DIRECTIVE ON THE DETERMINATION OF PRICES AND RATES FOR NATURAL GAS REGULATED ACTIVITIES
DIR-GAS-001-1996
English translation provided solely for convenience. The Spanish version shall prevail in all respects.
With foundation in articles 4 second paragraph, 9, 14 section II of the Regulatory Law of the Constitutional Article 27 on Petroleum (Ley Reglamentaria del Artículo 27 Constitucional en el Ramo del Petróleo); 2, sections V, VI, and VII, 3, sections VII, X, and XIV, and 11 of the Law of the Energy Regulatory Commission (Ley de la Comisión Reguladora de Energía); 1 and 4, first paragraph of the Federal Law of Administrative Procedure (Ley Federal de Procedimiento Administrativo); and 1, 2 section V, 8, 81, 82, 84, 86, 87, 88, 90, 91, 92, 108 and third transition article of the Regulation of Natural Gas (Reglamento de Gas Natural), and WHEREAS
The National Development Plan 1995-2000 (Plan Nacional de Desarrollo 1995-2000) establishes that the goods and services produced by the energy sector must reach international quality standards, and that prices and rates must be set in a transparent and predictable manner, ensuring competition, rational use and conservation of resources, as well as optimal allocation of investment; The regulatory activity of the State, according to this Plan, should promote the productive activities of the private sector, rather than interfering or creating obstacles for them, and develop the industrial policy under fair, transparent and efficient regulatory conditions that stimulate the competitive capacity of the companies, the productive investment, and the creation of more and better jobs in the industry and services in general; The Restructuring and Development Program of the Energy Sector 1995-2000 (Programa de Desarrollo y Reestructuración del Sector de la Energía 1995-2000) proposes actions which allow the establishment of fair and efficient prices and rates which contribute to the global competitiveness of the industry, push forward the development of infrastructure and guarantee a rational use of the resources in order to satisfy the energy requirements of society; The Ley Reglamentaria del Artículo 27 Constitucional en Materia de Petróleo was amended according to the decree published in the Diario Oficial de la Federación on May 11, 1995, to allow the participation of the private sector in the activities of transportation, storage and distribution of natural gas; The amendments to the Ley Reglamentaria del Artículo 27 Constitucional en Materia de Petróleo establish that first-hand sales and the provision of transportation, storage and distribution services of natural gas are activities subject to price and rate regulation; The Ley de la Comisión Reguladora de Energía published in the Diario Oficial de la Federación on October 31, 1995, empowers this decentralized entity to regulate the activities mentioned in the previous paragraph, and to issue general administrative provisions applicable to persons involved in regulated activities; The third transition article of the Reglamento de Gas Natural establishes that the Energy Regulatory Commission (Comisión Reguladora de Energía) will publish within four months after the Reglamento de Gas Natural entered into force, the directive related to first-hand sales prices and the rates of the transportation, storage and distribution services of natural gas, and In accordance with the agreement published in the Diario Oficial de la Federación on November 24, 1995, the Executive Branch established the basis to perform the deregulation of requirements and to develop the timeframes related to the establishment and operation of businesses, with the objective of promoting their growth and investment under regulatory conditions that are similar to or better than that of other countries. T
herefore, the Comisión Reguladora de Energía issues the:
DIRECTIVE DIR-GAS-001-1996 ON THE DETERMINATION OF PRICES AND RATES FOR THE NATURAL GAS REGULATED ACTIVITIES Mexico City, March 15, 1996.
RAUL MONTEFORTECommissioner JAVIER ESTRADACommissioner HECTOR OLEAChairman RUBEN FLORESCommissioner RAUL NOCEDALCommissioner Table of Contents
1. SCOPE AND OBJECTIVES 1
2. DEFINITIONS 2
3. SUMMARY OF THE DIRECTIVE 5
A. THE MAXIMUM FIRST-HAND SALES PRICE 6
B. MAXIMUM ACQUISITION PRICE 7
C. TRANSPORTATION AND DISTRIBUTION RATES 7
D. STORAGE RATES 8
E. CONNECTION SERVICES 8
F. TARIFF SCHEDULES 9
G. MINIMUM RATES 9
H. CONTRACT RATES 9
4. FIRST-HAND SALES 9
A. METHODOLOGY 10
B. MEXICAN TRANSPORTATION RATES 13
C. CHANGES TO THE METHODOLOGY 14
D. CONTRACTS RATES 15
5. MAXIMUM ACQUISITION PRICE 15
A. METHODOLOGY 15
B. ENFORCEMENT 16
6. TRANSPORTATION AND DISTRIBUTION RATES 18
A. METHODOLOGY 19
B. STARTING VALUE OF THE REVENUE YIELD CAP (P0) 20
Provision of financial information 21
Review of the business plan 22
Determining an appropriate return 22
C. THE INFLATION INDEX (P) 23
D. THE EFFICIENCY FACTOR (X) 24
E. PASSTHROUGH ELEMENTS (Y) 25
F. THE CORRECTION FACTOR (K) 26
The first five years 27
G. REVENUE YIELD CAP REVIEW 28
THE REVIEW PROCESS 28
H. CALCULATING ACHIEVED REVENUES 30
Adjustment for throughput drop 32
Information requirements 33
7. STORAGE RATES 34
8. CONNECTION SERVICES 34
A. TRANSPORTATION 34
B. DISTRIBUTION 35
9. TARIFF SCHEDULES 36
A. RATE CALCULATION 38
Transportation rates 38
Distribution rates 39
B. CAPACITY USE 40
System peak 40
Capacity reservations 41
Penalties for exceeding reserved capacity 42
Secondary capacity market 42
Deemed load profiles 42
C. TRANSPORTATION RATES BY REGION 43
D. DISTRIBUTION RATES BY DELIVERY PRESSURE AND VOLUME BANDS 44
E. INTERRUPTIBLE SERVICE RATES 44
F. OTHER RATES AND SERVICES 45
G. ENFORCEMENT 45
Rate approval 45
Obligation to publish tariff schedules 46
Separate accounts 46
10. MINIMUM RATES 47
11. CONTRACT SALES 47
12. TRANSITORY PROVISIONS 48
DIRECTIVE ON THE DETERMINATION OF PRICES AND RATES FOR NATURAL GAS REGULATED ACTIVITIES
Scope and Objectives In accordance with the requirements of the Regulation of Natural Gas, this Directive contains the methodologies which must be used by regulated businesses when setting prices and rates in the natural gas industry. The activities regulated by this Directive include the first-hand sales, and the provision of natural gas transportation, storage and distribution services. In the development of this Directive, the Comisión Reguladora de Energía (Energy Regulatory Commission) has reviewed detailed studies on the different forms of incentive regulation and their applicability in Mexico. In addition, the Directive includes comments, suggestions and observations made by users and other interested parties of the domestic and international gas industry during the public consultation period organized by the Comisión Reguladora de Energía (Energy Regulatory Commission). The Commission has formulated this Directive with the following objectives in mind:
Provide for the efficient supply of natural gas;
Allow first-hand sales to reflect conditions of a competitive market;
Favor the development, and the safe and reliable operation of transportation, storage and distribution systems;
Promote the acquisition, transportation, storage and distribution services of natural gas at prices and rates adequate for industrial, commercial and residential users;
Avoid unduly discriminatory practices;
Promote competition, and open access to services;
Provide efficient operators an opportunity to earn an appropriate return on assets;
Limit cross-subsidies among services provided by regulated businesses, and
Design a regulatory regime which is predictable, stable and transparent, offers flexibility, and which does not impose undue burdens upon regulated businesses.
Definitions
Purchaser: Party who agrees to or seeks to contract for first-hand sales.
Storage: The activity of receiving, holding, and delivering gas at fixed facilities other than pipelines.
Capacity charge: The portion of the rate based on capacity reserved by the user to meet maximum demand over a defined period.
Connection charge: The portion of the rate based on a fixed amount for connection to the system.
Customer charge: The portion of the rate associated with the cost of providing transportation, storage and distribution services to a specific user.
Usage charge: The portion of the rate which reflects the use of the system according to the volume of gas transmitted or consumed by the user.
Commission: The Comisión Reguladora de Energía.
General terms and conditions for providing service: The document, approved by the Commission, that establishes the rates, and the rights and obligations of a permittee in relation to the users.
Allowed costs: The costs of a regulated business which are approved by the Commission for the purpose of setting the revenue yield cap for permittees.
Accounting Directive: The document that establishes the criteria and guidelines for the accounting system which must be used by permittees for the book keeping of their operations.
Distribution: The activity of receiving, transmitting, delivering and, if applicable, marketing of gas through pipelines within a geographic zone.
Dollars: The currency of the United States of America.
Pipelines: Pipes and facilities for the transmission of gas.
Regulated businesses: The entities that engage in first-hand sales and the corporations and entities that provide transportation, distribution and storage services.
Load factor: The indicator of effective utilization with respect to the maximum potential utilization of the system, or the maximum reserved capacity.
