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Legal framework for secure gas transmission and non-discriminatory network access

As a "natural monopoly", transmission system operators in Germany are regulated by an independent authority, the Federal Network Agency (BNetzA), which monitors the implementation of the legal regulations and can also make binding decisions itself. 

The central regulatory instrument is the Act on the Supply of Electricity and Gas (Energy Industry Act – EnWG), which contains basic provisions for grid-bound energy supply. It dates back to 1935 and has been amended several times in recent years. The aim of the Act is to guarantee the supply of electricity and gas to the general public via grids in a way that is as "safe, affordable, consumer-friendly, efficient and environmentally friendly" as possible and is increasingly based on renewable energies. At the same time, the Act aims to achieve "effective and undistorted competition in the supply of electricity and gas while safeguarding the efficient and reliable operation of energy supply networks over the long term".

Regulatory framework for network operation: network access

The transmission system operators grant non-discriminatory access to their pipelines to all gas suppliers and thus create the conditions for effective competition in gas trading. Consumers benefit from a greater choice of suppliers and, consequently, lower energy prices. With the second amendment of the Energy Industry Act (EnWG), the model of regulated network access came into force in 2005. Network access is governed by the Agreements on Cooperation between Operators of Gas Supply Networks located in Germany (KoV) and the terms and conditions of the transmission system operators. The legal framework is provided by the Energy Industry Act, the Gas Network Access Ordinance (GasNZV) and the Gas Network Charges Ordinance (GasNEV).

Entry/exit model

Access to the gas transmission system is based on what is known as the "entry/exit model" or "two-contract model". In Germany, the service areas of several transmission system operators have been merged into market areas. Gas suppliers conclude contracts with the respective entry and exit network operators, defining the entry and exit capacities. There is a virtual trading point where the gas quantities can be transferred / taken over virtually, and a fee is charged for feeding gas into and taking gas from the network. However, since there is no physical path between the entry and exit point, the fee is charged regardless of the transport route and the distance. Only the energy quantity of the contractually agreed entry and exit capacities counts.

Network charges

The charges for gas transmission are based on the transmission system operators’ individual revenue caps as defined by BNetzA as part of incentive regulation. The revenue cap reflects the costs incurred by the network operator in fulfilling its statutory obligations (operating costs) as recognised by BNetzA. These costs are compared with an efficiency benchmark and are the starting point for determining the appropriate revenue level. The more cost-efficient the network operator is, the greater the difference between what it is allowed to earn and what it actually incurs in terms of costs. This creates the incentive to increase productivity and reduce costs – just like in a normal market. The difference may be retained by the network operator in the relevant regulatory period as a premium for efficient management. In the following regulatory period, the cost reductions are considered for the new cost review and are thus included in the revenue determination for the next regulatory period. The cost reduction achieved by the network operator thus tends to translate into lower network charges for network users in subsequent regulatory periods.

BNetzA decisions

The Federal Network Agency (BNetzA) lays down the ground rules for the gas market. As a regulatory authority, it does not enact any laws but is generally empowered by national or European legislators to take decisions (known as “determinations”), which are binding on companies. For some time, BNetzA has used female first names for the various rulings, which are acronyms. Most recently the group of BNetzA "ladies" has been joined by a few "gentlemen".

GABi is a ruling on the gas balancing regime. It provides the legal basis for the daily matching of entry and exit quantities by the market area managers (MAMs) GASPOOL and NetConnect Germany. This ensures that the gas withdrawn from the pipeline network does not exceed the quantity of gas fed into the network. If there are any shortfalls, the MAMs are entitled to replenish the inventory.

BEATE ensures that network users participate in the cost of providing capacity in an equitable and fair way. For this purpose, BNetzA has introduced multipliers for the annual fee for shorter product durations and a calculation procedure for interruptible capacity fees. A general discount of 50 percent on the standard charge was initially introduced at connection points to storage facilities. BEATE 2.0 introduced additional multipliers for within-day products at entry and exit points and interruptible capacity products depending on the product duration, and increased the discount for entry and exit charges at storage facilities from 50% to 75%.

KARLA ensures efficient capacity allocation at cross-border or market area interconnection points of transmission networks based on a standard capacity contract and an auction procedure on the European PRISMA platform. KARLA's Standard Capacity Contract defines the capacity products and contains rules for bundling, (re)nomination and use as well as the right to return capacities. Under KARLA 2.0, the European Network Code on Capacity Allocation Mechanisms (NC CAM) was implemented.

KONNI introduced a conversion system that allows shippers to combine all freely allocable entry and exit capacities in a market area regardless of gas quality. As a natural product, natural gas comes with different properties. There is high-calorific gas (H-gas) with a higher calorific value per cubic meter and low-calorific gas (L-gas) with a lower calorific value. Both German market areas have L-gas and H-gas networks. KONNI makes it possible to combine different natural gas qualities. The market area managers are responsible for virtual conversion, while physical conversion is handled by the gas network operators. KONNI also specifies how the costs are to be distributed. The definition includes a standard contract, which must be reflected in all balancing group contracts.

