Sasol Gas Transmission Tariff Application &
Maximum Prices Application for Piped Gas
PPC Energy Meeting 27 March 2013, Parliament, Cape Town
Ms Ethèl Teljeur Regulator Member Piped Gas
Ms Nomfundo Maseti, Executive Manager Piped Gas Division
1
Introduction
• NERSA regulates the piped-gas industry
•Natural/synthetic/compressed gas transported
via pipeline
•Not LPG in cylinders (Minister of Energy)
•A special regulatory agreement was entered into
between the Government of the Republic of South
Africa and Sasol ltd in September 2001
•Rights and obligations, first gas on 26 March 2004
•Special regulatory dispensation period up to 10 years
•Expires on 25 March 2014
2
Agreement Mozambican Gas Pipeline
• NERSA has regulated prices in terms of the
Agreement since 2005
•Maximum prices for various customer
categories
•Revenue cap on average gas prices
•But...
•... Constrained by the Agreement which allows
Sasol to price according to ‘Market Value
Pricing’
3
Agreement Mozambican Gas Pipeline
• NERSA has regulated prices in terms of the
Agreement since 2005
•Maximum prices for various customer
categories
•Revenue cap on average gas prices
•But...
•... Constrained by the Agreement which allows
Sasol to price according to ‘Market Value
Pricing’
4
Agreement Mozambican Gas Pipeline
• ‘Market Value Pricing’
•Pricing according to the customer’s alternative
fuel at the time of conversion
•Plus switching costs and opex differentials
•Unique system, not used elsewhere
•Allowed for perfect price discrimination
•Numerous complaints received
•Like customers given widely divergent prices,
even within same industry
5
Gas Act
• The Gas Act and the Regulations require a
fundamental price restructuring
• required by shift from Agreement to Gas Act wrt
pricing provisions in particular
• current MVP, which allowed price discrimination, is
not allowed ito the Gas Act
•Gas Act requires non-discrimination ito prices, tariffs
and other conditions
•Gas Act mandates NERSA to ‘approve maximum
prices for distributors, reticulators and all classes of
customers, where there is inadequate competition...’
6
Gas Act
• The Gas Act and the Regulations require a
fundamental price restructuring
•Removal of price discrimination means that prices for
some customers will go down or remain the same, and
go up for others
•In particular those (smaller) customers whose prices
were based on LPG face price reductions,
•... whereas some large customers whose prices were
related to coal, may face price increases
7
The Applications
• Sasol Gas Ltd has applied to NERSA for
approval of:– Maximum Gas Prices for the prescribed customer
categories for a multi-year period from 26 March
2014 to 30 June 2017
– Transmission tariffs for 26 March 2014 to 30 June
2015
NB
Price = charge for gas molecule, “Gas Energy price”
Tariff = charge for (network) service
8
Note: 25 March 2014 is the end of Sasol Gas’ Special Regulatory Dispensation
Legal Basis
• NERSA regulates the Piped-Gas industry in
terms of Gas Act, 2001 (Act No. 48 of 2001).
• Regulations issued by the Minister in terms of
Gas Act
• The Gas Act and the Regulations contain more
“light handed regulation” – fundamentally
different from e.g. Electricity regulation
• Not every element of the value chain is
regulated by NERSA as shown in the following
slide:-
9
Total charges build-up
Trading margin
Distribution
Transmission
Margin (R)
Tariff (U)
Tariff (R)
Price (R)
Max Gas Energy Price
10
Legal mandate
• The role of the Energy Regulator in regulation of
transmission tariffs
– Section 4(h) of the Gas Act provides that the Energy
Regulator must ‘monitor and approve and, if
necessary, regulate’ transmission and storage tariffs
• The role of the Energy Regulator in regulation of
maximum prices of gas
– Section 21(1)(p) of the Gas Act, prescribes that
the Energy Regulator, may impose licence
conditions…
11
Legal mandate
“…within the following framework of requirements
and limitations: ...