Throughput: The volume of gas, or its equivalent in units, which is received, transmitted and delivered through a pipeline system in a given period.
Gas or natural gas: A mixture of hydrocarbons consisting mainly of methane.
Gas Daily: Daily publication edited by Pasha Publications specializing in the natural gas market of the United States of America.
Houston Ship Channel: Gas reference market in South Texas.
Revenue Yield Cap: The maximum average annual revenue yield per unit established by the Commission for providing transportation and distribution services.
Achieved revenue: The average annual revenue per unit obtained by each permittee, and used for comparison to the revenue yield cap.
Inside FERC’s Gas Market Report: McGraw-Hill’s biweekly publication specializing in the natural gas market of the United States of America.
Tariff schedule: The set of rates approved by the Commission for a permittee.
Load profile: The pattern of demand for gas throughout the year.
Deemed load profiles: The evaluation of standard load profiles based on grouping final users into a number of categories.
Permittee: The holder of a permit for transportation, storage or distribution.
Petróleos Mexicanos: Petróleos Mexicanos and any of its subsidiary agencies pursuant to the terms of its Organic Law.
System peak: The period or periods when the use of the system is at its maximum.
Netback price: The price derived from adjusting a price in another market by the cost of transmission to the place of sale.
Contract price: The first-hand sales price established through the right of the purchaser to negotiate more favorable conditions in the acquisition price of gas.
Reference gas price: The maximum gas price allowed to be passed through by a distributor to a user.
Maximum acquisition price: The maximum amount that can be charged by distributors to final users for the acquisition, transportation and storage of gas.
Arbitration point: The point in the national Petróleos Mexicanos’ transportation system where the flows of domestic and imported gas coincide.
Volume band: The difference between the maximum and minimum levels of annual consumed volume, corresponding to a determined charge.
Region: The area covered by part of the transportation system where a unique rate is applied.
Reglamento: The Regulation of Natural Gas (El Reglamento de Gas Natural)
Storage service: The receipt of gas at a certain point of the storage system and the delivery, in one or several actions, of a similar amount at the same or at a nearby point of the same system.
Distribution service: The marketing and delivery of gas by a distributor to a final user within his geographic zone; or the receipt of gas at the delivery point or points of the distribution system, and the delivery of a similar quantity to a different point in the same system.
Distribution service with marketing: The simple distribution service and the marketing of gas within a geographic zone.
Simple distribution service: The receipt of gas at one or more receipt points of the distribution system and the delivery of a similar amount at a different point in the same system.
Transportation service: The receipt of gas at a point in the transportation system and the delivery of a similar amount at a different point in the same system.
Backhaul service: The transportation service counter to the physical flow of gas in the system.
Firm service: A service where the user has uninterrupted access to the system as defined in the permittee’s general terms and conditions.
Interruptible service: A service where a user is granted pipeline access conditioned to interruption when required by the transporter or distributor.
Connection services: The set of works and services necessary to connect users to the transportation or distribution systems.
System: The set of pipes, compressors, regulators, meters, facilities, and ancillary equipment for transmission or storage of gas.
Contract rate: The rate that is freely established by contract between the permittee and the user.
Volumetric rate: The rate for distribution service with marketing, charged to the final users, which combines the capacity and usage charges and depends on the volume consumed.
Rates: The charges for each type or class of service provided by a permittee.
General terms and conditions that shall govern first-hand sales: The document that indicates the rights and obligations of Petróleos Mexicanos with respect to the purchases of gas through first-hand sales.
Exchange rate: The dollar/peso rate for settling obligations denominated in a foreign currency and payable in the Mexican Republic, published by the Banco de México in the Diario Oficial de la Federación.
Transportation: The activity of receiving, transmitting, and delivering gas through pipelines to those that are not final users within a geographic zone.
Unit: The amount of gas containing the energy equivalent to one billion calories at one kg/cm2 of absolute pressure and a temperature of 20° C; known as a Gigacalorie (Gcal). One million Btu equal to 0.252 Gcal.
User: The party that uses or seeks to use the services of a permittee.
Final users: A user which acquires gas for its own consumption.
First-hand sale: The first sale of gas of national origin by Petróleos Mexicanos to another party for delivery in the national territory.
Summary of the Directive
This Directive regulates the following activities:
The first-hand sales;
The transportation service;
The storage service;
The distribution service;
The acquisition, transportation and storage of gas contracted by distributors for providing distribution service with marketing, and
The connection of users to the transportation systems. The connection to the distribution system and the installation of meters will be part of the distribution service. This Directive establishes methodologies for the determination of prices and rates for the previously mentioned activities. These regulatory instruments are summarized in Table 3.1. Each instrument, and its rationale, is introduced in the following sections.
Table 3.1 Regulatory instruments on Prices and Rates
Regulated Activities
Instrument First-Hand Sales Transporters Distributors Storage Provision of Service Connection Charge Provision of Service Maximum acquisition price
Maximum first-hand sales price Ö
Maximum acquisition price Ö
Revenue yield cap Ö Ö
Approved maximum tariff schedule Ö Ö Ö
Minimum rates Ö Ö Ö Benchmark regulation Ö Ö
Contract prices or rates Ö Ö Ö Ö
A. The maximum first-hand sales price
The maximum first-hand sales price determines the highest price which Petróleos Mexicanos can charge for sales of domestic gas at the point of exit from the processing plants, or any other point or points determined by the purchaser.
The maximum first-hand sales price will have three components:
The base price, to reflect the conditions for first-hand sales on the effective date of this Directive;
The changes in Houston Ship Channel prices, that reflect the international evolution of gas prices in a relevant market for Mexican gas; and provide appropriate liquidity and the development of financial hedging instruments, and
The changes in transportation rates from the border to Ciudad Pemex —the current delivery point for most gas produced in Mexico— to reflect the evolving conditions of the transportation markets. The maximum first-hand sales price is denominated in dollars per unit and is derived daily from the first-hand sales price on March 1, 1996, adjusted according to changes in:
The daily Houston Ship Channel price, and
The approved transportation rates from Reynosa to Ciudad Pemex. In controlling the first-hand sales price, the Commission has three objectives:
To reproduce, as far as possible, the conditions of a competitive market;
To reflect, in a transparent manner, the impact that transportation rates within Mexico have on the regulated price, and
To minimize the transitional changes to a new pricing system for first-hand sales in Mexico.
Purchasers of gas may agree on more favorable conditions in the purchase price for first-hand sales.
B. Maximum acquisition price
The maximum acquisition price determines the maximum average price which distributors can recover for the acquisition, transportation and storage of gas in the provision of the distribution service with marketing.
This price is denominated in pesos per unit and is composed of the maximum gas price that the distributor can pass through to the users, and the transportation and storage costs incurred by the distributor.
C. Transportation and distribution rates
Transporters and distributors will be subject to regulation through a cap on the average revenue per unit (revenue yield cap) they receive from their services per unit of gas transported or distributed. The level of the cap may be different for each transporter and distributor.
The revenue yield cap will be determined to allow efficient transporters and distributors the opportunity to earn an appropriate return on their assets.
The methodology will allow the revenue yield cap to escalate annually by an inflation index, adjusted by an efficiency factor which reflects the increases in the productivity of the sector. The efficiency factor will be equal to zero for the first five years of the provision of service.
The Commission will regulate transportation and distribution rates through a cap on the average revenue per unit. The objective of the revenue yield cap is to:
Offer the necessary flexibility for permittees in a developing market while maintaining the opportunity to achieve an appropriate return on their assets;
Provide transporters and distributors with an incentive to improve efficiency and increase their productivity, and
Maintain light-handed regulatory intervention in regulated activities.
D. Storage rates
Storage services will be regulated by the Commission. Each applicant for a storage permit must propose to the Commission a specific regulatory methodology appropriate to the type of storage to be developed. The methodology must be in accordance with the principles of this Directive.
E. Connection services
The Commission will oversee transportation connection rates by benchmark comparisons between the rates charged by different transporters in the industry.
Connection services in transportation systems are potentially contestable. Hence, the users of these systems are free to purchase these services from third parties, subject to compliance with the technical specifications defined in the transporter’s general terms and conditions.
The transporter may make the physical connection or junction to the pipeline, but the remainder of the system work, as well as the operation and maintenance, will be subject to agreement between the transporter and the party interconnecting with the transporter. Provision of operations and maintenance will be subject to agreement between the parties. Disputes regarding these matters will be arbitrated by the Commission.
The revenue yield cap for transporters will not reflect the expected costs and revenues associated with providing connection services. This is due to the fact that connection costs and revenues are not related to throughput.
The revenue yield cap for each distributor will include the charges associated with providing a standard connection service to final users. The standard service is included in the revenue yield cap, due to safety and system integrity considerations.
All costs and revenues from non-standard connections, and from disconnections and reconnections will be outside the distributor’s revenue yield cap.
