Proposed methodology for natural gas tariff design and a critical review of the Spanish case regulation

Abstract

One of the objectives of regulated tariffs is to provide efficient price signals eliciting users efficient response and maximizing social welfare. Nevertheless, current approaches to allocate gas network costs pursue mainly cost recovery, disregarding economic efficiency. This paper addresses the development of a sound and suitable gas network tariff design, which must fulfil different objectives that are not always aligned and have social and political implications, including economic efficiency on cost-allocation, but also other regulatory objectives such as wealth distribution and transparency. In this sense, we use Spain as an illustrative case to analyse current gas tariffs design in Europe. Both the current tariff settlement procedure in Spain and the tariff design methodology proposed by the Spanish Energy Commission will be addressed. Current challenges in gas network tariff design will be finally examined so as to establish a proposal for natural gas tariff design considering the main regulatory principles as guiding criteria.