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Baringa helps Baltic and Finnish regulators to agree on a common gas network charging approach

Having a common gas network charging regime in the Baltic and Finnish region – where gas can be transported freely between different parts of the region – is a key first step to setting up a common regional gas market and introducing competition to challenge market power of a regional dominant supplier.

How can agreement on a single charging model be facilitated among a group of regional regulators and what kind of analysis may assist in their decision-making process?  

Client requirement

The National Regulatory Authorities of Finland, Estonia, Latvia, and Lithuania wanted to determine the best methodology for determining gas entry and exit tariffs that would apply across the region. The key criteria on which their decision would be based included impacts on consumer welfare, economic efficiency, competition, and inter-TSO transfers.

With each country having specific requirements that may favour one charging model over another, and starting from different charging models in each country, robust economic analysis and careful navigation of specific requirements of each regulator was required in order to find a solution that worked for all parties.

Finally, it was important for the national regulators to converge on a solution that did not imply cross-subsidies between different countries, with consumers in one country potentially contributing to network costs in another country.

Baringa’s role

Baringa was asked to undertake a detailed quantitative and qualitative assessment of the Postage Stamp, Capacity Weighted Distance, and Matrix methodologies against the key choice criteria, using inputs from the regional TSOs and Baringa’s know-how. This required detailed optimisation modelling of the regional gas market and the regional gas transmission network, and assessment of the effects of different charging models on regional competition.

An assessment of alternative methodologies was followed by a reasoned recommendation from Baringa to the NRAs on a model that may best meet the criteria and fulfil the needs of each country. This included an assessment of compliance of different methodologies with relevant EU regulations, and more detailed analysis of the chosen regional tariff model. 

Our role included extensive engagement with a wide stakeholder group, including conducting a stakeholder survey and running stakeholder workshops, in order to obtain feedback on the direction that our analysis was taking and to help with building a consensus around a single charging model.

Outcomes and impact

Baringa delivered a clear economic assessment of the impacts of the Postage Stamp, Capacity Weighted Distance, and Matrix methodologies, including robust metrics of social welfare impacts, competition impacts, and inter-TSO transfers. We also provided support to the regulators with regard to interpretation of relevant EU regulations.

We used the results of our assessment and engagement with the regulators on their key requirements to assist in convergence on a single common approach that balanced the needs of all parties.  

Our assessment and recommendations were set out in a detailed report for eventual publication. Detailed tariff and regional gas market models built in the course of the project were handed over to the NRAs to be used in subsequent build-up to implementation. The recommended model progressed to being implemented by the participating regulators, marking an important milestone in creating a common competitive gas market across the Baltic states and Finland.