GELI comes into play when consumers switch their gas supplier. It sets out binding specifications that ensure a proper and fast switching process. GELI describes each individual step of the process in detail and sets binding deadlines. To ensure that everything runs smoothly, GELI provides standard data formats for communicating meter readings and billing network charges. 

KoLA creates the basis for dealing with the costs of load flow commitments. The Federal Network Agency has stipulated that the procurement of load flow commitments must take place as part of a transparent and non-discriminatory tendering procedure. As a rule, transmission system operators should only put monthly products out to tender once a year and procure monthly and daily products in short-term tenders during the course of a year. For pricing purposes, KoLA includes weighted commodity and demand charges. The charges are included in a merit order list in the invitation to tender. The results of the invitation to tender must be published.

Load flow commitments are bilateral agreements between gas network operators and traders who have flexible sources such as gas storage facilities, interruptible customers or flexible supply contracts and can thus guarantee constant flows over a certain period of time.

In order to implement the European network code on harmonised transmission tariff structures, the Federal Network Agency has issued the REGENT, MARGIT, AMELIE and BEATE 2.0 decisions.

REGENT establishes a reference price method for the transmission system operators, allowing them to charge a uniform entry and exit tariff for each market area. This tariff is the standard product for fixed annual capacities and is also referred to as a "postage stamp". The new charging system will come into force on 1 January 2020.

AMELIE introduces a balancing mechanism between the transmission system operators of a market area, which is necessary following the introduction of the common reference price method. The uniform reference price no longer accurately reflects the transmission system operators’ specific costs and approved revenues. The aim of the balancing mechanism is to enable all transmission system operators in a market area to achieve their allowed revenues. The balancing is based on the booking forecast for the tariff year. Differences between expected and actual bookings are compensated between the transmission system operators of a market area.

MARGIT provides the basis for calculating the tariffs for interruptible standard capacity products at all network interconnections [cross-border or market area interconnection points (IPs)]. Furthermore, it defines the amount of the multipliers as required by BEATE 2.0 for the conversion of annual demand charges into demand charges for intra-year capacity rights.

KASPAR is intended to help standardise capacity products. The Federal Network Agency plans to draw up a final catalogue of permissible capacity products for entry and exit capacities, to harmonise the interruption sequence and to further harmonise specific characteristics of capacity products. To date, two standard capacity products can be booked with transmission system operators: firm freely allocable capacity (feste frei zuordenbare Kapazität – FZK) and interruptible freely allocable capacity (unterbrechbare frei zuordenbare Kapazität – uFZK). The transmission system operators also offer other capacity products with various restrictions on how entry and exit points may be combined: capacities subject to allocation restrictions (beschränkt zuordenbare Kapazitäten – BZK), firm dynamically allocable capacities (feste, dynamisch zuordenbare Kapazitäten – DZK) and conditionally firm, freely allocable capacities (bedingt feste, frei zuordenbare Kapazitäten – bFZK). The determination process at BNetzA has not yet been completed.

European regulatory legislation

Much of the regulatory legislation applicable in Germany originates at the European level. The Energy Industry Act (EnWG) transposes this legislation directly (in the case of EU regulations) or with a certain degree of leeway (in the case of EU directives).

The Third Internal Energy Market Package, which included various directives and regulations, brought fundamental changes for the gas industry in 2009.

The primary objective of the Internal Energy Market Package was to accelerate the liberalisation of the gas market by separating network operation from the other stages of the value chain (generation, trading and sales), also known as "unbundling". Another aim was to strengthen consumer rights. In addition, a reorganisation of the conditions for access to natural gas pipelines (Regulation No. 715/2009 on Access to Gas Transmission Networks) was initiated by instructing the European Commission to issue binding network codes.

In addition, the EU received a new institution, the Agency for the Cooperation of Energy Regulators (ACER). The main task of ACER is to promote the work of the national energy regulatory authorities (in Germany the Federal Network Agency) and thus to achieve market integration and harmonisation of the regulatory framework in the context of the EU's energy policy objectives.

In addition, the European Network of Transmission System Operators for Gas (ENTSOG) was established as an association of Europe's transmission system operators. Together with ACER, ENTSOG contributed to the development of the network codes. They set technical rules for non-discriminatory network access and for strengthening the European internal market. Now that the network codes have been adopted by the European Commission, ENTSOG is monitoring their implementation. ENTSOG is also responsible for developing and presenting a Ten-Year Network Development Plan (TYNDP).

The obligation of German transmission system operators to regularly submit a ten-year network development plan to the Federal Network Agency also stems from Directive 2009/73/EC on the common rules for the internal market in natural gas. In Germany, the directive was implemented with the amendment of the Energy Industry Act in August 2011.

The next gas market package is already just around the corner. In 2020, the European Commission plans to adapt the legal regulations for the gas market in response to the challenges of the energy transition and climate protection. Among other things, it is expected to lay down rules promoting the development of power-to-gas technology.

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