template guidelines

1

2
EFET RECIT Model Introduction 1

• The political decision makers decided in the
  Lisbon Strategy to make also the European energy
  market an efficient and competitive one and hence
  the goal is to create a single European energy
  market for gas and electricity
• To achieve that the EC has produced a series of
  legislative text which have to be complied with
  on a European level
• However, several problems are in the detail and
  thus ERGEG created the regional initiatives to
  support the Madrid process and EFET has proposed
  as a pragmatic and intermediate step forward a
  paper on how to overcome potentially these
  challenges via a regional approach
• Also for EFET the goal is to achieve a single
  European energy market in due time

3
EFET RECIT Model Introduction 2

• EFET presented a vision on a Regional
  Independent System Operator model at the IG SSE
  GRI meeting in Maribor. In order to avoid
  misunderstanding EFET considers to change the
  name of the model to a Regional Cooperation of
  Independent TSOs model RECIT
• EFET believes that the RECIT model will
  effectively provide market integration in a swift
  manner
• The proposed model is not a new proposal for
  design of the European gas market, it is simply a
  possible and more detailed interpretation of the
  draft 3rd package published by the EC in
  September 2007
• The model as such would be fully neutral and
  compatible with all suggested types of unbundling
  of TSOs (OU, national ISO or OUISO) ---gt the
  political decision on structure of the TSOs
  would not have a particular influence on the
  processes and interactions determined in the
  model

4
EFET RECIT Model Introduction 3

• RECIT and aspects of security of supply
• physical capacity available from source to
  final customers?
• Transport cost clearly calculable at point of
  suppliers decision on where tosource gas from?
• Historically, many major investments happened
  because of international (cross-border)
  consortia/cooperation (e.g. Megal, TAG, BOG,)
• Aim must be that at least some different supply
  sources must potentially physically arrive in
  each area no security of supply without
  physical interconnection (long term and short
  term)

5
EFET RECIT Model Introduction 4

• RECIT and aspects of competition
• final customer
• Pooling of consumption withinone balancing area
  increase of negotiating power
• Larger netting of imbalance positions reduces
  opportunity costs for suppliers
• More potential suppliers, reductionof market
  concentration
• for shippers/suppliers
• More similar customers in one market area
• Reduced opportunity cost nomination,
  balancing,registration, etc.. reduced risk to
  deliver
• Macro-economic/political
• Potential of economies of scale for system
  operation
• Eg potential for higher capacity provision
  through larger flow optimisation
• Reduced national influence

Grid 2007
6
EFET RECIT Model - Objectives

• Objectives of the model
• to reduce the existing market areas through
  establishment of Regional Independent System
  Operators
• to enable all stakeholders of gas industry to
  take part in the drafting of binding documents on
  topics that affect parts of the industry (market
  rules for future European gas market) at equal
  terms

7
EFET RECIT Model

• The first aspect derives from market knowledge
  and the finding of the Sector Inquiry where it
  was stated that a decent market size is a
  prerequisite for increase of liquidity (through
  diversity of source, routes, storages, players)
  and small balancing areas hinder competition
• Additionally a bigger market area with flow
  optimisation based on regional ((intra))/inter-nat
  ional) coordination will improve security of
  supply in the relevant region and increases
  potentially supply diversity
• A R_ISO might be able to better compete against
  third party take over bids if designed in such a
  way
• The merging of the market zones with now
  different operational, technical and commercial
  (balancing) rules, will implicitly optimise
  cross-border trade and enhances market entry
  opportunities (bigger customer potential) and
  reduces market concentration
• Establishment of clear regional governance for
  the R_ISO backed by a consistent and stable
  regulatory framework with a strong European
  approach will overcome pure national interests
  and also increase investment incentives.

8
Potential regional market development with
determining of the short term index prices
Border price

• xy

(Spot) price index
0
2
R_ISO xy
Border price
1
Atlantic bassin LNG Spot price
R_ISO 3
R_ISO 1
LNG
3
5
4
R_ISO 4
see
Border price
R_ISO 5
LNG
Border price
LNG
9
Decision making process concerning EU Grid Code
Policy and legislation
EC,European Council, EU Parliament
Policy
ERGEG/ Agency

Easee-Gas
Draft EU-Grid Code
Secondary Legislation If empowered
GTE
EFET
OGP
IFIEC
Eure lectric
..
Regional regulatory Board
Consultation process on the EU-Grid Code
Execution Monitoring Controling
R_ISO
R_ISO
Operative
TO
TO
TO
TO
TO
TO
10
EFET RECIT Model role of market players

