Update on EU Tariff Framework Guideline Richard Miller UNC Transmission Workgroup 03/10/2013

Where we are now? 2 ~80% of the text provisionally agreed: Reserve price vis-a-vis short term/interruptible, Recovering allowed revenue, Sharing revenue, Price paid Key outstanding issue: cost allocation methodologies and incremental capacity tariffs Consulted on over summer 2013 Consultation closed September 2013 ACER now finalising FG ahead of 30 November 2013 deadline

Next Steps ACER finalisation work – Consistency check – Update from consultation Definitions Publication requirements Implementation Cost allocation methodology section New and incremental capacity: economic test, criteria for setting f parameter, possible reference price adjustments, payable price ACER submit to Commission by 30 November 2013 Commission invites ENTSOG to draft Network Code within one year ACER gives opinion on Network Code Commission turn network code into law via comitology 3

Questions? 4

ANNEX: COST ALLOCATION CONSULTATION 5

Cost Allocation Methodologies 6 General Principles Capacity/commodity split Entry:exit split Circumstances - suitability of methodologies to networks Permitted methodologies 1.Postage Stamp - same tariff for all entry point and same tariff for all exit points. 2.Virtual Point Based Approach - Entry and exit tariffs for each point determined according to their distance to a virtual point (VP). Two variants based on whether geographical VP identified 3.Matrix – Entry and exit charges calculated by algorithm minimising difference between the matrix of entry and exit charges with the matrix of costs. 4.Capacity Weighted by Distance Approach - The share of revenue recovered from each point proportionate to its capacity and distance gas flows to/from it.

Secondary Steps and the Test 7 Secondary Steps: can be applied after (or during in the case of equalisation) calculation of initial tariffs from 4 methodologies Scale-ups - A scale-up consists of increasing or decreasing the initial tariffs resulting from either of the 4 methodologies to recover allowed revenue, achieve the entry/exit split Equalisation - identifying a certain set of points in the system to which the same tariff fee should be applied e.g zonal tariffs Benchmarking - where there is competition between routes a TSO may want to reduce its tariff so as to be able to compete with another TSO on a route. The Test – compares expected revenues from tariffs and cost drivers for domestic and IPs to assess appropriateness of chosen methodology