(p) maximum prices for distributors, reticulators and
all classes of consumers must be approved by the
Gas Regulator where there is inadequate
competition as contemplated in Chapters 2 and 3 of
the Competition Act, 1998”
12
Legal mandate
• Based on the legislative provisions NERSA
developed two sets of methodologies after
extensive consultation:
• Tariff Guidelines, 2009, appl. to infrastructure
•
Applicable to transmission and storage tariffs and comprising of
a flexible menu of 6 tariff methodologies
• Maximum Prices Methodology, 2011 for product
•
Applicable to the price for gas energy (molecule)
• And, on 8 February 2012, the Energy Regulator
determined ‘inadequate competition’ in gas
13
Transition from Agreement to Gas Act
• Price restructuring means price can go up/down
• However, the current application is for maximum
prices, not actual prices
– Regulations prescribe very wide category bands
– Non-discrimination does not mean one price, but
where costs of supply are equal, the prices must be
equal (so large customers pay less than small
customers in a particular category)
– S22 allows for price differentiation on objective factors
– It is therefore misleading to compare today’s actual
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prices with future maximum prices
Salient features
• Application complies with the appr. Methodology
– NERSA urged Sasol to apply early to assist industry
– Sasol applied on 23 December 2012
– The Gas Act requires immediate compliance, i.e. from 26
March 2014
– Hence a 12 month implementation period to provide
certainty and allow customers to negotiate, assess
implications/complain to NERSA when their actual price
is clear
• Maximum prices are not actual prices – so some
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statements of increases are premature
Sasol Gas Ltd Maximum Price of Gas Application
• Salient features
Element
Application
Methodology chosen
GE Price Indicators
Pricing period
26 March 2014 – 30 June 2017
NERSA calculation of maximum
price of GE (2013-2014) / GJ
R 117.69
NERSA forecast of maximum price R 120.55
of GE (2014-2015) / GJ
Sasol Gas application GE
maximum price (2014-15) / GJ
R 118
16
Sasol Gas Ltd Maximum Price of Gas Application
• Discounts by Customer classes
– NERSA accepted the discounts as provided by
Sasol
– Sasol discounts per customer class based on its
international study of comparable customer classes
17
Sasol Gas Ltd Maximum Price of Gas Application
• Distinguishing features
– Additional discount to traders (incl distributors and
reticulators) of 50% of the trading margin (R 4.11
and R 5.20)
– S22 transitional mechanism: phasing-in of increases
>15%
– Immediate implementation of price decreases as is
required by the legislation
18
What Sasol Applied for and NERSA approved
Gas Energy Price (GE) - R/GJ forecast
2014
Reductions %
Reduction (R/GJ)
Sasol GE (R/GJ) (26/3/2014)
NERSA approved (26/3/2013)
Class 1
Class 2
Class 3
Class 4
Class 5
40 001 400 001 - 4
400 000 GJ 000 000 GJ
p.a.
p.a.
Class 6
< 400 GJ
p.a.
401 - 4 000
GJ p.a.
4 001 - 40
000 GJ p.a.
128
128
128
128
128
128
7.5%
7.5%
15.0%
22.5%
30.0%
37.5%
9.6
9.6
19.2
28.8
38.4
48.0
R118
R118
R109
R99
R90
R80
R 108.86
R 108.86
R 100.04
R91.21
R 82.38
> 4 000 000
GJ p.a.
R 73.56
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Sasol Gas Trading Margin Application
Sasol Gas Trading Margin Calculation Summary (26 March 2014- 30 June 2015)
26 March ‘14 - 30 June '14
Trading Margin (R/GJ)
8.21
1 July '14 - 30 June '15
10.40
20
Impact on small customers
• Small volumes customers (class 1 to class 3)
– account for 5% (3.1 million GJ) of sales to external
customers
• Of Sasol Gas’s 524 total customers
– 345 (66%) are small volumes customers
21
Impact on small customers
Small Customers (classes 1 to 3) prices after
restructuring (assumptions NERSA)
Total
Total in %
% Vol
Customers that will/ may
face decreases
268
78.4%
60.4%
Customers that may face
increases
74
21.6%
39.6%
22
Impact on small customers
Small Customers: Sasol Price Restructuring Impact
R 250
R 200
R 150
R 100
R 50
1
10
19
28
37
46
55
64
73
82
91
100
109
118
127
136
145
154
163
172
181
190
199
208
217
226
235
244
253
262
271
280
289
298
307
316
325
334
343
R0
Number of customers
Gas Price R/GJ for the period April 2011 - March 2012
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Maximum Price in R/GJ for the Class
Impact on small customers
• 78% of the small customers may/will face
decreases as shown above.