• The model propose clear definition and separation
  if the task and responsibilities of particular
  market players
• R_ISO
• Management of capacities in the Regional Gas
  Grid
• Balancing services implementation of market
  place for them
• Long-term planning
• Drafting of the grid standard transportation
  contracts following the framework agreed within
  EASEE-gas
• Facilitation of a secondary market platform for
  trading and secondary markets for capacity
• Dispatching centre
• Collection of E/E fees and redistribution to the
  relevant TO
• TO
• Maintenance of transmission pipelines in
  accordance with the R_ISOs standards
• Compute and announce the available capacity to
  the R_ISO
• Enter into contract on exchange data with others
  TO and R_ISO
• Contribute to long-term adequacy

11
EFET RECIT Model role of actors on the
regional/European market

• Regulatory level EU/regional monitor, approve,
  enforce
• To ensure convergence between the regulatory
  principles and practices
• To approve the long term plans, methodology for
  calculation of tariffs
• To approve Regional Grid Code based on European
  Grid Code chapters(regional appendix)
• Easee-Gas
• Procedures for a coherent and common grid access
  to the EU
• Drafting of the grid standard transportation
  contracts
• Harmonisation of Invoicing and payments
• Harmonisation of Balancing rules / charges
• Defining of data format of communication
• Defining codification method
• Defining and agreeing on quality specification
• Harmonisation of trading arrangements
• ENTSO (GTE)
• Setting up of the Inter-TO compensation model
• Preparing of the ten Year Statements on system
  enhancement
• Ensuring closer communication and coordination
  among TOs best dispatch
• Agreeing of the minimum safety and maintenance
  requirements
• Agreeing standardized methodology for capacity
  calculation

12
GRI SSE EFET RECIT Model Comments received

• Stakeholder consultation on the paper on RECIT
  model was taken, the deadline was 10 January 2007
• Comments from following parties has been received
  so far
• CEER supportive, asks for more details
• OGP rather supportive, wants to avoid
  inefficient structures and more detail on the
  economies
• Eurelectric supportive
• Eurogas rather supportive
• GTE rather negative, does not want to make
  effort before 3rd package ready
• OMV Gas rather negative, asks for impact
  assessment

13
GRI SSE EFET RECIT Model Evaluation of
comments

• OGP position
• OGP Europe supports the principle of establishing
  regional ISOs as an interim measure leading to
  single European market, the measures leading to
  free market for importing gas into and through
  Europe via investments in LNG interconnectors
  etc. establishment of independent NRAs with
  similar power and aim to achieve a single grid
  code via regional grid codes.
• However the costs for usage of network (economics
  between R_ISO and TOs) should be more explained
• EFET ok, point taken, think on sort of impact
  assessment

14
GRI SSE EFET RECIT Model Evaluation of
comments

• OGP position
• Statements regarding control of flows in
  supplying pipelines see 2.2. should be more
  explained and suggest to insert proposal for
  prior to future grid investments decisions.
• EFET positive consideration, after WS clear

15
GRI SSE EFET RECIT Model Evaluation of
comments

• OGP position
• Criteria set out for independence of the R_ISO in
  2.3. could prevent the R_ISO for being a
  commercially viable operation without significant
  additional cost to network users.
• EFET believes that the independence (effective
  unbundling) of R_ISO is a key issue in the whole
  model as only company/entity with no possible
  influence by particular interested parties will
  be able to fulfill its responsibilities like
  efficient management of capacities and gas flows
  in the regional grid, balancing market based
  regime coordinated on regional level etc.
• We believe that a really functioning regional
  (European) market based on the clear
  determination of role for particular market
  players will bring significant benefits (less
  capacity congestion, harmonised market and
  technical rules etc.) to the network users
• ? Could be part of a potential impact assessment

16
GRI SSE EFET RECIT Model Evaluation of
comments

• OGP position
• Increasing number of interfaces (from this
  proposal and proposal for 3rd package ACER,
  ENTSOG, R-ISOs) could result in increased
  bureaucracy.
• In comparison to 3rd package the model does not
  propose any new interfaces, it only elaborates
  on possible way for regional integration and
  actually significantly reduces the number of
  interfaces (not each TSO is an interface to the
  market parts of the one-stop shop principle)
• It only determines roles of particular market
  players more precisely and gives a clear form for
  the proposed public consultation process in the
  3rd package
• It has to be taken into account that the R_ISOs
  should be established only in the regional/areas
  where it is reasonable in accordance with the
  physical and technical conditions/limitations

