PUC approves lower natural gas storage tariffs

Natural Gas

The Public Utilities Commission (PUC) has approved new storage service tariffs for JSC Conexus Baltic Grid. The tariffs will enter into force on 1 May 2021. The approved storage service tariffs will be lower compared to the merchant’s initially planned storage tariffs.

Intars Birziņš, the Acting Chairman of the PUC, explains: “The new storage tariffs are based on dynamic regulation of the operation of the Inčukalns storage. This approach is the most appropriate to ensure the long-term tariff certainty, as well as to promote the strategic importance of the Inčukalns storage facility in the Baltic States. Thanks to these regulatory improvements in the natural gas sector, an unprecedented auction will be held in Latvia for the first time, which will allow a trader to store natural gas in the storage facility in accordance with the amount of storage capacity allocated thereto.”

Along with the approval of the storage tariffs, JSC Conexus Baltic Grid may organize an auction, in which any natural gas trader will be able to participate.

New storage service tariffs
All storage service tariffs, except for the stock restorage product and the virtual reverse-flow product, have decreased compared to the initial tariffs submitted by the merchant. The tariff for the bundled capacity product will be 27.1% lower, while the tariff for two-year bundled capacity product will decrease by 22.7%.

Types of tariffs Initially sbmitted tariffs (EUR/MWh) for the storage cycle Approved tariffs (EUR/MWh) for the storage cycle
Bundled capacity product 1,4023 1,0226
Two-year bundled capacity product 1,4050 1,0865
Interruptible capacity product 1,1161 0,8148
Stock restorage product 1,7796 1,7796
Virtual reverse -flow product 0,3471 0,3471

Impact on users
These tariffs apply to natural gas traders which plan to store natural gas at the Inčukalns underground gas storage facility. The charge for the storage service is only one part of the natural gas price. The impact on the natural gas price depends on what portion of the purchased natural gas the trader will store in the storage facility and what storage products it will buy through an auction.

Total costs of JSC Conexus Baltic Grid’s tariff proposal
Compared to the initially submitted tariff proposal, the total costs of the tariff proposal have decreased by 4.4 million euro or 4%. During the review of the tariff proposal, the costs of several items have been reduced - capital costs, labour, social and operating costs due to the COVID-19 pandemic. The PUC repeatedly asked the merchant to clarify several cost items; as a result, JSC Conexus Baltic Grid no longer plans to revalue fixed assets (gas drilling, buildings, etc.), which the storage operator originally intended to revalue. This in turn reduced the total costs of the storage service by 2.8 million euro or 63%. At the same time, due to lower rates of return approved by the PUC, the capital costs of JSC Conexus Baltic Grid have been reduced by 2.2 million euro or 15% compared to the current tariff calculation.

Tariff period
JSC Conexus Baltic Grid’s storage service tariffs approved by the PUC are intended for a five-year regulatory period (from 1 May 2021 to 30 April 2026). Such a period makes it possible to balance future revenues throughout the regulatory period and provide stability and predictability to market participants.

Involvement of service providers and users in the evaluation of the tariff proposal
On 27 November 2020, the PUC held a public hearing to find out the opinion of public service providers and users on the JSC Conexus Baltic Grid’s storage service tariff proposal. Three proposals from market participants were received.