Directie Toezicht Energie, Bonn WS 8 february Bonn 1 SG Workshop: Secondary markets for interconnection capacity: way to adress contractual congestion SG Meeting Bonn February 8th 2007

Directie Toezicht Energie, Bonn WS 8 february Bonn 2 Agenda workshop 14:00 – 14:10Introduction of the workshop by the moderator 14:10 – 14:30Presentation of the results on a study of the performance of the secondary market in the NW-European region 14:30 – 15:20Discussion on results study and the focus of the workshop 15:20 – 15:30 Recapitulation by moderator of the discussion 15:30 – 15:45Coffee Break 15:45 – 16:00Introduction of the discussion on the way forward 16:00 – 16:45Discussion 16:45 – 17:00 Recapitulation by moderator and conclusion workshop

Directie Toezicht Energie, Bonn WS 8 february Bonn 3 Introduction of the workshop (1): Secondary market is not performing its task as an effective congestion management procedure Main task secondary market: effectively deal with contractual congestion on interconnection points Current status quo: secondary market is not effective in solving contractual congestion for capacity

Directie Toezicht Energie, Bonn WS 8 february Bonn 4 Introduction of the workshop (2): Objectives of the workshop is to provide Enabler Group with input for Implementation Plans Quick wins: –changes in the current secondary market design ( input for the EFET/Operators workshop on DA Capacity Auctions ); –improvements in the current congestion management procedures (primary capacity): interruptible capacity product –Input for other EU capacity work (EASEE-gas, EFET etc.) Long term wins: –incentives for shippers to offer capacity on the secondary market: current primary market ( input for the primary market group ); improvements in the current firm UIOLI design

Directie Toezicht Energie, Bonn WS 8 february Bonn 5 Agenda workshop 14:00 – 14:10Introduction of the workshop by the moderator 14:10 – 14:30Presentation of the results on a study of the performance of the secondary market in the NW-European region 14:30 – 15:20Discussion on results study and the focus of the workshop 15:20 – 15:30 Recapitulation by moderator of the discussion 15:30 – 15:45Coffee Break 15:45 – 16:00Introduction of the discussion on the way forward 16:00 – 16:45Discussion 16:45 – 17:00 Recapitulation by moderator and conclusion workshop

Directie Toezicht Energie, Bonn WS 8 february Bonn 6 Results of the Study on performance secondary market Includes Questionnaires response Thank you!

Directie Toezicht Energie, Bonn WS 8 february Bonn 7 Outline of the study 1.Current situation; 2.Results of the questionnaire; 3.Qualitative analysis performance sec. market. 4.Way forward

Directie Toezicht Energie, Bonn WS 8 february Bonn 8 1. Current Situation (1): Congestion management procedures

Directie Toezicht Energie, Bonn WS 8 february Bonn 9 1.Current Situation (2): characteristics current design of the secondary market Bilateral market; Online bulletin board with centralized information on specific amount of capacity offered/requested, party and price (facilitated by the TSO) No coordinated entry-exit product on an interconnection point; Capacity rights or usage right; Implementation lead time of maximum 10 days, average around 5 days.

Directie Toezicht Energie, Bonn WS 8 february Bonn Questionnaire analysis performance congestion management procedures: secondary market is not successful in solving contractual congestion Questionnaires analysis shows a clear and consistent overall picture of the performance of the congestion management procedures in the NW-European region: Secondary market: –No transactions on the majority of NW-European interconnection points; –Active secondary markets are illiquid; Other congestion management measures status quo: –Firm UIOLI has never been applied; –Interruptible capacity is the principal congestion management procedure

Directie Toezicht Energie, Bonn WS 8 february Bonn Qualitative analysis (1): prim. cap. right owners see other uses for capacity rights than offering them on the secondary market Possible motives shippers for not offering capacity: –Reducing risks (risks of not being able to follow up on contractual obligations outweigh the profit that can be made on the sec..market); –Retain flexibility for trade (profit that can be made by trading between hubs is greater than that an be made by trading the capacity on the sec. market ); Assumed motive by shippers for other shippers for not offering capacity: –Anti-competitive behavior (without prejudice) Motives shippers for not buying capacity: –Lack of trust in supply; –‘Competition’ from other sources of capacity/commodity; –Shortcomings in current design and facilitation.

