Czech district heating companies criticize planned shift of gas pipeline operator's costs to customers

The Czech District Heating Association (TS ČR) said it opposed the proposed shift of a larger share of the costs of Czech gas pipeline operator Net4Gas onto customers, which it says will increase the regulated portion of gas prices by ten percent. TS ČR told the Czech News Agency (ČTK) today that this follows from a proposal by the Energy Regulatory Office (ERÚ). According to the association, this effectively amounts to the state paying the debts of a company it is buying. It had previously warned that rising regulated prices would likely offset any potential reduction in the price of heat produced from gas.

In response, ERÚ said it had to reflect changes in gas flows following the outbreak of the war in Ukraine when changing gas transmission charges, namely the sharp decline in the volume of gas transiting through Czechia. ČTK is seeking a response from Net4Gas, which is currently being bought from a private investor by state-owned ČEPS.

ERÚ proposed increasing the regulated portion of gas prices for next year in late October. For households, the component that accounts for about 20 percent of the final gas price would rise by around 39 percent, which would mean an increase of roughly CZK 125 per megawatt-hour (MWh). For large customers, the increase would be 42.5 percent, or about CZK 63 per MWh. The office will present its final proposal at the end of November.

According to TS ČR, the proposed regulated prices for next year were affected by changes to the allocation key, which divides the transmission system operator's costs between domestic and transit transmission. While domestic customers account for 27 percent of transmission system costs this year, the association says their share is set to be 75.9 percent next year. District heating companies oppose this approach, saying there is no reason to shift the costs.

„The Energy Regulatory Office Council can reduce the regulated component of gas prices by ten percent if it does not approve the unjustified transfer of part of the transmission system operator's costs to domestic customers,“ said TS ČR Executive Council chairman and former prime minister Mirek Topolánek.

„I have asked the Council to protect customers' interests and comply with its decisions and regulatory methodologies, and in particular with the European Commission's regulation on gas transmission tariffs. If the price decision is issued in breach of a directly applicable EU regulation, it could be invalid,“ he added.

District heating companies also pointed out that capacity for international gas transmission has been booked for next year at a level comparable to 2021. According to the association, the only difference is that Net4Gas's main Russian gas transporter has stopped paying the company for booked capacity.

„ERÚ cannot require customers in Czechia to effectively pay, through the regulated gas distribution price, the debts of the main Russian gas transporter, which has stopped paying Net4Gas for booked capacity. It is up to the company to recover its receivables from its debtor,“ said association director Martin Hájek.

He also rejected the claim that increasing customers' share of transmission system costs was necessary to maintain critical infrastructure and ensure supplies to customers.

ERÚ said the sharp decline in the volume of gas transiting through Czechia after the conflict in Ukraine began had to be taken into account when changing gas transmission charges. „Under the Energy Act, we have to ensure the reliable and safe operation of the systems and therefore ensure that operators recover the justified costs they incur in running them,“ said office spokesman Jan Hamrník. He added that the proposed charges are also significantly lower than Net4Gas had sought during negotiations throughout the year. „The increase in gas transmission charges will raise overall gas prices by one to two percent,“ Hamrník added.