North / North West Region Regional Gas Initiative Regulatory Co-ordination Workshop 8 th February 2007

Responses to Issues Paper Regulatory Co-ordination

Responses Received to Issues Paper Twelve Individual Responses –Six Shipper / Trader –Six Transporter Consolidated Response from European Transporters

General Observations Assume all regulators consult as much as possible Obligations under Art 25 Dir and Reg 1775 Extent limited by National Legislation Philosophical / Policy differences Extension of Duties under proposed 3 rd EU package Telecoms Framework Directive good model

How to Co-ordinate Co-operate in developing harmonised regulations Compulsory if not voluntary Common Criteria –Checklist of Issues One Regulatory Window

Legal Structures Institutionalised Co-operation EU regulatory body –Monitor regulatory actions / decisions –Consistent EU Network Codes Memoranda of Understandings Mandatory Guidelines

Circumstances where Cooperation NB Neighbouring Countries Where direct interconnection –E.g. UK, Ire, Be, Norway, Netherlands Where new Rules being introduced already operating elsewhere Specific Projects (cross border investments)

Issues for Co-operation Open Season Transport, transparency, trading hubs New Projects (consenting, construction) Costs Gas Quality Balancing

Impacts from lack of Co-ordination Different Balancing Requirements –Move imbalance to other market, distort flows, impede trade Limiting Exit Capacity –Artificially curtailing flows Different Open Seasons –Risks if required to commit to one jurisdiction first –Compounded if no effective Secondary Trading –Restricts new entry

Dual Regulation Investments –Different tariff methodologies –Delays in decision making - need for joint consultations at early stages Access to Pipelines –Entry / Exit regimes –Balancing –Maximum Available Capacities –Quality Storage Production –Different Country for Connection to Grid

General Examples Licencing –By Two Regulators –Interconnectors –Storage production different from connection point Cross Border Pipes –Access (different Entry /Exit Regimes) / Open Season & 2 nd ry Cap availability Pricing Methodology –Balancing Regimes –Compression –Regulatory Asset Bases Market Arrangements –Balancing –New Procedures –Quality

Specific Examples UK Exit reforms –No advance Discussions with Ireland / NI Difference in Open Season (Ne, Be) –Transportation Pricing –Process itself –Technical Access Conditions Interconnector Auctions (D – NL; DK – D) Art 22 Exemptions (OFGEM /Dte) –Two regulator Decisions required –Timing different

Specific Examples (2) UK Interconnector Licencing (Fr, Be, Ire) –Licenced by two Regulators –Potential for Conflict Gas Quality (UK, Be, NL) –Different Approaches Inconsistent Approaches to Market Development –Application of Legislation (Swe, Den) –UK Transporter can’t operate Interconnector –German approach to Pipe/pipe and Market Area Competition

How to Manage Risks Assign Regulatory Responsibilities Consult Regularly and with Market Players Framework for Dealing with X border issues –Consult before Licencing - early –Co-ordinate Actions Guidelines based on Case Histories Harmonise Business Practices (rules / regulations) Dispute Resolution Process

Market Arrangements Mechanisms should be Compatible – Not necessarily Harmonised Capacity –Entry / Exit need to Correspond –Definitions of Firmness Harmonise Products Sell combined Products Common Auctions or Open Seasons Balancing Regimes –(hourly v daily) –Penalties Electronic Communications Same timelines for advising Allocated Quantities

Market Arrangements (2) Secondary Market Harmonise Rules Transparency Trading Hubs Tariffs –No need to fully harmonise if trade not affected –Compression costs can Distort Trade –Joint Consultations could be useful Gas Quality Discrepancies –Volumetric v Energy

Dispute Resolution Comments Desirable but not Major Issue Will become increasingly NB as supplies more diversified and longer distances May Require National Legislation Rules enabling EU Commission to take Greater Role may be Needed

Proposals for Dispute Resolution Independent Mediation (non-binding) Conciliation – Non binding Formal Independent Arbiter – binding ERGEG –Implementing guidelines and monitoring –More powers under 3 rd package– binding Treaties between neighbouring Countries Mandatory Guidelines European Courts –Lengthy Process –May be unavoidable