17
GRI SSE EFET RECIT Model Evaluation of
comments

• GTE position
• Welcomes the EFET paper as a contribution how the
  European market might develop, nevertheless its
  first priority is the development and
  implementation of the 3rd package establishment
  of ENTSOG and its role in consultation processes
• EFET does not want to wait for 3-5 years and
  already tackles now the elements included in the
  3rd package.
• Current ENTSOG tasks are not operational at all
• Like other stakeholders (OGP, CEER), EFET would
  prefer to define a system for a public
  consultation procedure which ensure for all
  parties same power, access to information etc.
  We believe that it can be more easily guaranteed
  by an organisation where all parties are
  represented than by a body where only TSOs have
  the control

18
GRI SSE EFET RECIT Model Evaluation of
comments

• OMV position
• Assessment of the impact which benefits will
  competition increase how the proposal fit with
  existing contracts between Gazprom and its
  customers
• As mentioned in the beginning the model does not
  try to find a new way to the proposal in 3rd
  package, it only provides a practical proposal
  how it can be interpreted
• EFET accepts the proposal for the impact
  assessment, nevertheless in its opinion it should
  be done by and in the cooperation with ERGEG SSE
  members (E-Control, AEEG) as chairs of the
  regional initiative
• EFET believes that the proposal of setting up a
  regional independent body which is responsible
  only for the issues relating to network
  (management of capacities, balancing services,
  dispatching etc.) should fit with the essentials
  of existing contracts between the importing
  company (Gazexport) and its customers (shippers)
  as their position will not change without legal
  changes

19
GRI SSE EFET RECIT Model Evaluation of
comments

• OMV position
• Short-term transportation contracts versus
  long-term
• EFET describes in the paper in its opinion
  necessary types of markets which will support
  development of a competitive and integrated
  market facilitated at the wholesale level through
  trading which can be possible even beyond the
  national borders
• The EFET RECIT paper does not at all propose to
  cancel all long-term contracts, it even requires
  that the forward market should cover also
  long-term periods at least up to 10 years. What
  EFET is stressing is the importance to increase
  traders confidence in short-term markets which
  can be ensured through its long term stable
  development ---gtshort term markets (price
  transparency) facilitate new market entry and
  increases competition

20
GRI SSE EFET RECIT Model Evaluation of
comments

• OMV position
• Potential new legal entity has to face barriers
  given by different legal and market framework
  ---gt long phase of implementation therefore TSO
  cooperation is more suitable
• EFET is aware about the possible legal obstacles
  by creating of a regional legal entity
  nevertheless we believe that the discussion about
  the obstacles is constructive when a process of
  setting up such an entity starts (so far it will
  be only very theoretical discussion)
• What is necessary in this case is the commitment
  of the decision making parties (state
  representatives, EC, regulators) to support
  regional integration with all its modalities like
  a regional independent system operator

21
GRI SSE EFET RECIT Model Evaluation of
comments

• OMV position
• ENTSOGs responsibility for inter-TO compensation
  is superfluous as well as responsibility for
  operational issues
• EFET believes that the proposed model cannot
  work without any system of payment for the usage
  of TO networks therefore we proposed an inter-TO
  compensation system (such a system has been
  already used in electricity) and as a most
  suitable entity for proposing such a system seems
  to be the ENTSOG
• The model of R_ISO would bring benefits also to
  the region SSE which faces obstacles like a lack
  of supply routes, a lack of active players, a
  lack of transparency and optimisation of the gas
  flows however EFET believe that the model is
  applicable in the whole EU as can be seen by many
  examples already
• - Ruhrgas-Eon and Bayerngas JV, several German
  zones are merging already
• GTS and BEB
• GRTG and TIGF GATRAC MOL

22
EFET RECIT Model - Conclusion

• EFET is very much interested in the comments
  which will be given today and will envisage
  establishing an updated version with the ultimate
  goal to tackle all concerns and get support from
  all parties as reasonably possible
• EFET believes that implementation of such a model
  is key for further development of the liberalised
  market starting now and taking already the
  elements of the 3rd package on board
• The creation of such a model will lead to the
  development of regional markets and at the same
  time reduce the market concentration, ensuring
  better non-discriminatory and transparent market
  access.
• Regions must be established on a pragmatic basis,
  e.g. Italy may well remain a region for the time
  being, however it must introduce a fully fledged
  balancing market as soon as possible etc..
• Regions obviously must be compatible with each
  other

23
Addendum

• According to information that EFET has just
  received
• The transit regime in CZ und in SK (also in H und
  A) differs from national transport.
• The situation for Poland and Slovenia is less
  clear. Clarification will be sought at this point.