Draft Framework Guidelines on Capacity Allocation Mechanisms for the European Gas Transmission Network Benoît Esnault, CRE Presentation Workshop Ljubljana, 7 March 2011

2 Introduction. During the “transition period”, ERGEG assumed the role assigned to ACER by the 3rd package and worked on “pilot” Framework Guidelines. For gas, ERGEG has been working on 3 pilot FGs: » Capacity allocation mechanisms (CAM) » Balancing » Tariffs. CAM was considered as a priority topic and is the first pilot FG completed by ERGEG and the first FG addressed by ACER. CAM context: need to improve the access to cross border points » Different allocation rules on the two sides of borders » Different types of capacity products » Domination of First Come First Served  More integration to the benefit of competition and security of supply

3 Drafting process. Preparation of the implementation of the third package: pilot framework guideline » CAM selected for the pilot project at the 16th Madrid Forum » Letter from the Commission received on 22 September 2009 » Consultation on the draft framework guideline launched on 18 December 2009 » Final version adopted on 10 June ERGEG principles on CAM & CMP published in January 2009 & public consultation provided the basis for the pilot framework guideline. Letter from the Commission requesting improvements sent on 9 September Final version of the pilot framework guideline released on 10 December 2010

4 Requests from the Commission. The Commission asked for a revision of the Framework Guideline according to Article 6(4) of Regulation 715/2009 » “The draft FG does not in all aspects contribute to non discrimination, effective competition and the efficient functioning of the market” » 8 points were raised. Three months as from September 9. Requests » More harmonisation: market based mechanisms only » Clarification of technical points and contractual issues » Reduce the role of regulators. Issues to be further elaborated » “Technical” parameters reg. bundling of capacities (timing, loss of capacities, relation to existing contracts) » Auction design (reserve price, existing capacities) » Rules for firm vs interruptible capacities » Harmonisation of gas day

5 Key points of the FG in its current version. Scope of the Framework guideline: interconnection points between entry-exit zones within the EU ( ). Drafting the guideline required developing a “target model” » Simplified access to interconnections » Proper balance between short and long term » Developing hub liquidity. General principles » All market areas organized as entry-exit zones with virtual hubs » Limited number of capacity products » Regular offer of capacity » Capacity allocation by auctions » Bundling of capacity products » Contractual IPs when several physical IPs between two zones

6 Amendments related to the EC requests (1) 1Highest possible degree of harmonisation and minimisation of the role of NRAs » The pilot FG was amended in that direction » NRAs will still have room for decision since the NC cannot cover all potential operational arrangements (Gas Regulation, Article 13(1)) 2Bundled products » Clarification of ”virtual interconnection points”: capacity at two or more points connecting two adjacent entry-exit systems is integrated into one single capacity service » Virtual interconnection points should not lead to a reduction of capacity » Implementation within 5 years but » Sunset clause: how to organize the bundling of capacity within existing contracts by 5 years after the entry into force of the code: definition of a “default” rule

7 3“Sunset clause” » Mandatory bundling of all the technical capacity within five years for shippers » Priority to voluntary agreements » Default rule: if no agreement, TSOs are entitled to split the bundled capacity between original capacity holders proportionally to their capacity rights » Should not entitle contracting parties to cancel supply contracts  A specific impact assessment is going to be launched on the sunset clause and the default rule Amendments related to the EC requests (2)

8 4Auctions as the standard allocation mechanism » Definition of a standard design with possible exemptions » Anonymous and online based auction procedures 5Reserve price: decided by the FG on tariffs but reference to “regulated price” » Potential over revenues from auctions shall be affected to reducing tariffs, reduce congestions or to incentivise TSOs to maximise capacity offer  Interim period: alternative allocation procedures and duration to be decided by comitology Amendments related to the EC requests (3)

9 6.Allocation of capacity yet to be built: auctions not sufficient Incremental capacity excluded from the scope of the pilot FG However processes for allocating incremental capacities should be consistent with this pilot FG 7.Clarification of the rules that apply for firm and for interruptible capacity Priority to firm capacity: interruptible shall not restrict the use of firm capacity Auctions are the single target model for both Procedures regarding interruptions will be standardized 8.Clarification of the need for a common gas day Standard duration for the gas day starting at 6 CET Further evaluation by ENTSOG left open Amendments related to the EC requests (4)

10 Way forward. ACER consultation (2 months). Launch of an impact assessment of the “sunset clause” and the default rule Questions about the potential impact of the “sunset clause” and the associated default rule: analysis of the legal issues as well as the economic and strategic aspects Study by an independent consultant sponsored by the regulators. The work on the target model could have an impact on the final framework guideline Role of wholesale markets Relations between the market design and the value of capacity products, etc.

11 How to participate in ACER Consultation. Process similar to ERGEG/CEER consultations. Deadline for submissions: 2 May Register on ACER website Obtain a login. Submit comments through an on-line consultation form. Name and affiliation of all participants published on ACER website

12 thank you for your attention