Maria Fernanda Soares e Victor Hugo Machado
On December 28th, the Public Services Regulatory Agency of the State of São Paulo (Arsesp) published Resolution No. 1,105/20, which establishes the conditions and criteria for the swap of natural gas and biomethane between the piped gas distribution networks in the state.
According to the Arsesp Regulatory Agenda, the regulation of swaps between the local distribution companies was expected to be completed in the second half of 2019. After several submissions by private and public entities in Arsesp Public Consultation No. 17/19 (CP 17/19), the text of the resolution was considered completed and published.
Arsesp Technical Note G 11/19 (NT 11/19) of CP 17/19 divides gas swap into two main types: commercial and operational. NT 11/19 explains that: “A commercial swap is a purely commercial service, defined in contractual agreements in which there are financial transactions generated by different infrastructure assets (networks) and without physical interconnection. [...] An operational swap, on the other hand, differs from a commercial swap in that there are common infrastructure assets or assets physically interconnected between the parties involved. This type of swap allows, for example, the delivery of gas to be done in a virtual counterflow (backhaul), where a user purchases the gas from a supplier that is downstream from the network flow that interconnects them."
According to article 2, XXVIII, of Arsesp Resolution No. 105/20, the operational swap of gas or swap is defined as "use of the distribution system, in which the physical and contractual flows differ, in whole or in part, contributing to the efficient operation of the distribution system", a concept very similar to that adopted by the ANP for the operational swap of gas in the transportation system, provided for in ANP Resolution No. 11/16.
The resolution follows the expansion of the Natural Gas Free Market in the state of São Paulo and arises from particularities of the local gas market. After the restructuring of the 1990s, with the privatization of the piped gas distribution services, the infrastructure of this activity began to be managed by three new concessionaires - GBD, Comgás, and GNSPS - each with different capacity and infrastructure size. Thus, the swap regulation was considered useful by Arsesp to enable the expansion of the capacity utilization of the distribution infrastructure.
The structure of the resolution is mainly practical. The only principle provision of the procedure is presented in article 3 on the "principle of non-discriminatory access of third parties to the concessionaires' distribution systems."
From this point on, the resolution may be summarized as follows: (i) explanation of the procedure; (ii) possibility of operational interconnection of distribution pipelines between different concession areas; (iii) coordinated public request for gas swap; and (iv) possibility of assignment of contracted capacity in the transportation pipelines.
In articles 4 to 6, the regulated procedure for gas swap is presented. It begins with the presentation of the "Letter of intent for the use of the distribution system for swaps" to the concessionaires. Within a maximum period of 30 days, the concessionaires must submit their response in a document called a "Swap Proposal" or refuse to fulfill the gas swap, based on technical and economic parameters, in addition to presenting possible alternatives to make the activity viable.
The reply must be sent to Arsesp no later than 15 days after sending to the interested parties. The agency shall calculate, on a case-by-case basis, the swap rate applicable to the parties concerned, triggering the negotiations arising from the swap proposal.
After the negotiations, the concessionaires must submit the "Contract for use of the distribution network to swap gas", in accordance with article 5 of the resolution. The swap tariff applied, together with the characteristics of the gas swap, will be published by means of a specific Arsesp resolution.
In articles 7 and 8, the resolution provides for the interconnection of distribution pipelines between the concession areas in order to make gas swaps feasible, with a view to eliminating contract barriers and boosting the use of distribution capacities.
To this end, concessionaires must submit an "Interconnection Agreement" to Arsesp containing the applicable distribution tariffs and other terms and conditions relating to third party access to the distribution system. This agreement depends on an analysis by Arsesp on the viability of the interconnection, based on the economic and financial grounds presented by the interested parties. Any conflicts concerning these interconnections would be mediated by the regulatory agency.
Coordinated public solicitation
In article 9, the possibility is presented of Arsesp requesting that concessionaires carry out a process of "coordinated open-seasons for gas swap", with the condition that several free and/or partially free-market users demonstrate the intention to carry out a swap.
This is a procedure made by concessionaires, with guaranteed access to all free-market users, partially free-market users, producers, self-producers, self-importers, traders, or potential interested parties. Its purpose is to verify possibilities for gas swap by contracting distribution capacity.
The request seems to follow the pattern of a typical open-season, in which a public notice issued by the press would present the requirements for declaration of interest. It would also contain the available capacity of the distribution systems, accompanied by the physical flows and technical and operational characteristics of the system and the main commercial conditions of the future "Contract for use of the distribution network for gas swap."
This request would aim to detect not only possibilities of gas swap in the state, but also the possibility of interconnecting distribution pipelines in different concession areas. The open-season process must be carried out in a coordinated manner by the three concessionaires. After completion, the concessionaires should generate a database of users interested in the gas swap and, from the information extracted from this database, present the swap proposal to whomever expresses interest.
Article 10 regulates the transfer of the concessionaires’ contracted transport capacity in the transportion system, maintaining the contractual rights with the transporter with whom they have a firm gas transportation agreement in force. This provision would make possible the swap of gas between different areas by means of transportation pipelines, respecting ANP’s rules.
In view of the unprecedented and recent nature of the resolution, we can only await the verification of its practical effects for the market. In the public consultation that led to the resolution, various entities in the gas sector had spoken out against the regulation. Issues of overlap between state and federal jurisdictions, with regard to transport systems, for example, have come to be raised as relevant points of concern by important players in the sector.