Directie Toezicht Energie, Bonn WS 8 february Bonn Qualitative analysis (2): behavior of shippers is the result of organizational culture, impact primary market, lack of incentives and of shortcomings in the sec. market design Primary capacity right holders show an overall lack of ‘an appetite for trade’; Impact (pre-liberalization) long term legacy contracts resulting from the primary market allocation mechanism; Lack of strong incentives: –positive: prices on the prim. market are relatively low –negative: firm UIOLI has never been applied Shortcomings in the design of the secondary market

Directie Toezicht Energie, Bonn WS 8 february Bonn Qualitative analysis (3): shortcoming secondary market Shippers experience the following shortcomings: –non-transparency on available capacities, prices and capacity products; –trade is non-anonymous on most markets; –lack of coordination between markets on the same interconnection points –irregular trade (no concentration of supply and demand on fixed times); –lack of standardized contracts; –a relatively long ratification time of a transaction by the TSOs; –some shippers also indicate that they experience (perhaps perceive) legal bottlenecks for transactions on the secondary market.

Directie Toezicht Energie, Bonn WS 8 february Bonn Way forward Objectives of the workshop is to provide Enabler Group with input for Implementation Plans Quick wins: –changes in the current secondary market design ( input for the EFET/Operators workshop on DA Capacity Auctions ); –improvements in the current congestion management procedures (primary capacity): interruptible capacity product –Input for other EU capacity work (EASEE-gas, EFET etc.) Long term wins: –incentives for shippers to offer capacity on the secondary market: current primary market ( input for the primary market group ); improvements in the current firm UIOLI design

Directie Toezicht Energie, Bonn WS 8 february Bonn 15 Agenda workshop 14:00 – 14:10Introduction of the workshop by the moderator 14:10 – 14:30Presentation of the results on a study of the performance of the secondary market in the NW-European region 14:30 – 15:20Discussion on results study and the focus of the workshop 15:20 – 15:30 Recapitulation by moderator of the discussion 15:30 – 15:45Coffee Break 15:45 – 16:00Introduction of the discussion on the way forward 16:00 – 16:45Discussion 16:45 – 17:00 Recapitulation by moderator and conclusion workshop

Directie Toezicht Energie, Bonn WS 8 february Bonn 16 Discussion: subjects of discussion Remarks on the general analysis of the secondary market performance? Remarks on the objective of the workshops?

Directie Toezicht Energie, Bonn WS 8 february Bonn 17 Agenda workshop 14:00 – 14:10Introduction of the workshop by the moderator 14:10 – 14:30Presentation of the results on a study of the performance of the secondary market in the NW-European region 14:30 – 15:20Discussion on results study and the focus of the workshop 15:20 – 15:30 Recapitulation by moderator of the discussion 15:30 – 15:45Coffee Break 15:45 – 16:00Introduction of the discussion on the way forward 16:00 – 16:45Discussion 16:45 – 17:00 Recapitulation by moderator and conclusion workshop

Directie Toezicht Energie, Bonn WS 8 february Bonn 18 Outcomes discussion

Directie Toezicht Energie, Bonn WS 8 february Bonn 19 Agenda workshop 14:00 – 14:10Introduction of the workshop by the moderator 14:10 – 14:30Presentation of the results on a study of the performance of the secondary market in the NW-European region 14:30 – 15:20Discussion on results study and the focus of the workshop 15:20 – 15:30 Recapitulation by moderator of the discussion 15:30 – 15:45Coffee Break 15:45 – 16:00Introduction of the discussion on the way forward 16:00 – 16:45Discussion 16:45 – 17:00 Recapitulation by moderator and conclusion workshop

Directie Toezicht Energie, Bonn WS 8 february Bonn 20 Agenda workshop 14:00 – 14:10Introduction of the workshop by the moderator 14:10 – 14:30Presentation of the results on a study of the performance of the secondary market in the NW-European region 14:30 – 15:20Discussion on results study and the focus of the workshop 15:20 – 15:30 Recapitulation by moderator of the discussion 15:30 – 15:45Coffee Break 15:45 – 16:00Introduction of the discussion on the way forward 16:00 – 16:45Discussion 16:45 – 17:00 Recapitulation by moderator and conclusion workshop