F. Tariff schedules
Permittees must submit the rates for the provision of their services for approval by the Commission. The rate must consist of two parts: a charge for capacity and a charge for usage.
Transporters will set their rates so that they are able to recover all of their fixed costs through the capacity charge and all of their variable costs with the usage charge.
Distributors will set their rates so that they are able to recover 50 percent of their costs from the capacity charge and 50 percent from the usage charge.
Distributors providing distribution services with marketing can charge a one-part volumetric rate.
Permittees are required to charge separately for their different services and publish a tariff schedule. These schedules must be approved by the Commission, which will review them with regard to:
The overall objective to promote the efficient use and development of the system;
Undue discrimination between different customer groups, and
The requirement in article 67 of the Reglamento prohibiting cross-subsidies between different services.
G. Minimum rates
All permittees’ sales must be made at or above the minimum rate, which is equal to the usage charge.
These minimum rates limit predatory competition and encourage investment in new systems.
H. Contract rates
Permittees and users may agree on contract rates for the provision of services different from those offered by the permittees in the published tariff schedule.
First-Hand Sales
The regulation of first-hand sale prices determines the maximum price which Petróleos Mexicanos can charge for the sale of domestic gas.
This Directive establishes a methodology to calculate the maximum price charged for first-hand sales at the point of exit from the processing plant facilities at Ciudad Pemex. The maximum price, at any other point, will be calculated as the sum of the first-hand sale price at Ciudad Pemex plus the Commission approved transportation rate to the delivery point.
The methodology replicates the conditions of a competitive market. In particular, the Commission’s objective is to reflect, in Mexico, the evolution of international gas prices, using as a basis a market with:
Appropriate liquidity conditions;
Financial hedging instruments, and
Conditions for the determination of relevant gas prices for Mexico.
Maximum first-hand sale price incorporates movements in the price of gas at the reference market in the United States of America and the changes in transportation costs in Mexico. The Commission will use, as an international reference, the price of gas as reported at the Houston Ship Channel and, as the transportation adjustment in Mexico, the Petróleos Mexicanos’ maximum authorized transportation rates.
Petróleos Mexicanos will be required to make daily and monthly maximum first-hand sale prices available to the public.
Petróleos Mexicanos will bill for first-hand sales, in pesos, at the exchange rate on the day of billing.
A. Methodology
The maximum first-hand sale price can be defined either monthly or daily as chosen by the purchaser.
The methodology for determining the maximum first-hand sale price consists of three components:
The base price (B0): The price of gas charged at Ciudad Pemex on March 1, 1996. This price reflects the market conditions in Mexico on the effective date of this Directive;
The changes in the international reference price: The change in the Houston Ship Channel price with respect to the initial value (HSC0), and
The change in transportation rates in Mexico: The net change in Petróleos Mexicanos’ transportation rates from Reynosa to Ciudad Pemex with respect to March 1, 1996 (TP0). The formula for setting the maximum first-hand sales price (VPMi) at Ciudad Pemex will be expressed in dollars per unit as defined below:
Daily:
and
Monthly:
Where:
is the maximum first-hand sale price on day i;
is the maximum first-hand sale price on month i;
B0 is the base price of first-hand sales at Ciudad Pemex on March 1, 1996 as derived from Petróleos Mexicanos’ methodology on that date (dollars/unit);
is the midpoint of the daily price range quoted for gas at the Houston Ship Channel the day before day i, as reported in Gas Daily, “Daily Price Survey,” Houston Ship Channel entry (converted from dollars/mmBtu to dollars/unit);
is the average of the midpoints of Texas Eastern Transmission price (South Texas price) and the Valero price as reported for March 1, 1996 in Gas Daily, “Daily Price Survey” (converted from dollars/mmBtu to dollars/unit), plus the historic price differential with respect to the Houston Ship Channel of seven dollar cents/mmBtu. The historical differential is used to avoid including in the first-hand sale price formula adjustment variations in the market for a particular day; i>is the Houston Ship Channel index as reported in Inside FERC’s Gas Market Report for month i, (converted from dollars/mmBtu to dollars/unit);
is the Houston Ship Channel index for March 1996 as reported in Inside FERC’s Gas Market Report of March 4, 1996 (converted from dollars/mmBtu to dollars/unit). This value is equal to the average of the indices of Texas Eastern Transmission and Valero for March 1996, plus the historic price differential with respect to the Houston Ship Channel of seven cents of dollar /mmBtu;
TPi is the net authorized Petróleos Mexicanos’ transportation rate from the border at Reynosa to Ciudad Pemex for period i, (dollars/unit), and
TP0 is the Petróleos Mexicanos’ net transportation rate from the border at Reynosa to Ciudad Pemex for March 1, 1996 (dollars/unit).
The values for TPi and TP0 will be calculated according to the following formulas:
TPi = - and TP0 = -
Where:
is the Petróleos Mexicanos authorized rate for the transportation service from the border at Reynosa to the arbitration point in effect on period i (dollars/unit);
is the Petróleos Mexicanos transportation service rate from the arbitration point to Ciudad Pemex on period i, (dollars/unit).
is the transportation service rate from the border at Reynosa, Tamaulipas to Los Ramones, Nuevo Leon, in effect on March 1, 1996. Los Ramones is the current arbitration point in Petróleos Mexicanos’ transportation system as of March 1, 1996, and i
s the transportation service rate in effect from Los Ramones, to Ciudad Pemex on March 1, 1996.
The initial values for the calculation of the first-hand sale price are presented in Table 4.1.
Table 4.1.-Initial Values for the Determination of First-hand Sales
Concept Parameter Value (Dlls/unit)
Base price for first-hand sales at Ciudad Pemex on March 1,1996 B0 6.8385
Average of the midpoints of the range at Texas Eastern Transmission and Valero on March 1, 1996, as reported by Gas Daily, plus the seven US cents/mmBtu historic differential (converted from dollars/mmBtu to dollars/unit) 8.0060
Houston Ship Channel Index, as reported by Inside FERC’s Gas Market Report on March 4, 1996 7.8968
Petróleos Mexicanos’ net transportation rate in effect from Reynosa to Ciudad Pemex on March 1, 1996 -0.7806
B. Mexican transportation rates The transportation rates from the border to the arbitration point (TPiA) and from the arbitration point to Ciudad Pemex (TPiCP) in effect for period i, will be calculated using the rates published by Petróleos Mexicanos according to the following formulas: and
Where:
is the Petróleos Mexicanos’ authorized usage charge for transportation from the border to the arbitration point in period i (dollars/unit);
is the Petróleos Mexicanos’ annual authorized capacity charge for transportation from the border to the arbitration point in period i, (dollars/unit);
is the energy contained in the volume of gas transmitted from the border to the arbitration point on the system peak day (unit/peak day);
is the daily average energy contained in the transmitted volume from the border to the arbitration point (unit/day);
is the Petróleos Mexicanos’ authorized usage charge for transportation from the arbitration point to Ciudad Pemex on period i (dollars/year);
is the Petróleos Mexicanos’ annual authorized capacity charge for transportation from the arbitration point to Ciudad Pemex in period i (dollars/unit);
is the energy contained in the transmitted volume of gas from the arbitration point to Ciudad Pemex in the system peak day (unit/peak day), and i
s the energy contained in the daily average volume of gas transmitted from the arbitration point to Ciudad Pemex (unit/day).
Petróleos Mexicanos will submit and for Commission approval.
For the calculation of the maximum first-hand sale price, the rates will be published in pesos and converted to dollars, at the exchange rate published by the Banco de Mexico, the day the new approved transportation rates enter into effect.
The value of will not change until the Commission approves a new transportation rate for Petróleos Mexicanos, independently of changes in the exchange rate.
C. Changes to the methodology
Changes to the methodology for calculating maximum first-hand sales price may be initiated by the Commission itself or at the request of Petróleos Mexicanos or the purchasers.
Any modification to the formula for calculating the maximum first-hand sales price will require the Commission’s approval.
Any change in the following will be considered to be a modification to the formula for first-hand sales:
Reference market (Houston Ship Channel);
Publication used for the reference prices (Gas Daily and Inside FERC’s Gas Market Report);
Arbitration point of the system (Los Ramones);
Position of Mexico in the international gas market (net importer)
Methodology for calculating TPi (paragraph 4.11);
Base values (B0, , and according to Table 4.1);
Route used to calculate TPi.(Reynosa-Ciudad Pemex), and
Other which the Commission deems significant.
D. Contracts rates
The maximum first-hand sale prices should not affect the purchaser’s right to negotiate, in reference to the acquisition price, more favorable conditions which can not be contrary to what is stated in the Reglamento, this Directive, or to the general terms and conditions that will regulate first-hand sale prices approved by the Commission. Maximum acquisition price
The regulation of the acquisition price establishes a maximum price that can be passed through to the final user by the distributor as a result of the costs incurred due to the acquisition of gas, and transportation and storage services.
