The future lump sum to be paid in compensation can only be adjusted on an annual basis. The base year for calculation of remaining debt and thus compensation is 2012.
Compensation = a part of the natural gas distribution company’s remaining debt The compensation scheme compen-sates the natural gas companies as follows: the district heating company compensates for the leaving natural gas customers' share of the outstanding debt. If a district heating customer exits the district heating supply, the customers must repay his or her share of the remaining debt, before the exit is approved. Thus, it is only fair that the same principle applies, if a group of natural gas customers convert to district heating. By adopting this principle, the natural gas companies will be able to receive compensation, which they would otherwise not receive, when customers on an individual basis exit from the natural gas supply. Thus, the natural gas companies benefit from the compensation scheme, as they get compensation due to an amendment in the natural gas zone affecting a large number of customers. As the district heating companies receive full compensation and the natural gas companies received no compensation from individual heat conversions, the following compromise was made: 50 % of the remaining debt is compensation to the natural gas companies to be paid by the district heating companies. Half of each natural gas customer's residual debt is paid as a one-time compensation. The other half is paid by the remaining natural gas customers via higher tariffs.
The compensation for the coming years is calculated as follows:
Compensation in 2013 = compensation for 2012 - 5 % + net consumer price index increase for 2012.
Compensation in 2014 = compensation for 2013 - 5 % + net consumer price index increase for 2013.
Likewise, the compensation for the coming years will continue until the end of the compensation scheme in 2020.
Thus, the compensation (lump sum) is typically lowered with about 3 % pr. year, as the inflation typically ranges around 2 %.
This is the set-up for all large andmedium scale customers. The Danish experience is that these institutions and industries etc. can pay the lump sum without any problems. The banks can receive the feasibility study’s documentation of the economic favourable conversion to district heating, in case the customer needs to obtain a bank loan for the lump sum payment. This is, however, quite rare, as most enterprises can pay the compensation up front. In order to give the natural gas companies an incentive to cooperate with the district heating companies, the compensation scheme has a deadline. By 2020 no compensation is given. Thus, if the natural gas companies do not support the economically sound conversion projects before 2020, they will not be compensated. Special arrangement for small-scale customers A more simple compensation scheme is adopted for the small-scale customers that consume less than 6,000 m3 natural gas per year. They will pay a fixed lump sum regardless of their actual natural gas consumption. The reason is that the size of the compensation does not justify an individual calculation and business transaction for each household. The transaction costs are simply too high, as some households can be expected to open up a relatively long and time-consuming dialogue with the gas company on minor details. Instead, the district heating company will quality assure the calculation on behalf of all the small-scale customers. The district heating company will also facilitate a smooth transition by paying the lump sum on behalf of all the small- scale customers. The compensation will be repaid via a slightly higher heating bill eachmonth for maybe 1-5 years, depending on the actual size of the compensation. Experience shows that this set up works well, and no complaints have yet occurred.
How to calculate the compensation? When the compensation is 50%of each customer’s share of the remaining debt, the customers remaining debt is calculated as follows: If a customer contributes with e.g. 0.02 % of the annual sales volume, the share of the remaining debt is 0.02 %.
Thus, the compensation = (Lost sale) / (Total sale) x (Remaining debt) x 0.5.
In thecase listedabove, thecompensationwouldhypothetically be: Compensation = 0.02 % x [million or billion Danish kroner] x 0.5. This compensation is paid as a lump sum. The customer’s share of the total sales volume is calculated as a) the average gas consumption in the past 3 years, and b) the consumers average price per m3 of gas in the past 3 years. The remaining debt of each natural gas distribution company is calculated once and for all. Current changes in the debt are not taken into account.
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