Tariff abolition - another step towards liberalization of the natural gas market | Energy and Natural Resources Newsletter


Act of 30 November 2016 on the amendment of the Energy Law Act and certain other acts, which entered into force on 1st January 2017 (the “Amendment”) is a move which continues the liberalization of the natural gas market in Poland. The amendment moves away from the regulation of natural gas prices by removing the obligation to present gas tariffs for approval by the President of the Energy Regulatory Office (the “President of ERO”). It is worth noting that the abolition of the obligation will proceed in stages. Another important issue concerns the obligation imposed on gas companies to align the provisions of their existing contracts with the new legislation. This article provides an overview of the key changes introduced by the Amendment.

Background 

It is worth explaining that the Amendment is the reaction to a number of infringement proceedings initiated against the Republic of Poland by the European Commission (the “Commission”). On 10th September 2015 the Court of Justice of the European Union (the “CJEU”) issued a judgment which upheld the Commission’s opinion that the Republic of Poland had failed to comply with EU law, and specifically with the provisions of Directive 2009/73/EC, by enacting a statutory obligation, which was unlimited in time, to obtain approval for the prices at which natural gas was supplied to all customers. The Amendment sought to remedy this situation. 

Timing of changes – key dates

The abolition of the tariff application obligation is to be implemented in stages. Firstly, as of 1st January 2017, tariffs were lifted for supply companies with respect to the sale of natural gas on the wholesale market, at a virtual point (including the commodity exchange), compressed natural gas (CNG), liquefied natural gas (LNG) and for gas sold under tender, auction and public procurement procedures within the meaning of public procurement regulations.

Next, as of 1st October 2017, the obligation to apply tariffs will be lifted with respect to suppliers delivering natural gas to all final consumers other than household customers, in respect of whom the obligation will be abolished on 1st January 2024.

Gas undertakings should align their contracts 

The Amendment requires that suppliers bring their existing sales agreements and their comprehensive agreements into line with the new statutory provisions.

It is worth noting that the obligation to align agreements only applies when an agreement fails to stipulate a gas sale price or the method of its calculation, or when the calculation method relies exclusively on the price resulting from the approved gas tariff. In such cases, the supply company will be required to provide the customer with a draft amendment of the agreement, specifying the proposed prices or method of their calculation. Conversely, if an agreement already contains such provisions, the entrepreneur will not be required to propose any amendments.

A draft amendment should be delivered at least 2 months before the price deregulation (i.e. by no later than 1st August 2017 for industrial customers and by 1st November 2023 for household customers).

Furthermore, in order to ensure that customers are properly informed about their rights, entrepreneurs are obliged, when sending the draft amendment to customers, to provide written information regarding the customer’s right to terminate the agreement.

In order to effectively terminate an agreement, a customer should send a written termination notice. It should be added that, in such circumstances, the agreement may be terminated without any extra cost being incurred by the customer (Article 62b of the Energy Law). As a result, the agreement will be terminated on the last day of the month following the month in which the customer's declaration was received by the company. The customer may also choose to specify a later date for the termination of the agreement.

Conclusion

These changes may lead to an increased number of entrepreneurs operating on the natural gas market in Poland. It should be noted that the duty to align the provisions of agreements with both commercial and household customers without undue delay is in the best interest of natural gas suppliers. Since the amendment of the agreement provides customers with the right to terminate the agreement at no cost, it seems that delaying this obligation until the last moment could involve the risk that a company's clients would be taken over by new actors entering the gas market. Conversely, customers should be aware that, when they receive a proposal to amend their agreement, they are entitled to terminate the agreement at no extra cost.

Authors:

Dominik Strzałkowski, Partner, Attorney at law

Milena Kazanowska-Kędzierska, Assocciate