The Commission regulates this activity to ensure that final users who purchase gas services from distributors pay no more than the regulated first-hand sales price plus the authorized transportation and storage rates.
The regulated acquisition price will allow distributors to recover the costs of:
The acquisition of gas at a price less than or equal to the weighted average reference price which would normally be the maximum first-hand sales price; and
The prudent contracting of transportation service utilizing appropriate routing and storage service, at the Commission approved rates.
The Commission, on its own initiative, or at the request of the distributor or user, may authorize a reference price different from the maximum first-hand sale price referred to in section I of paragraph 5.3, when:
The distributor is not connected to a national production field through the transportation system, or
The first-hand sale price is an inappropriate reference price, because of the geographical location of the distributor.
Distributors will have an obligation to minimize costs for gas acquisition, transportation and storage services, with respect to the prevailing market conditions.
A. Methodology
The maximum acquisition price for each distributor on month t (PAt) will be denominated in pesos per unit and it is calculated by the following formula:
Where:
Gt is the maximum gas cost that can be passed through to the users in month t (pesos);
Tt is the total incurred transportation cost in month t (pesos);
At is the total storage costs in month t (pesos), and
Vt is the energy contained in the volume of gas sold in month t (units).
The maximum gas cost that can be passed through to the users in month t (Gt ) will be equal to the maximum monthly reference price (PRt) multiplied by the monthly volume acquired by the distributor (Vt).
When the maximum gas reference price is expressed daily, Gt will be calculated according to the following formula:
Where:
PRit is the average reference price on day i of month t (pesos/unit), which will be the maximum first-hand sales price except in the case described in paragraph 5.4; and
Vit is the energy contained in the volume of acquired gas on day I of month t (unit). For the purposes of calculating the maximum acquisition price, gas reference prices will be converted into pesos using the average exchange rates prevailing over the corresponding month.
B. Enforcement
The Commission may verify the compliance with the provisions of this chapter by:
Benchmarking the performance of other distributors, and
Reviewing the information presented by the distributor.
For the periodic review of the acquisition prices, each distributor must present to the Commission monthly information corresponding to the review period. This information shall include:
Volumes of gas purchased;
The maximum reference price of gas;
Transportation costs;
Storage costs, and
Monthly revenues from gas sales to final users.
With this information, the distributors will calculate, and submit to the Commission, the maximum acquisition price and the revenue per unit derived from gas sales to final users.
The Commission will evaluate the transportation and storage costs presented by the distributor based on:
The maximum allowed rates for the storage and transportation systems utilized by the distributor, and
The storage and transportation costs incurred by other distributors in similar situations.
If the Commission determines that the transportation and storage costs incurred by the distributor are excessive, the Commission will adjust this difference, plus interest, in the calculation of the maximum acquisition price of the distributor.
When the distributor’s revenue per unit from gas sales is greater than the maximum acquisition price, the distributor must reimburse the difference, plus interest, in a period no greater than three months after the review date.
The interest rate utilized will be the interbank interest rate (tasa de interés interbancaria de equilibrio) published by the Banco de México in the Diario Oficial de la Federación.
When the distributor’s revenue per unit from gas sales is less than or equal to the maximum acquisition price, the distributor will not make any adjustment.
Transportation and distribution rates
The transportation and distribution rates will be regulated through a revenue yield cap methodology. As opposed to cost of service regulation, this methodology results in relatively light regulatory intervention in the regulated businesses and provides:
An incentive to increase system efficiency and to increase gas throughput;
The necessary flexibility for the development of the gas industry, and
The opportunity for an efficient business to earn an appropriate return.
In choosing this form of regulation, the Commission seeks to combine incentives for efficient development and operation, with a regime which limits risk and encourages the expansion of gas supply to a wide customer base. This regime is intended to provide a balance between protecting users and providing conditions for the promotion of investment in Mexico and thus the development of the gas industry.
The Commission will regulate rates charged by permittees by setting an annual revenue yield cap, for a five-year period. The initial revenue yield cap can be different for each permittee according to the specific operating conditions.
The revenue yield cap regulation will start from the year the transporter or distributor initiates service.
The revenue yield cap will provide the opportunity for an efficient business to earn an appropriate return. However, permittees will not be guaranteed any particular return, nor will they be limited to a maximum return as long as the achieved revenue is not higher than the revenue yield cap authorized by the Commission.
Each year, the revenue yield cap will be adjusted according to changes in the inflation index and adjusted by an efficiency factor. This efficiency factor is zero for the first five years starting from the date service begins.
At the end of every year the achieved revenue will be calculated and compared to the revenue yield cap. If the achieved revenue is higher than the revenue yield cap, the Commission will adjust the revenue yield cap downwards in the following year with the objective to account for this difference.
In the first five years of operation if the achieved revenue is lower than the revenue yield cap, the Commission will adjust the revenue yield cap upwards in the next year.
Every five years, the Commission and the permittee will review the parameters used in the revenue yield cap determination. The new authorized revenue yield cap will be in effect for the following five years and will allow efficient permittees the opportunity to earn an appropriate return on its investment, without affecting the obtained return from previous periods.
In the process of determining an appropriate rate of return at each five-yearly review, the Commission will consider the relative efficiency of permittees, giving the most efficient ones the opportunity to earn a higher return.
The calculation of the achieved revenue per unit will include the revenues obtained from sales at regulated and contract rates with the following exceptions:
The revenue yield cap for transporters will not regulate the revenue from transportation connection charges. Regulation of these services is described in chapter 8, and
The revenue yield cap for distributors will not regulate the revenues from sales to final users. Regulation of this service is described in chapter 5.
During the five-yearly reviews, the Commission may consider the use of weights in the calculation of the revenue yield cap in order to reflect differences among the revenues associated with serving different types of users.
The following sections of this chapter explain:
The methodology for calculating the revenue yield cap;
The parameters of the formula;
The means of enforcing compliance;
The Commission's methodology and procedure for reviewing the parameters of the revenue yield cap every five years, and
The methodology for calculating the achieved revenue in each year.
A. Methodology
The revenue yield cap for period t (IMt) will be denominated in pesos per unit and will be calculated by the following formula:
Where:
is the change in the inflation index in year t (percentage);
X is the efficiency factor (percentage);
Pt-1 is the initial value of the revenue yield cap (P0) adjusted for changes in -X between the initial period and year t-1 (pesos/unit);
Yt is the pass-through costs per unit in year t (pesos/unit), and
Kt is the correction factor applied to ensure compliance with the revenue yield cap in year t (pesos/unit).
P0 is the initial revenue yield cap value authorized by the Commission at the time the permit is granted or at the time of the five-yearly review.
Before being granted a permit, and every five years thereafter, each permittee must obtain the approval of the Commission regarding the values of the parameters for calculating the revenue yield cap:
The initial value for the revenue yield cap (P0);
The inflation index ( );
The efficiency factor (X), and
The costs included in the pass-through element (Y).
These elements and the correction factor, K, are explained below.
B. Starting value of the revenue yield cap (P0)
P0 is the initial value approved by the Commission for the revenue yield cap, which will be adjusted in line with -X. All other elements of the revenue yield cap (Y and K) are not subject to adjustments by this factor.
The initial parameters, for the first five years once the distribution permit is granted through a bidding process, will be determined in the proposal submitted in the bidding process.
In all other cases, for both distributors and transporters, P0 will be approved by the Commission after assessing the revenue required to cover the companies' allowed costs throughout the five-year period.
P0 for transporters will be based upon the assumption of full utilization of the capacity in the pipeline, unless the transporter can prove to the Commission that a different utilization is more appropriate.
For each permittee, P0 will be approved by the Commission and set in order to provide:
The establishment of appropriate and stable rates for users, and
An opportunity for efficient distributors and transporters to earn an appropriate return on their assets.
Provision of financial information
In setting P0, permittees must provide the Commission with a business plan which contains the following information:
Value of the asset base, using current cost accounting in accordance with the Accounting Directive published by the Commission;
The scale and timing of planned capital investment over the five-year period and five years beyond, for both replacement and new investments;
Projected operation and maintenance costs over the five-year period and three years beyond;
The definition of those costs that are affected by Mexican inflation and those which are affected by the inflation in the United States of America and changes in the exchange rate;
Historic cost and throughput information, where such information is available;
Throughput projections over the five-year period and three years beyond, and
Projected weighted average cost of capital over the five-year period and three years beyond, after considering:
Expected return;
Cost of debt with a maturity of one year or more at the date of issue;
Cost of equity;
Cost of preferred stocks, and
Cost of other financial instruments.
The Commission may request additional information and may specify the format in which the information should be presented.
Review of the business plan
Permittees must present the Commission with current cost asset values. These asset values must be determined using standard Mexican appraisal methodologies.
The Commission will review the permittee´s valuation of assets to ensure:
Only assets related to the service have been included;
Appropriate adjustments have been used to obtain current values, and
An appropriate adjustment has been made for depreciation.
