Dipl. Ing. Dr. Stephan Ressl CChair EFET SSE Head of Business Development Econgas SSE IG Maribor, 09/10/2007 European Federation of Energy Traders

Stephan Ressl Maribor, GRI SSE: EFET draft R_ISO Model  EFET has a vision (to be adopted), which brings practical solutions for the integration of the still national (or even smaller) markets into regional markets and later possibly into a European single market  EFET believes that market rules must be drafted by all stakeholders affected  EFET believes that this model will effectively provide market integration in a swift manner  The benefits which are awaited are mainly twofold  Support of security of supply  Increase of competition

Stephan Ressl Maribor, Why: Balancing zones and natural total gas demand Mrd. m³ 6 Mrd. m³ 3 Mrd. m³ 9 Mrd. m³ 78 Mrd. m³ 46,5 Mrd. m³ 90 Mrd. m³ 9 Mrd. m³ 41 Mrd. m³ 1 37 Mrd. m³ 17 Mrd. m³ 88 Mrd. m³ 1 3,3 Mrd. m³ 4,3 Mrd. m³ 1 1 *source for total gas demand per country – Global Insight

Stephan Ressl Maribor, Balancing zones (H-Gas) changes

Stephan Ressl Maribor,  xy see 3 5 Atlantic bassin LNG Spot price LNG Potential regional market development with determining of the short term index prices Border price Border price Border price Border price R_ISO 4 R_ISO 1 R_ISO 3 R_ISO 5 (Spot) price index R_ISO xy

Stephan Ressl Maribor, GRI SSE: EFET draft R_ISO Model  Improvement of security of supply in SSE  A bigger market unites more players (producers, shippers etc.) in one area and therefore increases the choice of gas supply implicitly (diversity of sources, routes and storages)  Better overview about flows (SSE region is facing insufficient access to the network and in-transparent enhancement) if coordinated regionally  Market based balancing gives transparent pricing signal and shows constraints in system interconnection  R_ISO as a dispatch coordinator can offer regionally optimised capacity  R_ISO (JV??) is stronger against third party takeover bids

Stephan Ressl Maribor, GRI SSE: EFET draft R_ISO Model  Enhancement of competition  The merging of the market zones with now different operational, technical and commercial (balancing) rules, will implicitly optimise cross-border trade, increase liquidity of the market area and enhances market entry opportunities (bigger customer potential)  Enlarging of market zones will bring more market players and thus decrease the 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.

Stephan Ressl Maribor, GRI SSE: Decision making process concerning EU Grid Code GTE+ EFET OGP IFIEC Eure lectric Secondary Legislation If empowered Execution Monitoring Controling Policy and legislation Draft EU-Grid Code ….. Consultation process on the EU-Grid Code

Stephan Ressl Maribor, GRI SSE: EFET draft R_ISO Model  The model propose clear definition and separation if the task and responsibilities of particular market players:  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 ;  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 –Deciding on emergency procedures

Stephan Ressl Maribor, GRI SSE: EFET draft R_ISO Model - Conclusion  EFET believes that implementation of such a model is key for further development of the liberalised market in the SSE region where the security of supply might be questionable as well as the level of competition between supply sources  The creation of such a model will lead to the development of regional markets and at the same time limit the dominant role of vertically integrated companies, 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  CEGH must make progress and serve for regional purposes, OBAs must be in place as a first thing

Stephan Ressl Maribor, GRI SSE: Timeline – CEGH Development - old Feb 07Oct 2008Oct 07 ►For Bulletin Board the decision on Market Maker (volume? spread? period? rights and responsibilities?) ►Back-up/-down services ►Customer focus OBAs physical nomination < 1 day lead time (now 5 days) Web based nomination ►Workshop CEGH with EFET on products Mar 07May 2007 ►systematic offering of structured products (week ahead, month ahead)  anonymous ►standardised agreements (EFETs) ►(Super-) firm market place ►CEGH takes counterpart risk and makes clearing ►International balancing via CEGH ►online intraday balancing market ►derivative trading with physical hedge/forwards ►gas exchange ►Meeting CEGH with EFET CEGH Working Group Jan 2009 ►Derivative trading ►Regional balancing market Mar/Apr 07 Jan 2008 ►Meeting CEGH with EFET CEGH Working Group ►day ahead products ►intraday products ►physical nomination < 1 day possible ►web based nomination possible Jul 07 ►Back up/down service ►Operational Market Maker ►Completion of contractual specifications ►New date for Workshop 23.7.

Stephan Ressl Maribor, Timeline – CEGH Development - new Feb 07Oct 2008Oct 07 ►For Bulletin Board the decision on Market Maker (volume? spread? period? rights and responsibilities?) ►Back-up/-down services ►Customer focus OBAs physical nomination < 1 day lead time (now 5 days) Web based nomination ►Workshop CEGH with EFET on products Mar 07May 2007 ►CEGH business dispatching in operation ►CEGH takes counterpart risk and makes clearing ►International balancing via CEGH ►online intraday balancing market ►derivative trading ►gas exchange ►market maker ►Meeting CEGH with EFET CEGH Working Group Mar/Apr 07 Jan 2008 ►Meeting CEGH with EFET CEGH Working Group ►Backup/down service in operation ►customized web based nomination possible Jul 07 ►Back up/down service ►completion of contractual specifications Nov 07 Here we are today

Stephan Ressl Maribor, GRI SSE: Hub development - conclusion  As you can see from the up-dated timeline for the development of CEGH the schedule is becoming more tight in order to have a liquid hub/gas exchange by October EFET CEGH a.h. WG positively welcomes these activities and supports them actively  EFET is working on a similar timetable for PSV with AIGET and Eurelectric; we would like to see similar results. We invite the authorities and all stakeholders to support this initiative.  A WS will be organised jointly in Italy to discuss possibilities with respect to e.g. the UK market as reference.