Regulation and Gas Market Opening in Slovakia Ján Klepáč, Vice-Chairman of the Regulatory Council and Regulatory Office for Network Industries ÚRSO Bajkalská 27, 820 07 Bratislava e-mail: klepac@urso.gov.sk, tel.: +421 2 58100419 Regulation and Gas Market Opening in Slovakia 27.11.2018 Úrad pre reguláciu sieťových odvetví

SHORT HISTORY OF THE SLOVAK REGULATION IN GAS INDUSTRY Enactment of the Act No. 276/2001 Coll. of the National Council of the Slovak Republic, June 14, 2001 Network industries: electro-energy, gas industry, heating, water industry Establishment of ÚRSO, August 1, 2001 Appointment of the Regulatory Council members, October 16, 2001 Conclusion of Chapter 14 – “Energy” – within the framework of access negotiations with the EU Implementation of Directives 96/92 and 98/30 of the European Parliament and of the Council to Slovak legislation 4 basic regulatory decisions for the gas industry issued by ÚRSO from December 2001 to December 2002 SPP privatisation, March 14, 2002 27.11.2018 Úrad pre reguláciu sieťových odvetví

Regulatory Decision for Gas Industry Decision 523/01 Coll. concerning the method of maximum price calculation for delivery of natural gas to customers, December 2001 Amended by Decision 650/02 Coll., November 2002 Regulatory method incentive regulation based on profitability limitation Regulatory formula Mt = CPt + Pt - Kt Gas market opening from 1/1/2003 eligible customer consumption volume >= 15 mil. cubic meters of NG/year Decision 746/02 Coll. on extent of regulation for small regulated subjects < 100 mil. cubic meters of NG/year 27.11.2018 Úrad pre reguláciu sieťových odvetví

Úrad pre reguláciu sieťových odvetví Separate Decision 0088/2002/03 Concerning the Maximum Price and Tariff Setting for Gas Transmission in Relation to Eligible Customers, issued by ÚRSO for SPP, a.s., December 2002 Calculation for the category Wholesale customers: P = F + H + V P … price for transmission (SKK) F … fixed cubic rate for capacity booking (0.67 SKK/cubic meter) x booked capacity per month (cubic meters) H … annual performance rate (1952.88 SKK/(cubic meter/hour)) x maximum booked hourly capacity (cubic meter) V … variable rate for transmitted capacity in the category Wholesale customers (1.32 SKK/cubic meter) Note: The principle known as the “post stamp principle” is applied in the whole territory of the Slovak Republic. In the years 2003 - 2004, there are 45 eligible customers in the Slovak Republic. 27.11.2018 Úrad pre reguláciu sieťových odvetví

Application of Regulatory Decisions in Gas Industry Regulated subject SPP, a.s., with 97% share in the market + 50 small gas suppliers Average maximum price increasing by 32.7% from 1/1/2003 and by 5.2% from 1/1/2004 Eliminated cross subsidies in relation to all customer categories ÚRSO may only influence by regulation 37.86% of maximum price; the rest makes the purchase price of the natural gas. 27.11.2018 Úrad pre reguláciu sieťových odvetví

Chart 1 Comparison of average selling gas prices by tariff groups 27.11.2018 Úrad pre reguláciu sieťových odvetví

Úrad pre reguláciu sieťových odvetví Chart 2 Illustration of quantity of gas consumption in unit selling price 27.11.2018 Úrad pre reguláciu sieťových odvetví

GAS MARKET OPENING ISSUES AND POSSIBLE SOLUTIONS Single monopoly source of natural gas and low own production HUB Baumgarten gas line Nabucco Existence of long-term contracts for gas supply Apparently shall continue Validity of so-called “Destination Clause” required by Gazprom Energy dialogue EU – Russian Federation Existence of single vertically integrated company SPP, a.s. Accounts and managing unbundling later legal unbundling Missing legislation Harmonization of Slovak energy legislation with the EU Directives 27.11.2018 Úrad pre reguláciu sieťových odvetví

GAS INDUSTRY CHAIN IN SLOVAKIA – CURRENT STATE Underground storage Nafta a.s. Gbely, Pozagas a.s. Malacky Transmission SPP a.s. Import SPP a.s. Exploitation and production Nafta a.s. Gbely Distribution SPP a.s. Sale SPP a.s. Customer 27.11.2018 Úrad pre reguláciu sieťových odvetví

BASIC CHART OF THE SLOVAK ENERGY LEGISLATION Act on Heating Act on Regulation Act on Energy Ministry of Economy RONI Gas Market Rules Operation Rules of Gas Networks Gas Trans. Rules Techn. Inter. Rules TSO Order DSO Order SSO Order 27.11.2018 Úrad pre reguláciu sieťových odvetví

Úrad pre reguláciu sieťových odvetví NEW LEGISLATION APPLICATION IN THE GAS TRANSMISSION AREA PRICE SETTING GAS MARKET RULES 27.11.2018 Úrad pre reguláciu sieťových odvetví

PRICE SETTING - CURRENT STATE Maximum price for natural gas supply to the customers calculated on the basis of the ÚRSO Decree No. 523/01 Coll. consists of the commodity price gas transmission price gas distribution price underground gas storage price 27.11.2018 Úrad pre reguláciu sieťových odvetví

TRANSMISSION NETWORK ACCESS TARIFFS In the transmission contract, there are ensured the following services: ordered transmission capacity ancillary services gas for operating needs other services 27.11.2018 Úrad pre reguláciu sieťových odvetví

Úrad pre reguláciu sieťových odvetví Gas Market Rules Primary linepack reserved for DSO´s physical balancing Negotiated access to gas storage facilities Virtual and real access to storage facilities Single TSO Single DSO Entry – exit system in gas transmission Post – stamp principle in gas distribution Slovak Republic as a single balancing zone Daily balancing regime 27.11.2018 Úrad pre reguláciu sieťových odvetví

Úrad pre reguláciu sieťových odvetví 27.11.2018 Úrad pre reguláciu sieťových odvetví

Úrad pre reguláciu sieťových odvetví 27.11.2018 Úrad pre reguláciu sieťových odvetví

Regulation and Gas Market Opening in Slovakia Ján Klepáč, Vice-Chairman of the Regulatory Council and Regulatory Office for Network Industries ÚRSO Bajkalská 27, 820 07 Bratislava e-mail: klepac@urso.gov.sk, tel.: +421 2 58100419 Regulation and Gas Market Opening in Slovakia 27.11.2018 Úrad pre reguláciu sieťových odvetví