Application of gas ratios and their impact on consumers

With the launch of the retail natural gas market, all consumers received the right to change their gas supplier. However, using this right, consumers have had problems with gas temperature ratios.

Maryna Hrytsyshyna, advisor to Sayenko Kharenko, Chair of the Committee of the Ukrainian Bar Association on Energy, Oil and Gas told about the difficulties for the consumer and what to do about it.

According to Olha Babiy, a member of NEURC, a complaint was recently filed with the National Energy and Utilities Regulatory Commission about the illegal accrual of "temperature ratios" since 2015 after the change of the gas supplier. To understand what is happening, we need to remember how temperature ratios are defined in legislation.

What are the temperature ratios?

Temperature ratios are the coefficients for adjusting the indicators of household gas meters following the Methodology for reducing the gas volume to standard conditions according to the absence of tools for measuring gas temperature and pressure ("Methodology"). According to this Methodology, the standard conditions for natural gas are 760 mmHg and a temperature of 20 degrees C. In the case of a deviation from standard conditions, the Methodology provides for the installation of ratios for reducing the gas volumes to standard conditions. In this case, the value of the correction factor depends on the actual location of the meter (outside the room or in an unheated room or a heated room) and the distance from the gas pipeline entrance to the heated room to the inlet connection of the meter. However, the question of the possibility of using these temperature ratios also remains open.

 

Can temperature ratios be applied?

The Metrology was approved by the order of the Ministry of Fuel and Energy of Ukraine on February 26, 2004, and is still valid. However, on November 23, 2018, NEURC adopted resolutions prohibiting the GDS operators from reducing the volumes of used natural gas by household consumers to standard conditions when making commercial settlements for natural gas used by household consumers. The basements for this decision were numerous appeals from household consumers. It is interesting that the Methodology itself provides for its distribution only to business entities and excludes the use of the Methodology by entrepreneurs for their own needs. In other words, the Methodology should not be applied to residential consumers.

However, some GDS operators did not agree with the NEURC's decision and filed a claim with the administrative court to declare the NEURC's decisions illegal and invalid. In considering such cases, various basements were considered for reducing the volumes of natural gas used by households to standard conditions.

How did NEURC and the GDS operators justify their positions?

The GDS operators substantiated the illegality of the regulation by the requirements of the Gas Transmission Systems Code on the mandatory:

     • reducing gas to standard conditions;

     • conversion of gas volume, reduced to standard conditions, in energy unit.

NEURC noted that the costs of reducing natural gas to standard conditions are already provided for in distribution tariffs. Therefore, the establishment of gas ratios leads to double payments by consumers for reducing gas to standard conditions.

In the first and appellate instances, the courts satisfied the claims of the GDS operators and the NEURC decisions were canceled by cases No.640/20692/18, No.640/21401/18, and No.640/20866/18.

 

Based on the results of the consideration of the same cases in the Supreme Court of Ukraine, the court came to the following conclusions:

     • inclusion of the costs of reducing natural gas to standard conditions in the distribution tariff was not confirmed in the proceedings;

     • natural gas is supplied based on a standard natural gas distribution agreement approved by NEURC and the Natural Gas Supply Rules, which also provide for bringing the supplied natural gas to standard conditions regardless of the type of consumer;

     • regarding the application of the Methodology, according to the judges of the Supreme Court, the provisions of the Code of Gas Transmission Systems indicate the need to apply the appropriate ratio only when reducing the volumes of natural gas consumed by household consumers to the standard conditions specified only in the annexes to the Methodology, and not by the Methodology itself.

Thus, the Supreme Court of Ukraine upheld the decision of the first instance and the appeal instance and only changed the motivational part of these decisions. Thus, the GDS operators received court decisions on these and have the right to apply temperature ratios for settlements with household consumers

What do consumers have to do?

The results of the judicial appeal against the NEURC decisions indicate the inconsistency between the decisions and the model agreement for the distribution of natural gas and the Rules for the supply of natural gas on the application of temperature ratios. Therefore, to address these issues, it is necessary to amend the relevant regulations. September 23, 2020, NEURC published a draft resolution "On approval of the Methodology for determining the size of regulatory and production and technological losses/consumption of natural gas when distributing natural gas and Amendments to some resolutions of NEURC", which has signs of a regulatory act. This draft resolution of NEURC proposes amendments to the Code of Gas Transmission Systems and the Model Agreement for the Distribution of Natural Gas to exclude the use of temperature ratios.

And before making any changes to the regulations, consumers have to either complain about the GDS operators or challenge the accrual of additional payments in connection with temperature ratios in court.