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Decision No. 1/9 of the Board of the Public Utilities Commission

Adopted 27 March 2017

Methodology for Calculation of the Natural Gas Price for Captive Consumers

Issued pursuant to
Section 107, Paragraph three of the Energy Law and Section 9,
Paragraph one, Clause 2 and Section 25, Paragraph one
of the law On Regulators of Public Utilities

1. General Provisions

1. The methodology for calculation of the natural gas price for captive consumers (hereinafter - the Methodology) prescribes the procedures for the calculation and determination of the natural gas price for captive consumers.

2. The following terms are used in the Methodology:

2.1. natural gas price for captive consumers (hereinafter - the natural gas price) - the charge laid down in conformity with costs which are comprised of the charge for trade service and natural gas trade price, and in accordance with which a captive consumer settles accounts with a public trader;

2.2. estimated amount of natural gas trade - average amount of natural gas trade to captive consumers during three previous calendar years.

3. A public trader shall indicate all costs with a precision of 1 thousand euros [in thousands of EUR] and the amount of natural gas in kilowatt hours [kWh] rounded up to a whole number.

4. The natural gas trade price shall be determined for a period of six months (hereinafter - the determination period). The charge for the trade service shall be determined for a year.

2. Calculation of Costs for the Trade Service

5. In the calculation of costs for the trade service, a public trader shall precisely and unequivocally indicate only economically substantiated costs (hereinafter - the costs) which are related to provision of the trade service.

6. Costs of the trade service shall be comprised of customer service costs, invoice and payment processing costs. Total costs of the trade service shall be determined in accordance with the following formula:

Itirdz kopā = Itirdz + Ptirdz,

where

Itirdz = Ipers + Isaim + Inol + Inod,

where

I tirdz kopā - total costs of the trade service [EUR];

I tirdz - costs of the trade service [EUR];

Ptirdz - profitability of the turnover [EUR];

Ipers - staff and social costs [EUR];

Isaimn - other costs of economic activity[EUR];

Inol - depreciation of fixed assets and the write-off of the value of intangible investments [EUR];

Inod - taxes applicable to natural gas trade [EUR].

7. Staff and social costs (Ipers) shall be calculated in accordance with the Labour Law and laws and regulations regulating the field of social insurance.

8. Other costs of economic activity (Isaimn) are the costs related to the economic activity of the public trader which are necessary in order to ensure the provision of the trade service and are not recorded under other balance items of costs.

9. The depreciation of fixed assets and the write-off of the value of intangible investments shall be calculated according to the following formula:

Inol = Inol pam + Inol nem ,

where

Inol - depreciation of fixed assets and the write-off of the value of intangible investments [EUR];

Inol pam - the depreciation of fixed assets [EUR];

Inol nem - the write-off of the intangible investment origination costs [EUR].

10. Depreciation of fixed assets shall be calculated in accordance with the international accounting standards and the accounting policy adopted by the public trader.

11. If the fixed assets have not been fully used for the provision of the trade service, the calculated depreciation shall be adjusted in accordance with efficient use of the fixed assets.

12. The write-off of the intangible investment value shall be calculated for the research and development costs of the public trader, the costs arising from concessions, patents, licences, trademarks, and other intangible investments (except for the intangible value of the public trader) by taking into account the international accounting standards and the accounting policy adopted by the public trader.

13. The immovable property tax shall be calculated in accordance with the laws and regulations only for those assets which are being used for the provision of the trade service.

14. The corporate income tax shall be calculated in accordance with the laws and regulations.

15. Turnover profitability (Ptirdz) is calculated by multiplying fixed turnover profitability interest by total costs of the trade service (Itirdz). Fixed turnover profitability interest shall be determined as an average variable interest rate of short-term credits (euro) issued to non-financial corporations published by the Bank of Latvia for the last six months.

16. The public trader shall separate costs in the accounting system which are applicable to natural gas trade to captive consumers from other costs by submitting cost assignment model together with the calculation of the trade service.

3. Calculation of Charge for the Trade Service

17. Average charge for the trade service shall be calculated in accordance with the following formula:

Mtirdz = Itirdz kopā ,
Nab

where

Mtirdz - average charge for the trade service [EUR/per year];

Nab - total number of gasified objects of captive consumers.

18. The charge for the trade service may be determined in accordance with Paragraph 17 of this Methodology or differentiated in accordance with economically substantiated differentiation criteria laid down by the public trader.

19. The public trader shall, concurrently with the draft charge for the trade service, submit economic feasibility of differentiation criteria used for the draft charge for the trade service.

