PGNiG S.A.’s activities are regulated by the following laws:
- Polish Energy Law of April 10th 1997 (consolidated text in Dz. U. of 2012, item 1059) with secondary legislation, to the extent it governs gas fuel trading, distribution and storage, as well as foreign trade in natural gas.
- Act on Stocks of Crude Oil, Petroleum Products and Natural Gas, and on Rules to be Followed in the Event of Threat to National Fuel Security or Disruptions on the Petroleum Market, dated February 16th 2007 (consolidated text in Dz. U. of 2012, item 1190) with secondary legislation, to the extent it governs gas fuel storage and foreign trade in natural gas.
- Polish Geological and Mining Law of June 9th 2011 (Dz. U. of 2011, No. 163, item 981, as amended), to the extent it governs production and sale of gas.
Polish Energy Law
The activities of the PGNiG Group companies in the area of gas fuel trading, distribution and storage, electricity trading and generation, as well as heat generation, transmission and distribution are to a large extent regulated, and require a licence from the President of the Energy Regulatory Office. On September 11th 2013, the Act Amending the Energy Law and certain other acts, dated July 26th 2013 (the so-called ‘Small Three Pack’) came into force. The most important change it introduced was the requirement to sell a specific portion of high-methane gas volumes fed into the transmission network in a given year on commodity exchanges. In the period September 11th − December 31st 2013, the exchange sale requirement applied to 30% of the overall gas volumes fed into the transmission network; in 2014, the proportion was 40%, and then, since January 1st 2015, it has been 55%. Also, the ‘Small Three Pack’ clarified the procedure for changing gas fuel suppliers, defined the procedure for handling complaints, and introduced a procedure for certification of the Transmission System Operator’s independence. On July 25th 2013, the Regulation of the Minister of Economy on detailed rules for determining and calculating tariffs for gas fuels and on settlement of transactions in gas fuels trading (the Tariff Regulation) came into force. The new Tariff Regulation introduced, among other things, settlements by energy units instead of volume units, full separation of transmission and distribution services from trading, entry-exit transmission tariffs, rules for calculation of charges for short-term and intermittent services and for virtual reverse flow services provided by transmission and distribution system operators, as well as rules for calculation of charges for storage services rendered on a packaged or stand-alone basis by the Storage System Operator. The Tariff Regulation also provides for the possibility of offering transmission services under an auction system in the case of interconnections between transmission systems within the EU, and for passing along the costs of gas fuel transport to the tariffs of other energy utilities. Another purpose of the Tariff Regulation was to bring its provisions fully in line with the provisions of the Gas System Regulation.
As at December 31st 2016, the PGNiG Group held the following licences granted by the President of Energy Regulatory Office under the Energy Law:
- three licences to trade in gas fuels (PGNiG, PGNiG OD, PST),
- one licence to trade in natural gas with foreign partners (PGNiG),
- one licence to trade in liquid fuels (PGNiG; the licence expired in January 2017 by operation of law),
- three licences to produce electricity (PGNiG, PGNiG Termika, PEC),
- four licences to trade in electricity (PGNiG, PGNiG OD, PGNiG Termika, SEJ),
- three licences to produce heat (PGNiG Termika, SEJ, PEC),
- two licences to trade in heat (SEJ, PEC),
- three licences to transmit heat (PGNiG Termika, SEJ, PEC),
- two licences to liquefy natural gas and regasify LNG at LNG regasification plants (PGNiG, PSG),
- one licence to store gas fuel in storage facilities (GSP),
- one licence to distribute gas fuels (PSG).
The gas market in Poland is regulated by the Polish Energy Regulatory Office (Urząd Regulacji Energetyki). The Office’s regulatory powers include the right to set tariffs, which are crucial to the Company’s ability to generate sufficient revenue to cover reasonable costs and deliver a return on the capital employed. Making its revenues independent of the regulation is viewed by the PGNiG Group as a key factor in its pricing policy. Currently, the revenues depend mainly on selling prices of the fuel, which are officially regulated and result directly from the applied tariff calculation methodology. The tariff rules are defined in secondary legislation to the Energy Law, including mainly the Tariff Regulation.
In accordance with the tariff calculation methodology, the prices and fee rates are determined based on cost projections and gas sales targets, taking into account the costs of gas from all sources, including both imported and domestically produced gas. What this means in practice is that both gas imports and domestic production of gas are subject to price regulation. Given that the current prices of imported gas are higher than those of domestically produced gas, the inclusion of these two sources in tariff calculations resulted in a situation where the tariff prices (applicable in settlements with customers) were set below the cost of procurement of imported gas.