DiXi Group assessed the regulatory impact of ensuring 100% commercial metering of gas

The DiXi Group think tank has conducted its second Regulatory Impact Assessment of policy aimed at
ensuring 100% penetration of gas meters in Ukraine. The new study is dedicated to the policy of ensuring 100% individual metering of natural gas among household consumers.

The new regulatory impact assessment is an ex-post study, i.e. it analyses the existing policy – its effectiveness and consequences for various actors, achievement of the policy objectives. The practice of conducting post-assessment allows us to identify gaps in time, analyse their causes and develop recommendations for improving the relevant public policy, further legislative work and regulation. Such improvements are necessary in the field of commercial natural gas metering, as as of 1 January 2024, almost 750,000 consumers do not have a meter at all (neither a communal nor an individual meter). In addition, 1.69 million consumers do not have individual meters in their homes, although according to the Law of Ukraine ‘On Ensuring Commercial Metering of Natural Gas’, all household consumers should have been provided with them as early as 1 January 2023.

Full commercial metering of natural gas is an important infrastructure prerequisite for encouraging more efficient gas consumption. In addition, the availability of metering devices for all consumers will allow market participants to better forecast demand and avoid additional unproductive costs (e.g., for imbalances). Finally, full metering will make it possible to no longer apply gas consumption rates, which are by definition unfair because they cannot reflect the consumption behaviour of different customers. In addition, accurate metering will significantly reduce opportunities for market manipulation and corruption.

This study provides a comprehensive overview of the legislative and regulatory measures taken in 2015-2024 by the responsible authorities (Verkhovna Rada, Cabinet of Ministers, Ministry of Energy, NEURC) to ensure 100% individual metering among household consumers, highlighting the reasons for the ineffectiveness of this policy. Among them:

• The goal of ensuring 100% commercial metering of natural gas by December 2017 is not clearly formulated;
• The deadlines set for metering did not reflect the actual pace of meter installation in the country;
• Failure to take into account the peculiarities of metering in different regions of Ukraine;
• Insufficient funding for the installation of meters within the distribution tariff;
• Inaccessibility or non-use of alternative sources of financing for the installation of meters;
• Disproportionate penalties for failure to fulfil obligations to ensure commercial metering by DSOs;
• Low level of transparency of the policy to ensure 100% commercial metering;
• Frequent and abrupt changes in gas consumption rates for consumers without meters;
• General inconsistency of policy, when a number of regulations and initiatives of state bodies that were supposed to resolve certain problematic issues of commercial metering were not adopted or not implemented in practice (the procedure for reimbursement of meter costs in case of its installation at the expense of household consumers, the initiative to finance the installation of meters by Naftogaz of Ukraine).

Experts also assessed the consequences of the current policy and its inefficiency for various stakeholders – gas distribution system operators, gas suppliers, the state, and household consumers. One of these consequences is the creation of ‘debts’ of household consumers related to the retroactive revision (in 2015-2019) of gas consumption rates that are charged in the absence of metering devices. This debt is estimated at UAH 6-8 billion and will be offset against other debts in the natural gas market.

Additionally, the study calculated scenarios for changes in the gas distribution tariff (as the main source of funding for the installation of meters) in the event of 100% metering in 1, 3 and 5 years. The calculations show that ensuring 100% metering within 5 years is realistic and will not cause a significant financial burden for DSOs and consumers. Under this scenario, the distribution tariff will increase by UAH 0.03-0.16 per cubic meter depending on the DSO. The sensitivity of the distribution tariff to changes in two factors was also analysed: the cost of the meter and the volume of natural gas distribution.

Based on the results of the BIA, the experts prepared targeted recommendations for improving the policy in the field of commercial metering of natural gas. In particular, the NEURC, together with the Ministry of Energy, GDS operators and local governments, is proposed to develop and publish realistic annual schedules (targets) for the installation of meters, and to provide sufficient funds in the distribution tariff to cover the cost of installing meters within a reasonable time. At the same time, the Regulator should ensure proper control over the effectiveness of such expenditures and proportionality of penalties in case of inefficiency and failure to fulfil obligations to install meters. To ensure proper public control, the transparency of the policy in the area of commercial metering of natural gas should also be significantly increased.