• 22% may face increases, extent of which is
currently not known as the application is merely
for maximum prices
• Thereafter it will be a process of individual
customer price approvals
• It is expected that many actual prices will be far
below the maximum prices per category
24
Sasol Gas Maximum Price of Gas Application
Large Customers (classes 4 to 6) prices after full restructuring (if done at once 26 March 2014)
Total
Total in %
% Vol
Customers that may/will face decreases
66
53.7%
37.9%
Customers that may face increases
57
46.3%
62.1%
25
• Note assumption : the prices are all contained at below the maximum and <R100/GJ in all customer classes
NERSA also approved
• S22 (allowable discrimination) for a phased
approach to increases > 15%
– 15% on 26 March 2014
– Additional 15% in quarterly increments during 201415
– Additional 15% in quarterly increments during 20152017
– For increases > 45% Sasol Gas is to provide NERSA
with additional information and suggest an
appropriate phase in period subject to NERSA
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approval
The transmission tariff application
• Sasol’s transmission tariff applications were
made in terms of the approved Tariff Guidelines
– Approved in 2009 after an extensive public hearing
process
– Have been applied in the past:
• Transnet gas transmission pipeline
• Rompco tariff (>120 m GJ) and
• Transnet’s current multi year application for gas transmission
tariffs
27
The Tariff Guidelines
• Guidelines for monitoring and approving piped
gas transmission and storage tariffs
• Key provisions in the Guidelines:– Licensees choose a preferred methodology from
the menu of six provided in the Guidelines
– Licensee can also use its own, (not in the menu),
methodology so long as it is ‘proven and tested’
– Data sources are specified by NERSA
– NERSA tests the application using same
methodology as licensee in its application
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Sasol Gas Ltd Transmission Tariff Application
Element
Application
Methodology chosen
Cost of service (Rate of return)
Tariff period
26 March 2014 – 30 June 2015
Tariff structure approach
3 zones
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Jofane
Rumbacaca Temane
INHAMBANE
Vilanculos
Talofo
Muabsa
Componde
3 Tariff zones
Chigubo
Camo-Camo
GAZA
Mabuiapanse
Magandene
Meginge
MAGUDE
Guija
Mahele Chokwe
Motaze
Panjane
1
MOAMBA
Pretoria
2
Lyttelton
Middelburg
Babelegi
Rosslyn
GAUTENG
Randfontein
Lenasia
Vereeniging
Sasolburg
MPUMALANGA
Malelane
Nelspruit B
Barberton
Witbank
Carolina
Hendrina
MAPUTO
C Maputo
Badplaas
Breyten
Bethal
Secunda
Meyerton
Sabie
Ressano Garcia
Kemptonpark
Benoni
Springs
A
Nigel
E
Alberton
Komatipoort
Ermelo
Amsterdam
SWAZILAND
Standerton
Volksrust
New Castle
3*
1
Zone1
2
Zone 2
3
Zone 3
KWAZULU-NATAL
Empangeni
Richardsbay
Mandini
Phoenix
D
Verulam
Avoca
Durban
* Zone 3: Excludes the Transnet Lily Pipeline
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Sasol Gas Ltd Transmission Tariff Application
Tariff calculation summary per Zone - 01 July 2014 to 30 June 2014
Zone
1
Secunda-Gauteng
2
Witbank-Middelburg
3
KZN
NERSA Tariff
R/GJ
SASOL Tariff
R/GJ
Variance
%
4.74
5.09
+7%
13.22
14.20
+ 7%
5.22
5.61
+7%
Tariff calculation summary per Zone - 01 July 2014 to 30 June 2015
Zone
1
Secunda-Gauteng
2
Witbank-Middelburg
3
KZN
NERSA Tariff
R/GJ
SASOL Tariff
R/GJ
4.77
5.13
12.41
13.36
5.52
5.94
Variance
%
+7%
+7%
+7%
The variance of - 7% is within NERSA tolerance of +/-10%
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END
Thank You
Q&A
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