of the transmission services who do the timely balancing. If the balancing neutrality payments are calculated according to this methodology, then unreasonably high payments are to be made.
The Resolution prolongs the Stage I for one year due to shortcomings in the calculations of the neutrality payment rate prepared by the GTS operator, discovered by NEURC based on the results of a detailed study and verification of the calculations published by the GTS operator at the first stage of implementation.
According to the Resolution, the Regulator can decide on the inefficiency of the expenses/incomes incurred due to the system balancing. In this case, the GTS operator is obliged to adjust the rate for neutrality balancing, taking into account the amount of ineffectively incurred expenses/income.
Changes related to gas storage
The GTS operator performs balancing actions solely in order to maintain the normal level of functioning of the GTS in the event that the customers of transmission services do not adhere to their confirmed nominations/renominations.
The existing mechanism for setting the rate for neutrality balancing includes the risk that the GTS operator is not prohibited from using its own gas from the storage facility to balance the system. Such actions are inconsistent with other provisions of the GTS Code and Commission Regulation (EU) No. 312/2014 of 26 March 2014 establishing a Network Code on Gas Balancing of Transmission Networks.
In this regard, the NEURC Resolution has approved that the GTS operator has the right to use the gas storage capacities (injection and withdrawal) in accordance with the terms of the gas storage (injection, withdrawal) agreement to cover production and technological losses and natural gas consumption in gas transmission systems. According the Resolution starting from 1 January 2021, the GTS operator is prohibited from using its own gas from the gas storage to balance the system.