ACM: GTS is allowed to charge network users, sooner than before, costs in order to anticipate the effects of the energy transition

Dutch transmission system operator Gasunie Transport Services (GTS) is allowed to charge network users, sooner than before, any costs that are associated with investments in the natural-gas network. In this way, the Netherlands Authority for Consumers and Markets (ACM) takes into account the reduction in natural-gas consumption in the future, resulting from the energy transition. This has been laid down in ACM’s method decision for GTS.

In the method decisions, ACM determines, for each system operator, the allowed annual revenue, on the basis of the efficient operational costs. On the basis of such methods decisions, the system operator is allowed to charge its tariffs to network users, such as large industrial firms, power plants, manufacturers, and energy suppliers. In this way, the tariffs of system operators, which enjoy a monopoly on their own networks, remain at a reasonable level for buyers, and system operators are incentivized to operate efficiently. Transmission system operator GTS charges network users the tariffs of the gas transmission network. Energy suppliers subsequently include those costs in their tariffs for households and businesses.

The 2022-2026 method decision for GTS

Following a public consultation, ACM has finalized its 2022-2026 method decision for GTS. In the public consultation on the draft version of the 2022-2026 method decision, ACM received opinions from seven market participants in the energy sector. On the basis of these opinions, ACM has implemented several changes to the final version of the decision.

The most important changes to the decision are explained below.

Depreciation

Over the next few years, GTS is allowed to charge network users, sooner than before, any costs that are associated with investments in the natural-gas network. ACM offers such latitude with an eye to the reduction in natural-gas consumption in the future. As a result of the energy transition, and the reduction in natural-gas extraction from the gas field in the northern province of Groningen, the total number of natural-gas consumers will decline, if more and more businesses and households leave the natural-gas network. The lower that number of gas consumers becomes, the higher the tariffs for consumers will have to be in order to compensate GTS’s costs. By already taking into account that trend today, any increase in the tariffs in the long term will be limited. Several elements are exempted from the accelerated depreciation. These are parts of the network that, in the future, will be transferred to the hydrogen network, and, consequently, will remain in use. GTS is allowed to charge, sooner than before, any costs that are only associated with the transmission of natural gas.

Efficiency

For determining the allowed revenues, ACM compares GTS’s performance with that of other European transmission system operators. That comparison reveals that there is still room for improvement in terms of efficiency on GTS’s part. As a result of this inefficiency, the final discount on the allowed revenues is 6.3 percentage points. This is lower than in the draft version of the method decision, because ACM applies a margin: a precautionary margin, and a margin because GTS is more sensitive (in comparison with other network operators) to changes in the reasonable return in the benchmark model it uses.

Costs of capital

ACM estimates the costs on the basis of realized-costs data. On the basis of the opinions, ACM has determined that this leads to an overestimate of GTS’s capital costs. That is why ACM will annually correct this estimate in its tariff decisions. It will do so with regard to two points: by annually correcting the interest rate in the cost of capital (WACC) on the basis of the actual interest, and by adjusting the estimate of the investments on the basis of GTS’s realized investments.

Not paying more than necessary

ACM takes into account the trends and developments related to the energy transition as well as the reduction in natural-gas extraction from the Groningen gas field, and, at the same time, it ensures that GTS’s revenues are not higher than the necessary costs that the system operator incurs in order to be able to perform its duties. Natural-gas consumers will thus not pay more than necessary. As a result of the method decision, GTS will, from 2022, earn approximately 3.8 percent less in revenues each year. This may lead to lower tariffs for network users, depending on the booked capacity of transported natural gas.