Manual is published to encourage uniformization of natural gas distribution regulation within Brazil’s states
The Manual for Best Regulatory Practices (Manual), created by the Committee for Monitoring of the Natural Gas Market Opening (CMGN, in Brazilian Portuguese), was published this week, following the guidelines of the New Gas Market and the New Gas Law (Law N. 14,134/2021).
The main purpose of the Manual is to foster uniformization and improvement of natural gas regulation within Brazil’s states, as well as between states’ regulation and federal gas regulation.
The regulation of local gas services - "natural gas distribution" - is a competence of the states, by the Federal Constitution. Therefore, the attendance of the Manual guidelines by the states is not mandatory.
The creation of a Manual with recommendations is part of the role granted by the New Gas Market guidelines (CNPE Resolution N. 16/2019) and the New Gas Law to certain institutions (Ministry of Mines and Energy; Ministry of Economy; National Agency for Petroleum, Natural Gas and Biofuels - ANP; and Energy Research Office - EPE). The desired result is greater openness and competitiveness in the Brazilian gas market.
We highlight the following guidelines of the Manual:
Regulatory principles for Free Customers, Auto-producers, and Auto-importers:
- Clear distinction of distribution and commercialization components in the final price of natural gas.
- Possibility of natural gas acquisition by free customers from a shipper or producer only by payment of distribution tariff, without commercialization fees to the distributor.
- Uniformization in the definitions of free customer, self-producer, and self-importer.
- Removal of regulatory hurdles for classification of free customers. Starting point for such definition is consumption of 10k m3/day, as already adopted by the states of BA, ES, MG, RJ, SC, and SE.
- Standardization of contracts, with public access to the templates.
Transparency of natural gas purchase and sale agreements for the captive market:
- Full disclosure of the gas purchase and sale agreements signed by natural gas distributors to the relevant captive markets.
Transparent acquisition of natural gas by state distributors, allowing increased participation by interested bidders:
- Clear separation of the gas distribution and trading activities.
- Prohibition of "self-dealing", starting with implementation of functional unbundling of distributors in relation to the competitive segments.
- Transparent processes for acquisition of natural gas, allowing competition among the potential suppliers (producers, importers, and traders).
Transparent tariff calculation methodology and tariff components’ composition:
- Final price of the natural gas with clear separation of distribution and trading fees.
- Public and known criteria for tariff calculation or methodology.
- Tariff calculation based on items or investments, all related to the efficient provision of services.
- Public and transparent process to establish the investments needed for efficient expansion of the distribution grid.
- Anticipated availability of information and methodology for calculating the gross margin of the concessionaire(s) to the interested agents, as well as the parameters used for tariff calculation purposes.
- Transparency of the investments made by distribution company(ies) in their distribution grid.
Adoption of a tariff methodology that provides the right economic incentives for investment and efficient operation of the grid:
- Tariffs regulated by incentives, with periodic tariff reviews.
- Previous and careful evaluation of the assets and facilities that will compose the Regulatory Asset Base (BRA) by the regulatory agency.
- Careful evaluation of Operation & Maintenance Costs and General & Administrative Expenses, defined from models that compare the performance of the various natural gas distributors.
- Adoption of accounting, auditing, monitoring, and inspection plans so that the costs charged from the customers represent the necessary costs for the adequate provision of the service.
- Adoption of a Regulatory Account, for purposes of preserving the annual revenue allowed in the tariff period.
- Prohibition of discriminatory or preferential treatment among users of the distribution service.
- Handling of contractual penalties should not represent a source of additional funds.
Effective separation between the activities of trading and network service provision:
- Maintenance of separate accounting records of the commercialization activity for traders that perform other economic activities besides the trading of natural gas.
- Unbundling of distributors and agents that operate in competitive sectors (producers or traders).
Tariff structure proportional to use of distribution services, per user segment:
- Clear and transparent requirements for establishment of a tariff structure that considers the different levels of volumes used by each segment.
- Regulation that minimizes the possibility of cross-subsidization between user segments.
The entire content of the Manual for Best Regulatory Practices is available here, in Portuguese.
The Oil, Gas & Offshore team is available for any further clarification.