The Commission will review the permittee´s cost and throughput projections with regard to:
Internal consistency;
Historic trends;
International and domestic benchmarks, and
Consistency with projections being made by other permittees in similar conditions.
Determining an appropriate return
In order to allow efficient permittees to obtain an appropriate return on their asset base, the Commission will consider:
The debt/equity ratio of the permittee, and
The opportunity cost of capital.
To determine the opportunity cost of capital:
The profitability of similar businesses in the other countries;
An appropriate return for investments in Mexico, and
Other factors the Commission considers appropriate.
In the profitability analysis, the Commission will include approaches to financial risk analysis, generally used in the industry, such as the weighted average cost of capital, the capital asset pricing model and dividend growth theory.
C. The inflation index (P)
The revenue yield cap will be adjusted, on an annual basis, according to the changes in the inflation index (Pt). This index will reflect historic annual changes based on:
The Consumer Price Index (CPI) in Mexico, published by the Banco de México in the Diario Oficial de la Federación;
The CPI in the United States of America according to the published information in the Bureau of Labor Statistics, and
Fluctuation in the exchange rate.
The Commission can authorize monthly or quarterly adjustments to the revenue yield cap when, at the request of permittees it is considered convenient to reflect high inflation levels or significant movements in the exchange rate.
A fraction of will reflect changes in the US CPI and the exchange rate. The remainder will reflect changes in the Mexican CPI.
The initial proportions for calculating the inflation index for each permittee when P0 is set, will be determined by the proportion of the costs affected by:
The inflation in Mexico;
The inflation in the United States of America; and
Fluctuations in the exchange rates. The concepts of cost that will be utilized in the calculation of the proportions mentioned in the previous paragraph, will be defined at the time P0 is fixed, and will be kept until the following review. However, the value of the corresponding proportions will be able to change on an annual basis. The proportions will be determined according to the following formulas:
Such that:
Where:
is the proportion of costs affected by the Mexican inflation that will apply in the inflation index determination in year t;
is the proportion of costs affected by the US inflation and exchange rate, that will apply in the inflation index determination in year t;
is the value of costs affected by the Mexican inflation in year t-1(pesos);
is the value of costs affected by the exchange rate and the US inflation in year t-1 (pesos), and
CTt-1 is the total incurred costs in year t-1, according to the concepts of approved costs by the Commission at the time of setting P0 (pesos).
Each permittee must obtain the approval of the Commission for the starting proportion of allowed costs which are affected by the exchange rate and the US inflation, and those affected by the Mexican inflation.
The inflationary index for period t ( ) will be expressed in terms of percentage of the total costs according to the following formula:
Where:
is the change in the Mexican CPI in period t-1 (percentage);
is the change in the US CPI over period t-1 (percentage), and
et-1 is the average change in the exchange rate over period t-1 (percentage).
When the Commission allows monthly or quarterly changes in the revenue yield cap, will move in line with recorded monthly or quarterly movements in the components of the inflation index and the monthly or quarterly fluctuations in the exchange rate.
D. The efficiency factor (X)
The efficiency factor will be set at zero for the first five years after the start of service.
Beginning with the sixth year of operation, the Commission will set one or several efficiency factors for each permittee, which will be fixed for the following five years.
For each permittee, the efficiency factor will be set, taking into account:
Expected efficiency gains over the following regulatory period, and
Other factors affecting the change in per unit costs over the following regulatory period, such as the capital investment program.
In reviewing the expected efficiency gains, the Commission will consider:
Historic trends of the permittee’s efficiency;
International industry best practices;
Long run total productivity indices;
Economies of scale, and
Benchmarking with other permittees in Mexico.
E. Pass-through elements (Y)
Pass-through costs are those which permittees can transfer directly to users. These costs are not subject to the -X constraint because they are outside the control of the permittee. The full extent of changes in these costs can be reflected in the rates for service provision.
The following will be considered pass-through costs:
The cost of gas purchased and sold by transporters to balance the system, due to operational losses, and
The incremental cost of changes to the domestic tax regime.
The transporter’s costs used for balancing the system and stemming from operational losses are subject to a limit equivalent to the maximum first-hand sales or any other reference price that the Commission considers appropriate. In this way transporters will not make a profit on the purchase and sale of gas to balance their systems. The balancing costs do not include user consumption in excess or below nominated volumes.
For the calculation of IMt, permittees must present to the Commission, at the beginning of each year, an estimate of pass-through costs. The Commission will analyze the differences between the estimates and the actual pass-through costs incurred during the year, and, when comparing the revenue yield cap to the achieved revenue, will make those adjustments that it deems appropriate.
All pass-through costs will need to be clearly identified in the accounting records of permittees.
The costs incurred by distributors in the acquisition, transportation and storage of gas on behalf of their users will not be treated as a pass-through in the distribution revenue yield cap. These costs will be regulated separately through the acquisition regulation outlined in chapter 5.
F. The correction factor (K)
The correction factor is the instrument used by the Commission to ensure compliance with the regulation. It corrects for mismatches between each year's revenue yield cap and the achieved revenue by each permittee.
The correction factor is necessary to enforce the permittee’s compliance with the revenue yield cap.
The correction factor mechanism will apply, on an annual basis, only when the achieved revenue exceeds the revenue yield cap set by the Commission .
In the case where the permittee’s achieved revenue was higher than the revenue yield cap in year t-1, the correction factor in year t will reduce the revenue yield cap by the over recovery plus interest. The correction factor for period t (Kt) will be denominated in pesos per unit and will be calculated according to the following formula:
Where
IMt-1 is the revenue yield cap on year t-1 (pesos/unit);
IOt-1 is the achieved revenue on year t-1 (pesos/unit);
rt-1 is the annual average interest rate in year t-1;
Vt is the energy contained in the estimated annual volume for year t, and
Vt-1 is the energy contained in the annual volume for year t-1. The interest rate used in the correction factor will be the annual average interbank equilibrium interest rates (Tasa de Interés Interbancaria de Equilibrio) as published by the Banco de México in the Diario Oficial de la Federación.
The first five years
The correction factor for the first year of service will be zero.
During the first five years of service, the correction factor will be applied when the permittees’ achieved revenue is greater (IO> The possibility of adjusting the revenue yield cap upward, during the first five years of operation, provides permittees with great flexibility to adjust their rates during the initial development period of the system.
In the first five years of the revenue yield cap, the correction factor will not be applied annually to distributors. This allowance for distributors has been devised in recognition of:
The difficulty in accurately predicting the demand for different distribution services, and
The initial volatility of the achieved revenue which is associated with serving different categories of users.
During the initial period of the provision of service, the Commission will require distributors to make only two adjustments in the revenue yield cap:
In the fourth year of service, based on the achieved revenues of the first three years of operation, and
In the sixth year of service, based on the achieved revenues of the fourth and fifth years of operation.
The revenue yield cap of the second, third and fifth years will not be affected by the correction factor, but will be adjusted by the inflation index and the pass-through costs.
The mechanism for calculating the adjustments for the distributor in this period is expressed in the formula below:
uch that , for t = 1,...,5
Where:
KRt is the correction factor over year t adjusted with interests and will be applied in the fourth or sixth year, according to each case (pesos), and
rct is the annual compounded interest rate over the period t and the fourth or sixth period, according to each case.
G. Revenue yield cap review
The Commission will reset the parameters in the revenue yield cap formula every five years.
The objective of this review will be to reset parameters to:
Provide efficient permittees with an opportunity to achieve an appropriate return on their assets for the following five-year period;
Ensure appropriate rates for users;
Enhance price stability, as far as possible; and
Allow permittees to retain any profits made over the previous five-year period as a result of efficiency improvements.
The review process
The review process will commence one year prior to the end of each five-year period. The Commission will examine the information available from that date onwards to review:
The initial value of maximum revenue (P0);
The inflation index (P);
The efficiency factor (X);
The pass-through cost categories (Y), and
The correction factor (K).
The Commission will develop the detailed procedures for the review. This will outline the deadlines and information requirements for the review process.
Permittees will be obligated to present a revised business plan for the following five-year period, and all other information which the Commission deems appropriate.
For each permittee, P0 and X will be revised after reviewing:
The current cost value of the asset base at the time of the review, in accordance with the Accounting Directive published by the Commission;
The scale and timing of planned investment over the five-year period and five years beyond, for both new and replacement assets;
The projected operation and maintenance costs for the following five-year period and three years beyond;
The definition of the costs influenced by the inflation in Mexico, the inflation in the United States of America and the exchange rate;
Information related to their historical costs and historical throughput information;
Throughput projections for the following five-year period and three years beyond;
The utilization of the system, and
The projected weighted average cost of capital for the five-year period and three years beyond, taking into account:
the expected return;
costs of debt with a maturity of one year or more at the date of issue;
cost of equity;
cost of preferred stocks, when appropriate; and
costs of other financial instruments.
The Commission will review cost and throughput projections with regard to:
Historic trends of the permittee;
Projections being made by other permittees, and
Utilization of the system.
