Entry-Exit Charging Approaches in Gas

The Situation

A major German gas transmission company was examining the implementation of a new system of transportation charges, which are to be based on an entry-exit regime. In deciding on how to implement this new system, the Company wished to understand the international experience of entry-exit regimes in other jurisdictions and where appropriate incorporate this experience in its own considerations. The Company asked NERA to look at how gas entry-exit transmission tariffs are set in six European countries (Great Britain, Denmark, France, Ireland, Italy and the Netherlands) and suggest lessons for the Company in setting entry-exit charges for its own system.

NERA's Role

NERA prepared a comprehensive report covering all the areas of designing entry-exit tariffs including:

  • Principles of sound network tariff design, by which NERA appraised both the schemes actually in operation in the six countries and the choices facing the Company;
  • Full review and assessment of the methodologies used in the six European countries studied covering approaches to allocating allowed revenue to entry and exit points, the cost approach used to calculate specific charges, classification of costs into fixed and variable components, etc.;
  • Detailed review of the experience with entry and exit charges in Great Britain and how adaptations have been made over time to the approach in response to criticisms and changing circumstances; this provided a background to the choices that have to be made in designing an entry-exit regime for gas transmission tariffs;
  • The basic design for an entry-exit tariff regime and the steps necessary for setting entry-exit charges. NERA looked at the main costing methodology (average costs, long run marginal costs and short run marginal costs) for allocating revenues to entry and exit points, definition of entry and exit points/zones, adjustments for short-distance flows, and pricing backhaul services;
  • Options for defining and allocating capacity rights as well as choices to where balancing can be undertaken (e.g. physical location, notional balancing point); and
  • Lessons from the international experience and the best approach to implement entry-exit tariffs taking into consideration the Company’s own particular circumstances.  

The Result

The Company accepted NERA's findings and our recommendations formed part of its own comprehensive review of transmission charges.