Directie Toezicht Energie, Bonn WS 8 february Bonn 21 II Discussion on the way forward

Directie Toezicht Energie, Bonn WS 8 february Bonn 22 Discussion on the way forward (1): discussion on quick wins and long term objectives Quick win Long term win

Directie Toezicht Energie, Bonn WS 8 february Bonn 23 Discussion on the way forward (2): timetable discussion

Directie Toezicht Energie, Bonn WS 8 february Bonn 24 Agenda workshop 14:00 – 14:10Introduction of the workshop by the moderator 14:10 – 14:30Presentation of the results on a study of the performance of the secondary market in the NW-European region 14:30 – 15:20Discussion on results study and the focus of the workshop 15:20 – 15:30 Recapitulation by moderator of the discussion 15:30 – 15:45Coffee Break 15:45 – 16:00Introduction of the discussion on the way forward 16:00 – 16:45Discussion 16:45 – 17:00 Recapitulation by moderator and conclusion workshop

Directie Toezicht Energie, Bonn WS 8 february Bonn 25 Introduction discussion: options for changes in the current secondary market design => tomorrow to be further discussed in EFET/Operators workshop (Various locations)

Directie Toezicht Energie, Bonn WS 8 february Bonn 26 Introduction discussion: Firm UIOLI mechanism Performance: Quantitative data shows that the firm UIOLI mechanism has never been applied in NW-Europe Current issues with the Firm UIOLI mechanism: Difficult to prove hoarding for anti-competitive reasons; Procedures Firm UIOLI take long and are time consuming. Brainstorm: Formulate clear criteria that define hoarding for anti-competitive reasons; Evaluate current firm UIOLI procedures and make them less complex and time consuming (for example by shortening the period during which hoarding for anti- competitive reasons needs to be proved)

Directie Toezicht Energie, Bonn WS 8 february Bonn 27 Outcome discussion: Firm UIOLI mechanism

Directie Toezicht Energie, Bonn WS 8 february Bonn 28 Introduction discussion: Interruptible UIOLI mechanism Performance: Interruptible is a popular capacity type on the primary market for transmission capacity Current issues with the Interruptible UIOLI mechanism: Shippers indicate they experience the product non-transparent; –How is the amount of interruptible capacity that is offered on the primary market determined by the TSO; –What are the criteria for interruption. Brainstom: Formulate and publish clear criteria for the interruption of capacity; More transparency on utilization rate.

Directie Toezicht Energie, Bonn WS 8 february Bonn 29 Outcome discussion: Interruptible UIOLI mechanism

Directie Toezicht Energie, Bonn WS 8 february Bonn 30 Introduction discussion: Releasable capacity –Rule 1 – For any shipper having subscribed more than 20% of marketable firm annual capacities on the following points, a share R of the part of its subscription exceeding 20% of marketable firm annual capacities is converted into releasable capacities. –Rule 2 - Releasable capacities are released, if requested by GRTgaz, month by month, partially or totally, only if there is no more or not enough available firm capacities.

Directie Toezicht Energie, Bonn WS 8 february Bonn 31 Agenda workshop 14:00 – 14:10Introduction of the workshop by the moderator 14:10 – 14:30Presentation of the results on a study of the performance of the secondary market in the NW-European region 14:30 – 15:20Discussion on results study and the focus of the workshop 15:20 – 15:30 Recapitulation by moderator of the discussion 15:30 – 15:45Coffee Break 15:45 – 16:00Introduction of the discussion on the way forward 16:00 – 16:45Discussion 16:45 – 17:00 Recapitulation by moderator and conclusion workshop

Directie Toezicht Energie, Bonn WS 8 february Bonn 32 Outcome workshop Quick win (objective of this workshop) Long term objectives (outside the scope of this workshop)

Directie Toezicht Energie, Bonn WS 8 february Bonn 33 Back-up Overview