When reviewing permittee’s expected improvements, the Commission will refer to, among others:
Permittee’s historic efficiency trends;
International industry’s efficiency benchmarking;
Total long-run productivity indices;
Economies of scale;
Comparisons with other transporters and distributors in Mexico, and
The utilization of the system.
In order to allow appropriate returns on the permittees’ assets, the Commission will consider:
The debt/equity ratio of the permittee, and
The opportunity cost of capital.
To determine the opportunity cost of capital:
The profitability of similar businesses in the other countries;
An appropriate return for investments in Mexico, and
Other factors the Commission considers appropriate.
The Commission may review the inflation index and the cost concepts included in the weights of this index to ensure that the inflation index adequately reflect the movements in the costs of each permittee.
The Commission may modify the revenues that make up the revenue yield cap when it considers that the modification facilitates the regulation of a given service.
H. Calculating achieved revenues
In order to evaluate compliance with the revenue yield cap, the permittee must present to the Commission the calculation of the achieved revenue each year.
The Commission will exclude from the achieved revenue calculation the transmitted volumes which, in the Commission's opinion, represent artificial transactions intended to increase the reported throughput sales.
Achieved revenues in year t (IOt) will be expressed in pesos per unit and will be calculated as follows:
Where:
IRt is the income for year t, based on regulated rates (pesos);
IECt is income from contract sales (pesos), calculated through the application of regulated rates to contract throughput, and
Vt is the energy contained in annual throughput in year t (unit), including the throughput sold under regulated rates and contract sales.
In relation to the term IECt in the previous paragraph, the permittee will adjust the revenues earned from contract rates so that they reflect the revenue which would have been earned if the services had been sold at a regulated rate. The Commission will make this adjustment because in most cases contract sales will be made at a rate below the equivalent regulated rate and without this adjustment:
Permittees could increase regulated rates whenever there was an increase in the volumes sold through contract rates without exceeding the revenue yield cap, and
There would be the risk of cross-subsidies between different customer classes.
The deemed contract revenue (IEC) in yeart will be expressed in pesos and calculated as:
Where:
TRjt is the regulated rate for contract j in year t (pesos/unit), and
VCjt is the energy contained in the annual throughput transmitted volume by contract j in year t (unit).
For the purposes of calculating IEC, permittees are required to assign a reference regulated rate to each contract. Permittees are required to make explicit reference to this rate in each contract.
In the case where regulated rates change throughout the year, IEC will be the product of the weighted average rate and the contract sales during the year. The weights will be the share of contract throughputs during the period of each regulated rate divided by total annual throughput.
Adjustment for throughput drop
In the event that annual measured throughput in a calendar year drops by ten percent or more from the measured throughput in the immediately preceding calendar year, the Commission may adjust the standard formula for calculating achieved revenues.
his adjustment will limit the extent to which lower throughputs affect the achieved revenue, protecting the permittee against a substantial downward adjustment in the revenue yield cap when throughputs drop.
The calculation of achieved revenue for adjusted drops in throughput ( ), will be expressed in pesos per unit as:
Where:
IRt is the revenue from regulated rates in year t (pesos);
ICt is the revenue from contract rates in yeart (pesos), and
Vt-1 is the energy contained in the annual throughput transmitted in yeart-1 (unit).
The adjustment of the achieved revenue formula for drops in volume will consider two factors:
Actual contract revenues will be used in the numerator in place of IEC, and
Ninety percent of the throughput for the previous year will be used in place of the actual volume for that year in the denominator.
The denominator adjustment will limit the impact of throughput drops in the calculation of achieved revenue. The numerator adjustment is required because if revenue from contract rates is not directly related to units of throughput, the use of IEC in the case where contract throughput drops may understate the permittee’s true revenues, resulting in the understatement of the achieved revenue.
Where permittees wish to use this adjusted achieved revenue, they must demonstrate to the Commission that there has been a significant drop in throughput, greater than a ten percent drop, and provide reasons for this drop. The Commission will approve or reject the use of the adjusted achieved revenue formula.
In exceptional cases, when permittees have very large users with highly volatile annual throughputs, permittees will be able to propose to the Commission special adjustments to the achieved revenue formula.
Information requirements
For the calculation of the achieved revenue, permittees must submit annual information to:
Enable a comparison between achieved revenue and the revenue yield cap, and
Assist the Commission in monitoring the differences between cost and revenue performance and the projections made when setting the revenue yield cap.
In each case, the Commission will require permittees to conform with the information format and content as specified by the Accounting Directive issued by the Commission.
Permittees shall present audited information on the previous year, with monthly data on:
Total revenues from contract and regulated rates;
Transmitted throughput separating income from contract rates and income from regulated rates;
Fixed and variable costs for provided services;
Pass-through costs to users;
Investment costs, and
Any other information specified by the Commission.
Storage rates
Storage rates will be regulated in conformance with the provisions of chapter 6 of this Directive.
The initial regulatory parameters will be reviewed every five years according to the procedures and methodologies established in chapter 6.
In the application for a permit for storage services, each applicant must propose an incentive regulation methodology in accordance with the objectives and guidelines of this Directive appropriate to the type of storage proposed.
The Commission, in its review of the storage applicant’s proposed methodology, will approve rates for the proposed services which will allow an efficient operator the opportunity to earn an appropriate return.
Connection Services
Connection services include the installation of pipes and meters, which will allow the connection of distribution, storage and transportation systems to other systems or final users.
A. Transportation
The Commission will regulate the charges for connection services offered by transporters using benchmarking studies.
The transportation system users willing to connect to a transportation system may purchase the connection services directly from the transporter or from independent contractors. The latter must comply with technical specifications established by the transporter in its general terms and conditions.
The transporter may make the physical connection or junction, but the remainder of the system work will be subject to an agreement between the transporter and the party interconnecting with the transporter.
The transporter and the permittee connecting to the former’s system will determine, by joint agreement, which party will be responsible for the operation and maintenance of the connection and associated facilities.
Transporters may verify connections and meters before starting to serve the connected user.
Where a user pays for an individual connection, the transporter will spnglish translation provided solely for convenience. The Spanish version shall prev
The charges levied by transporters for the connection service will not be controlled by the revenue yield cap. The Commission reserves the right to include connection services within the revenue yield cap for transporters if it considers the benchmarking system to be inappropriate.
Charges for connection to transportation systems will be calculated according to the actual cost of connections to the system. In order to include the costs for a higher level of load in the connection charge, the transporter must demonstrate that:
The specific installations and tasks are required solely to connect the new user, and
These facilities were not included in the capital investment program presented to the Commission.
The Commission may act as an arbitrator in the event that transporters and the permittees, or final users requiring connection cannot agree upon an appropriate charge for connection.
The transportation connection and associated facilities shall be owned by the party which pays for it. The physical connection or junction, up to three meters, shall be owned by the transporter, regardless of who pays for it.
Transporters are required to charge separately for connection, disconnection and reconnection services and to maintain separate accounts for the costs and revenues associated with these services. These accounts must be submitted to the Commission on an annual basis.
B. Distribution
In order to protect the safety and physical integrity of the system, distributors must include connection charges to final users in the revenue yield cap.
The Commission regulates the charge for connection to the distribution system by:
Defining a standard connection service;
Including the costs and revenues from standard connections in the revenue yield cap for distributors, and
Requiring distributors to develop an approved schedule of rates for non-standard connections, disconnections and reconnections.
Distributors must provide a standard connection to all final users. A standard connection is defined as the connection of final users located not more than 30 meters from the distribution main, by the installation of a service line and a meter appropriate to the final user's anticipated use.
Standard connections shall be included in the distributor’s asset base and will be regulated by the revenue yield cap.
Distributors may levy an additional charge for non-standard connections for final users which may include the pipes and extra installations which are not included in the standard connection. The costs and revenues of this connection will not be included in the revenue yield cap.
Distributors may recover the costs of providing and maintaining standard connections, and other costs related to final user connections, through a fixed monthly customer charge, which would be included in the tariff schedule. The charge will be denominated in pesos and can vary with the costs associated with different users or categories of users. The revenues from this charge will be included in the calculation of the distributor’s revenue yield cap.
Distributors must include a list of charges for non-standard connections in its general terms and conditions. These charges will be regulated by benchmarking with other industry participants.
he distributors may levy a separate charge for disconnecting and reconnecting final users which will be included in their general terms and conditions. Revenues and costs from this service will not be included in the distributor's revenue yield cap.
Distributors are required to charge separately for and maintain separate income and expenditure accounts for non-standard connections, disconnections and reconnections. These accounts must be submitted to the Commission on an annual basis.
Tariff schedules
All permittees are required to publish and to have available for all users a tariff schedule approved by the Commission.
The rates on this schedule must be reflective of the relative cost of providing different services or serving different customer groups. This requirement will avoid the possibility of setting unduly discriminatory rates among customer groups and will ensure compliance with the requirement of article 67 of the Reglamento that there be no cross-subsidies between different services.
