Impact of regulatory regime:encouraging trust,

investments and tradeLina Karpavičiūtė

National Commission for Energy Control and Prices

17/05/2019, Klaipėda

Security of supply

2

Price convergence

3

Data of NCC*Natural gas purchase costs of gas purchased by AB Achema and UAB Kauno termofikacijos elektrinė for theirown purposes are not evaluated.

LNG import to Lithuania

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LNG terminal utilization rates

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Klaipėda LNG terminal utilization rates

2016 35 %

2017 30 %

2018 20 %

Activities of LNG terminal operator

Regulated

LNG regasification service

LNG reloading service

Unregulated

Small scale LNG terminal activities

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Pricing principles for regulated activities

Regulatory period

NCC sets revenue /price caps for 5 years regulatory period

Adjustments Price caps are annually adjusted (for inflation, investment, changes in volumes);

Investments The regulated prices include only investments approvedby the NCC

Allowed revenues

Allowed revenues should ensure the effective implementation of regulated activities by the company;

ROI The allowable ROI is set (if the company earns higher profit, the correction applies)

Price cap calculation

Price cap=

𝐴𝑛𝑛𝑢𝑎𝑙 𝑎𝑙𝑙𝑜𝑤𝑒𝑑𝑟𝑒𝑣𝑒𝑛𝑢𝑒𝑠

𝐴𝑛𝑛𝑢𝑎𝑙𝑐𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛

𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦

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ROI RAB x WACC

Depreciation(amortization)

NCC sets depreciation periods

Operating costs (OPEX)

Efficiency requirements and incentive scheme

applies

Weighted average cost of capital

𝑾𝑨𝑪𝑪 = 𝑹𝒅 ×𝑾𝑫 + 𝑹𝒆 ×𝟏

𝟏 −𝒎×𝑾𝑬

• Rd - cap of cost of debt (interest rate), percent;

• WD - share of debt capital (optimal capital structure);

• WE – share of equity capital (optimal capital structure);

• m - tax rate;

• Return on equity, percent, Re= 𝑅𝑓 + 𝛽 × 𝑅𝑒𝑟𝑝:

• Rf - equity risk premium;

• Rerp- the sum of the equity risk premium of the country with the developed capital market (the US) and the additional market risk premium of Lithuania (last 20 years).

• (levered β) - Beta coefficient.

AB „Klaipėdos nafta“ WACC=6,86% (for 2015-2019 regulatory period).

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Setting LNG terminal prices

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Regasification price cap=

𝑇𝑜𝑡𝑎𝑙 𝑎𝑙𝑙𝑜𝑤𝑒𝑑 𝑟𝑒𝑣𝑒𝑛𝑢𝑒𝑠

𝐴𝑛𝑛𝑢𝑎𝑙 𝑐𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦

Revenues from reloading

service

lowers

Variable part of price(regasification price)

calculated by AB „Klaipėdos nafta“

Regasification price x volumes = 𝑟𝑒𝑣𝑒𝑛𝑢𝑒𝑠 𝑓𝑟𝑜𝑚𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑝𝑎𝑟𝑡

Fixed part of price=

𝑇𝑜𝑡𝑎𝑙 𝑎𝑙𝑙𝑜𝑤𝑒𝑑𝑟𝑒𝑣𝑒𝑛𝑢𝑒𝑠

−𝑟𝑒𝑣𝑒𝑛𝑢𝑒𝑠 𝑓𝑟𝑜𝑚𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑝𝑎𝑟𝑡

𝐴𝑛𝑛𝑢𝑎𝑙 𝑐𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦Security of supply

component

LNG terminal prices for 2019

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Regasification pricecap=

429,81Eur/MWh/day/year

Variable part of price=0,13 Eur/MWh

Fixed part of price=390,42

Eur/MWh/day/year

Reloading price cap =1,14 Eur/MWh

Security of supply model(since the 1st January 2019)

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Thank you!