Price deregulation and the removal of the tariff obligation in the Polish gas market

On November 10, 2016, the Polish Government held the first reading of a bill amending the Energy Law and certain other acts (bill no. 999) (Bill). The main purpose of the Bill is to eliminate tariffs from the Polish natural gas market and to release power companies from the obligation to submit gas tariffs to the President of the Energy Regulatory Office (ERO) for approval. The Bill is the Polish Government’s response to the ruling of the Court of Justice of the European Union (CJEU) of September 10, 2015 (Case no. C-36/14, European Commission v Republic of Poland).

In its ruling, the CJEU stated that the Republic of Poland failed to comply with its obligations arising under the provisions of Article 3(1) in conjunction with Article 3(2) of Directive 2009/73/EC of the European Parliament and of the Council of July 13, 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC. This is due to the Republic of Poland applying a scheme of state intervention consisting in the obligation for power companies to apply gas prices that have been approved by the President of the ERO (the “tariff obligation”). Currently this obligation arises under Article 47 of the Polish Energy Law and applies to power companies holding a license for trading in gaseous fuel or a license for cross-border trading in natural gas and conducting operations consisting in the sale of gaseous fuel. The CJEU noted that the above obligation is unlimited in time and that national law does not impose on administrative authorities any obligation to check at regular intervals the necessity and nature of such intervention in the gas sector. Moreover, power companies are obliged to apply its approved tariffs to an unlimited group of users or customers without any distinction being made between customers.

Therefore, the Bill aims to ensure the progressive elimination of tariffs from the Polish natural gas market by abolishing the obligation arising to submit gas tariffs to the President of the ERO for approval. According to the Bill, the process will be divided into 3 stages to avoid distorting competition in the Polish gas market:

1. Stage I – As from January 1, 2017 trading companies engaging in the sale of gas on wholesale markets, at virtual points (including commodity exchanges) or through public tenders, auctions or public contracts and companies selling compressed natural gas (CNG) or liquefied natural gas (LNG) will be exempt from the obligation to submit their gas tariffs to the President of the ERO for approval.
2. Stage II – As from October 1, 2017, trading companies supplying gas to end-customers who are industrial or commercial consumers, but excluding household customers, will become exempt.
3. Stage III – As from January 1, 2024, trading companies supplying gas to household customers will become exempt. According to the authors of the Bill, due to the fact that household customers demonstrate a low level of activity in switching gas suppliers and because of the need to raise awareness among household customers about their rights, household customers must be provided with a much longer transition period.

Furthermore, the Bill will introduce an obligation for gas trading companies to take necessary action to adapt all gas sale agreements and comprehensive agreements to new requirements concerning gas price calculation methodology. Comprehensive agreements contain elements of a gas sale agreement and of an agreement for distribution or transmission services (where the sale and distribution or transmission of gas are then performed by different parties).

Currently, most agreements specify that the price of gas is based on prices indicated in gas tariffs approved by the President of the ERO. After the Bill enters into force, all agreements will have to specify other methods for determining gas prices. However, the Bill does not clarify what method should be applied instead of gas tariffs.

According to the Bill, in order to fulfil the obligation described above, gas trading companies will have to draw up and send to customers the required draft amendments to concluded gas sale agreements or comprehensive agreements not later than 2 months prior to the planned date of their release from the obligation to submit gas tariffs to the President of the ERO for approval, i.e. October 1, 2017 with respect to industrial customers and January 1, 2024 with respect to household customers. This 2-month deadline will give customers the opportunity to familiarise themselves with the draft amendments and to decide whether or not they want to terminate their agreements. Pursuant to Article 1 item 12) of the Bill, customers will be entitled to terminate their gas sale agreement or comprehensive agreement (whether concluded for a fixed term or an indefinite period of time) with 1 month’s prior notice without having to incur additional costs in connection with the early termination of the agreement.

The obligation arising under Article 47 of the Energy Law to submit gas tariffs to the President of the Energy Regulatory Office for approval is perceived as one of the main barriers to entering the Polish gas market. The Bill assumes that the process of eliminating tariffs will increase the number of entities operating on the Polish gas market.

On November 10, 2016, the Bill was sent to the Energy and State Treasury Committee and is now awaiting its second reading in the Polish parliament.