Permittees may rebalance the rates of the different offered services and may agree to rates other than those specified in the tariff schedule through the establishment of a contract with the user. The regulatory requirements for these contracts are explained in chapter 11.
Table 9.1 summarizes the published tariff schedules which must be established by permittees, and the manner in which they may vary for different users. All charges must be billed separately. The rate structure for storage will depend upon the type of storage services offered.
Permittees will be able to offer additional services to those mentioned in this Directive, such as backhaul transportation services and throughput balance services, among others, as long as:
The rate for this service is included in the Commission approved tariff schedule, and
The revenues derived from the application of both regulated and contract rates for these services are utilized in the calculation of the revenue yield cap
The tariff schedule must reflect the cost of providing different services or to serve different user groups.
Table 9.1 Rate Setting
Charge for Unit Vary according to
Transportation
Capacity Pesos/unit Region of system used
Usage Pesos/unit
Customer Pesos/user/billing period
Distribution
Capacity Pesos/unit Delivery pressure
Usage Pesos/unit Delivery pressure and annual volumes
Customer Pesos/user/billing period
Distribution service with marketing Pesos/unit Annual volume required by customer and delivery pressure
Gas, transportation and storage acquisition Pesos/unit
Non-standard connection Pesos Distance and delivery pressure
Disconnection and reconnection Pesos Type of disconnection/reconnection
The principal requirements established in this chapter for setting rates are:
Transportation capacity and usage charges are set so that the transporter’s capacity charge allows to recover fixed costs, and the usage charge allows to recover the variable costs;
Distribution capacity and usage charges are set so that each recover 50 percent of the costs of the distributor’s system;
Distribution and transportation capacity use is calculated on the basis of capacity reserved at the system peak;
Any regional variation in transportation capacity charges must reflect the long run marginal cost or the average incremental cost differences of the regions of the system;
Distribution rates for users taking a simple distribution service may vary according to the costs of delivering gas at different pressures and according to different annual volume bands;
The following charges must be justified on the basis of cost:
Non standard connection charge for distribution service;
Disconnection and reconnection charges for a user group, and
Charges for transportation and distribution services to each user group.
The backhaul rates must be less than those for normal flow. The Commission might require the permittees to provide a detailed cost analysis for the backhaul service, and
The interruptible rate will be less than the firm service rate for transportation or distribution.
Transportation and simple distribution rates must be two part rates with separate charges for capacity (pesos/unit) and for usage (pesos/unit). The distribution service with marketing will consist solely of a volumetric component (pesos/unit).
Two part rates will reflect the cost implications of serving users with different load profiles and will limit cross-subsidies between users with different load factors.
Transportation rates
Transporters will recover fixed costs from capacity charges and variable costs from usage charges.
The Commission will review proposed capacity and usage charges with reference to:
The proportion of fixed and variable costs in the total allowed costs used in setting the revenue yield cap, and
Projected throughput and capacity sales.
Capacity charges will be set to recover fixed costs, including, among others, return on equity, related taxes and long term debt. Usage charges will recover only the variable costs.
Where a transporter recovers some allowed costs through a customer charge, the remaining fixed costs will be recovered from the capacity charge.
With the Commission's approval, transporters may establish capacity and usage charges on a different basis than the one in this section. Transporters requesting another methodology must demonstrate that the proposed methodology better reflects:
Their cost structure, or
Market conditions.
Distribution rates
Capacity and usage charges for the simple distribution service are set so that each recover 50 percent of the distributor's allowed costs.
The cost recovery methodology for distribution capacity charges has been set differently than that for transporters because peak day capacity is a less important cost driver in distribution than in transportation.
The Commission will review proposed distribution capacity and usage charges with reference to:
The structure of costs presented to the Commission, and
The projected throughput and capacity sales.
In the case where distributors recover some of their allowed costs through a customer charge, 50 percent of the remaining costs will be recovered from capacity charges, and 50 percent from usage charges.
With the Commission's approval, distributors may establish capacity and usage charges on a different basis than those described in this section. Distributors requesting another methodology will be required to demonstrate that the proposed methodology appropriately reflects either:
Their cost structure, or
Market conditions.
Distributors will propose to the Commission a one part volumetric rate for distribution with marketing services. One part gas sales rates will be set for different customer groups to reflect the segmented nature of capacity requirements in the market. In these cases, distributors will be required to demonstrate to the Commission that:
The tariff schedule reflects the capacity requirements of different groups of gas sales service users, and
The implied capacity charge is the same as the capacity charge charged to users with the same delivery pressures taking a simple distribution service.
Rates for each delivery pressure will be set by volume band. Rates will be set so that the rate per unit is higher for customers with lower annual throughputs than for those with higher annual throughputs. However, the Commission will approve other rate structures if distributors can demonstrate that these:
Reflect the capacity requirements of different customer groups, and
Are not unduly discriminatory among users of distribution services.
B. Capacity use
The capacity charge for transportation and simple distribution services will be set according to the maximum daily capacity reserved over the system peak period.
For distribution with marketing, distribution capacity use will be calculated by the distributors as the maximum daily capacity required over the distribution system peak period. Distributors are required to set aside this capacity on behalf of users requesting distribution with marketing service. Rates for distribution with marketing will reflect these capacity requirements.
Charging for capacity on the basis of reserved capacity over a predefined peak period will provide transporters and distributors with a degree of certainty regarding their revenues from capacity and provide system users with an accurate information about their annual capacity costs.
System peak
The system peak will be defined in advance by each transporter and distributor in their general terms and conditions. The system peak must be related to:
The historic timing and duration of the peak load on the relevant system, where possible, and
Deemed customer category load profiles, where historic load profile data is not available or relevant for a particular system;
The capacity utilized at the system peak will be calculated using:
Daily meter readings, when available, or
Deemed load profiles and annual throughput for final users that do not have daily meter readings.
Permittees will develop a detailed methodology for calculating maximum daily use during the system peak. This methodology will be contained in their general terms and conditions and must ensure that there is no bias in the way in which maximum daily use is calculated.
Capacity reservations
Transportation and simple distribution service users are required to reserve capacity in relation to the system peak capacity.
Distributors providing distribution with marketing services are required to:
Reserve sufficient peak transportation capacity for gas sales service users, and
Set aside sufficient peak distribution capacity for gas sales service users.
All users of transportation and simple distribution services must demonstrate to the permittee that they have reserved sufficient capacity for the final users which they serve. They will demonstrate this with reference to:
Historic load profile information, where available;
The use of industry standard deemed load profiles for different categories of final users, where historic data is insufficient, and
Sales contracts which specify capacity use at the system peak.
Distributors must demonstrate to the Commission that they have set aside sufficient capacity for their distribution with marketing service users.
Permittees must develop rationing procedures in the event that required capacity exceeds available capacity. These procedures must be included in their general terms and conditions.
Penalties for exceeding reserved capacity
The permittees can penalize transportation and simple distribution users if they exceed the reserved capacity during the system peak. The level of these penalties will be established in the general terms and conditions.
Permittees must annually reimburse the penalty revenues to their users. This reimbursement will be passed to users based upon the users' pro rata share of the distributor or transporter's capacity. If the system's capacity is not fully reserved, the permittee may retain the portion of the penalty revenues allocated to the unreserved capacity. The allocation of any penalty revenues will be set out in the general terms and conditions of each transporter and distributor.
Distributors cannot pass through the cost of paying penalties for exceeding reserved capacity to their users of distribution with marketing services.
The penalties will not be included in the calculation of the revenue yield cap of the permittees.
Secondary capacity market
The need to reserve capacity, penalty arrangements and competition among permittees and marketers will encourage a secondary capacity market.
The Commission will promote the development of the secondary capacity market among transporters, distributors, marketers and large final users with the objective of:
Facilitating competition;
Promoting efficient use of the systems, and
Assuring the transparency of the transactions in this market.
The proposed methodologies and the standard contracts for releasing capacity must be approved by the Commission.
Deemed load profiles
The permittees will develop a set of industry standard deemed load profiles for groups of final users.
Deemed load profiles, when combined with metered data, will establish an estimated peak capacity requirement for each final user or group of final users, as appropriate. These profiles will be used to forecast peak demand for final users and to estimate actual daily demand from groups of final users without daily metering.
Developing deemed load profiles will involve grouping final users into a number of categories and estimating standard load profiles for each group. Initially, it is expected that customers will be grouped into a relatively small number of categories for load profile deeming purposes. Permittees will be expected to refine and add new categories to these deemed load profiles over time.
hese load profiles must be included in the permittee’s general terms and conditions, and will be reviewed with reference to:
Ease of use;
Accuracy in accounting for historic peak day use;
Accuracy in accounting for annual metered throughput of different customer categories;
Views of system users, and
Impact on the total price for gas paid by different customer categories.
C. Transportation rates by region
Transporters may set different capacity charges for different regions of their systems.