20. When applying differentiated charge for the trade service which is determined in accordance with the differentiation criteria laid down by the public trader, the estimated total revenue may not exceed the total costs of the trade service.

4. Determination of the Natural Gas Price

21. The natural gas price is comprised of the charge for the trade service and the natural gas trade price (hereinafter both together - the elements of the natural gas price).

22. When calculating the natural gas trade price in the determination period, the deviation of costs for actual purchase of natural gas shall be taken into account. The natural gas trade price in the determination period shall be calculated as follows:

Cn = Cdg × Qtirdz × Fk + Tkr × Nkr + ∑n Tpārv n × Npārv n + Inov + Kpārv ,
Qtirdz

where

Cn - the natural gas trade price in the determination period [EUR/kWh];

Cdg - the price of natural gas purchase in the determination period [EUR/kWh];

Qtirdz - the estimated amount of natural gas trade in the determination period [kWh];

Fk - the coefficient of financing costs of natural gas purchase;

Tkr - the tariff of natural gas storage service [EUR/kWh/storage facilities per cycle];

Nkr - reserved capacity of the natural gas storage facility for natural gas trade to captive consumers [kWh/storage facilities per cycle];

Tpārv n - the tariff of natural gas transmission system service approved for the capacity product n [EUR/kWh/per day/per year (per quarter, month, day, current day)];

Npārv n - reserved capacity of the natural gas transmission system for natural gas trade to captive consumers by using the n capacity product [kWh/ per day/per year (per quarter, month, day, current day)];

Inov - deviation of costs for actual purchase of natural gas of the previous determination period of the natural gas trade price from the planned natural gas purchase costs [EUR];

Kpārv - the payment for the use of the exit point for the supply of users in Latvia [EUR/kWh].

23. A public trader shall, concurrently with the draft natural gas trade price, submit economic feasibility for the coefficient of financing costs of natural gas purchase and storage and transmission system service used, by specifying what capacity products and in what amount they will be used by ensuring storage and transmission of natural gas for the needs of captive consumers.

5. Procedure for Determination of the Elements of the Natural Gas Price

5.1. Development of the Draft Elements of the Natural Gas Price and Submission Thereof

24. A public trader shall develop the draft charge for the trade service in accordance with this Methodology by determining revenue which are necessary for covering costs for the trade service.

25. Each year, by 1 September, the public trader shall submit to the Regulator the following items for evaluation:

25.1. the draft charge for the trade service with relevant costs for a period of 12 months, beginning from the day on which the application of the calculated charge has been planned, together with the justification of the relevant costs;

25.2. the information regarding revenue in the previous calendar year from the trade service and total actual costs of the public trader related to the provision of natural gas trade service to captive consumers.

26. The public trader shall develop the draft natural gas trade price in accordance with this Methodology, by determining income which is necessary for covering costs for natural gas purchase, natural gas transmission service and storage service.

27. Each year, by 1 May and 1 November, the public trader shall submit to the Regulator the following items for evaluation:

27.1. the draft natural gas trade price with relevant costs for a period of six months, beginning from the day on which the application of the calculated natural gas trade price has been planned, together with the justification of the relevant costs;

27.2. information regarding the revenue from natural gas trade to captive consumers estimated during the determination period of the natural gas trade price (by separately indicating revenue from the trade service), the actual deviation from natural gas purchase costs;

27.3. information regarding the revenue from natural gas trade to captive consumers during the previous six months (by separately indicating income from the trade service) and total actual costs of the public trader related to purchase of natural gas for captive consumers.

28. The public trader may submit a justified request to the Regulator to allow to determine the elements of the natural gas price and the natural gas price himself or herself in accordance with this Methodology.

5.2. Evaluation of the Draft Elements of Natural Gas Price

29. The Regulator shall evaluate the draft elements of the natural gas price within the deadlines laid down for the evaluation of tariffs in the law On Regulators of Public Utilities.

30. The Regulator shall approve or reject the elements of the natural gas price and the natural gas price by evaluating the justification of the costs on which they are based.

31. During the evaluation of the draft elements of the natural gas price, the public trader may submit corrections and supplements to the draft elements of the natural gas price.