Transporters intending to set capacity charges by region must set the relativity of these charges with reference to differences in either:
The average incremental cost of different regions of the system, or
Long run marginal cost of different regions of the system.
The methodology used by transporters will be subject to approval by the Commission. The Commission will review that the relative differences in capacity charges are established through procedures that:
Are transparent;
Reflect cost differences as referred to in the previous paragraph;
Consider the impact on relative charge levels, and
Promote stability in charges.
Transporters can determine regional transportation capacity charges in a number of ways, such as:
By kilometer transported at the system peak (pesos per unit per kilometer);
By transportation zones used at the system peak (pesos per unit per zone);
By the contract path traveled at the system peak (pesos per unit per path), and
By points of entry into and exit from the transportation system (pesos per unit per entry or exit point).
When transporters set different usage charges for different regions of their transportation systems, these must be justified with relation to cost and approved by the Commission.
D. Distribution rates by delivery pressure and volume bands
Distributors may set different distribution rates for delivery at different pressures and to customers in different volume bands.
Distributors intending to set different rates for different delivery pressures or volume bands are required to develop a methodology for determining the rates. This methodology must be approved by the Commission, which will review it with reference to:
Transparency and ease of implementation;
Ability to reflect the relative cost differences;
Impact on relative rate levels, and
Impact on rate stability.
When a distributor establishes different rates for different areas in the distribution system, for reasons different from those listed in this section, he must justify them by actual cost differences, and submit them to the Commission for their approval.
E. Interruptible service rates
A permittee wishing to offer an interruptible service must set a specific rate for this service, even when interruptible services are offered by contracts.
Usually, the Commission will not require permittees to offer interruptible services, but it may require them when:
Proposed investment to overcome capacity bottlenecks could be delayed by offering interruptible contracts, or
Capacity reservation requests exceed available capacity, and some users are willing to interrupt in order to make sufficient capacity available for the remaining users.
All interruptible rates must be set below the corresponding firm rate assuming throughput at one hundred percent load factor. This means that:
For transporters, interruptible rates for each region of the system must be lower than the firm rate for the corresponding region, and
For distributors, interruptible rates for each delivery pressure and volume band must be lower than the firm rate for the corresponding delivery pressure and volume band.
When the permittees offer interruptible service, they must make sure that users:
Have the necessary facilities to self interrupt and reconnect safely, and
Have a daily meter so that interruption can be monitored.
Distributors may offer interruptible services to all users which comply with above conditions.
F. Other rates and services
The rates for non-standard connection, disconnection, and reconnection, as well as the customer charge must reflect the incurred costs of the permittees, and must be approved by the Commission.
The permittees can provide a balancing service, specifying the operation, and charges in the general terms and conditions. This service will not be included in the calculation of the revenue yield cap.
G. Enforcement
The permittees must comply with the rate approval process, the publication of the tariff schedule, the modifications and the accounting separation for the different services as described below.
Rate approval
The Commission will approve the permittees tariff schedules and modifications.
The Commission’s approval will not be required when transporters and distributors intend to modify their tariff schedules in a uniform manner consistent with the revenue yield cap.
Whenever permittees wish to rebalance their relative rates or present new methodologies, the Commission will ensure that these changes:
Are consistent with the revenue yield cap for permittees;
Are not unduly discriminatory among user groups, and
Do not produce cross subsidies among different services.
Obligation to publish tariff schedules
Permittees are required to publish their entire tariff schedule at least once a year. Tariff schedules and any modifications must appear in the Diario Oficial de la Federación and in the official gazette of the state corresponding to the route or geographic zone served by the permittee.
The general conditions for the provision of the service, published rates and actual methodologies must be available upon users demand.
The rates that require the Commission’s approval must be published five days prior to their effective date.
Rate changes that do not require prior approval of the Commission, should be filed with the Commission, and published ten days it enters into force.
Separate accounts
Permittees shall charge and bill separately, as well as keep separate accounts for different services.
Permittees shall account separately for each of the following:
Transporters:
revenues and expenditures related to transportation service;
revenue and expenditures related to the provision of connections, and
penalty revenues, and
Distributors:
revenue and expenditures relative to the acquisition of gas, storage and transportation;
revenue and expenditures relative to the provision of gas distribution services;
revenue and expenditures from the provision of non-standard connections, disconnections and reconnections, and
penalty revenues.
In addition, permittees must account separately for each transportation or distribution system which they operate.
The above requirements will be supplemented by the Accounting Directive published by the Commission.
Minimum rates
Transporters and distributors must charge contract and regulated rates at, or above, the minimum rate established in this chapter.
The minimum rate for storage services must be presented in the permit application and will depend on the type of storage developed.
The minimum rate charged by transporters will be the usage charge for each transporter, as established in the published tariff schedule. Where this charge differs per region, different minimum rates will apply per region.
The minimum rate for gas distribution services will be the usage charge for each distributor, as established in the published tariff schedule. In the cases where this rate differs by delivery pressure or by volume band, different minimum rates will apply for each delivery pressure and each volume band.
Where the Commission has reason to believe a transporter or distributor is charging for his services below the minimum rate, the permittee will be required to submit audited data to the Commission on revenues and throughputs per contract.
In addition, permittees will provide the Commission with information on:
Total annual revenues and throughput corresponding to the regulated rates, and
Total annual revenues, and throughput corresponding to contract rates.
When a permittee changes rates, he must submit to the Commission all the data regarding throughput and revenues in each period that the tariff schedule was in effect.
Contract sales
Transportation, distribution and storage permittees will be allowed to provide services to users on a contractual basis. Establishment of contracts will allow permittees to offer services and rates which are different from the tariff schedules.
The revenue earned from contract sales of transportation and distribution services will be taken into account when setting the revenue yield cap for a permittee using the regulated reference rate for each contract, in conformance with chapter 6.
Contract rates for transportation, storage and distribution services must not be below the minimum rate.
Contract rates for interruptible services must be below the corresponding firm rate but higher or equal to the minimum rate for the firm service.
All contracts must:
State the reference regulated rate that would have applied if the service had not been provided through a contract, and
Be filed with the Commission.
The Commission can approve adherence contracts for final users which have the status of a consumer as described in the Federal Law of Consumer Protection (The Ley Federal de Protección al Consumidor).
Transitory provisions
This Directive will be effective the day after its publication in the Diario Oficial de la Federación.
Petróleos Mexicanos must present, for the Commission’s approval, the general terms and conditions which will be applicable to first-hand sales, as outlined in article 9 of the Reglamento within a period of four months after this Directive is in effect.
Until the Commission approves the general terms and conditions that will regulate first-hand sales, these will be subject to the methodology approved on July 21, 1995, with its previous modifications before the Reglamento was in effect, and in terms of articles 31, section X, of the Organic Law of the Federal Public Administration (Ley Orgánica de la Administración Pública Federal).
Petróleos Mexicanos must have available for the general public the first-hand sale price determined using the methodology mentioned in the previous paragraph.
Persons engaged in transportation, distribution and transmission activities with temporary permits as outlined in transitory articles seven, eight and nine of the Reglamento, will propose their tariff schedules calculated in conformance with this Directive when applying for a final permit. They will not be allowed to use the resulting rates until the Commission issues the corresponding permit.
Until Petróleos Mexicanos obtains the corresponding transportation permit from the Commission, it will calculate its transportation rates based on:
The methodology approved on July 21, 1995, with modifications previous to the Reglamento being in effect, in terms of article 31, section X of the Ley Orgánica de la Administración Pública Federal, and
The modifications approved by the Commission since the effective date of the Reglamento being in effect.
Within the following ten days after this Directive is in effect, Petróleos Mexicanos must publish in the Diario Oficial de la Federación the current transportation tariff schedule, determined in accordance with the methodology established in the previous paragraph.
The methodology referred to in paragraphs 12.3 and 12.6 will be available for interested parties at the Commission’s offices.
Persons that carry out distribution and transmission activities in terms of transition articles eight and nine of the Reglamento, will continue to apply the sales commission valid on the date this Directive goes into effect. The sales commission schedule will continue to be effective until the Commission issues the final permits. The Commission may authorize adjustments to these sales commissions in order to reflect the changes in the Consumer Price Index published by the Banco de México in the Diario Oficial de la Federación.
For paragraph 4.9, the value of TPi will be equal to the value set for TP0 until Petróleos Mexicanos obtains from the Commission the transportation permits outlined in transition article seven of the Reglamento.
The Commission will issue the Accounting Directive within a term not exceeding two months after this Directive is in effect.
The filing, requirements and deadlines referred to in this Directive will be subject to the terms that appear in the Agreement for Business Deregulation (Acuerdo para la Desregulación Empresarial), published in the Diario Oficial de la Federación, on November 24, 1995.
The present administrative act can be challenged through the reconsideration resource mentioned in article 11 of the Ley de la Comisión Reguladora de Energía.
All rights reserved. Comisión Reguladora de Energía
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