32. If the Regulator has granted authorisation, the public trader shall, pursuant to Section 107, Paragraph three of the Energy Law, determine the elements of the natural gas price and the natural gas price himself or herself in accordance with this Methodology by taking into account the following procedures:

32.1. the public trader shall, not later than 30 days before the coming into effect of new elements of the natural gas price and the natural gas price, publish the elements of the natural gas price and the natural gas price in the official gazette Latvijas Vēstnesis and shall concurrently submit to the Regulator the elements of the natural gas price and the natural gas price, justification for the elements of the natural gas price and the natural gas price, the information regarding the actual costs of the previous period, and new estimated data of the elements of the natural gas price and the natural gas price, and other documents which justify the new calculation of the elements of the natural gas price and the natural gas price;

32.2. the Regulator shall, within 21 day after receipt of new elements of the natural gas price and the natural gas price, assess the conformity of new elements of the natural gas price and the natural gas price with this Methodology and economic feasibility of the submitted elements of the natural gas price and the natural gas price;

32.3. if within 21 day after receipt of the elements of the natural gas price and the natural gas price the Regulator has not taken the decision regarding non-conformity of the submitted elements of the natural gas price and the natural gas price with this Methodology or has not rejected the economic feasibility of the elements of the natural gas price and the natural gas price, then the elements of the natural gas price and the natural gas price shall come into effect within the time period laid down by the public trader;

32.4. if within 21 day after receipt of the elements of the natural gas price and the natural gas price the Regulator takes the decision regarding non-conformity of the submitted elements of the natural gas price and the natural gas price with this Methodology or rejects the economic feasibility of the elements of the natural gas price and the natural gas price, then the elements of the natural gas price and the natural gas price shall not come into effect within the time period laid down by the public trader. Within seven days after the Regulator has taken the decision, he or she shall send it to the public trader and publish a notification in the official gazette Latvijas Vēstnesis on the decision by which the entry into effect of the elements of the natural gas price and the natural gas price is cancelled.

6. Closing Provisions

33. Paragraphs 25 and 27 of this Methodology shall come into force when the elements of the natural gas price and the natural gas price calculated in accordance with the procedures laid down in this Methodology are approved.

34. From 1 July 2017 until the time when the elements of the natural gas price laid down in Chapters 3 and 4 of this Methodology come into force, the natural gas price which is determined depending on the amount of the natural gas consumption per year by the captive consumer shall include:

34.1. the component of the system services which is determined by summing up the component of the transmission system service and the component of the natural gas storage service included in the natural gas differentiated trade final tariffs of JSC Latvijas Gāze approved by the Regulator Decision No. 247 of 24 July 2008;

34.2. the trade service tariff for the relevant amount of the natural gas consumption per year approved by the Regulator Decision No. 247 of 24 July 2008;

34.3. the natural gas trade price which is calculated as follows:

CN = Clig kraj N × Qtirdz kr N × Fk + Clig N + Ksp + Kc ,
Qtirdz kr N + Qtirdz t N

where

CN - the natural gas trade price in the determination period N [EUR/kWh];

Clig.kraj.N - the natural gas price to be taken out from the natural gas storage facility calculated according to FIFO ("first in - first out") methodology during the price determination period N [EUR/kWh];

Qtirdzn.kr.N - the amount of the natural gas stored in the natural gas storage facility and to be delivered to captive consumers during the price determination period [kWh];

Fk - the coefficient of financing costs of natural gas purchase;

Clig.N - the natural gas purchase (contract) price for the natural gas which is supplied to captive consumers without intermediation of the natural gas storage facility during the price determination period N [EUR/kWh];

Qtirdzn.t.N - the amount of the natural gas to be supplied to captive consumers during the price determination period N without using the natural gas storage facility [kWh];

Ksp - correction regarding the difference between the component of the system services laid down in Sub-paragraph 34.1 of this Methodology [EUR/kWh];

Kc - correction regarding the difference between the applied and actual natural gas trade price in the previous period [EUR/kWh].

35. By 30 June 2017 the natural gas price shall be applied in accordance with Paragraph 34 of this Methodology without including correction Ksp and Kc.

36. A public trader shall, in addition to the natural gas price, apply charge for the natural gas distribution system service in conformity with the differentiated tariffs for natural gas distribution system service in force.

37. Decision No. 1/25 of the Public Utilities Commission of 27 September 2013, Methodology for the Calculation of Natural Gas Trade Tariffs (Latvijas Vēstnesis, 2013, No. 193), shall be repealed.

38. This Methodology shall enter into effect on the day following the publication thereof in the official gazette Latvijas Vēstnesis.

Chairperson of the Board of the Public Utilities Commission R. Irklis

 


Translation © 2018 Valsts valodas centrs (State Language Centre)

 
Document information
Status:
In force
in force
Issuer: Public Utilities Commission Type: decision Document number: 1/9Adoption: 27.03.2017.Entry into force: 31.03.2017.Publication: Latvijas Vēstnesis, 66, 30.03.2017. OP number: 2017/66.33
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