Classification: Internal Status: Draft ERGEG GRI NW Investment Workstream Shippers’ contribution Helga FRANSE, Jerome DUROYON,

2 Market parties: what should be the result? Investment costs Risk allocation Regulatory framework InputOutput Investment model Economic test Cost per unit Investment thresholds Transparent process for long and short term allocation

3 What has been realised in the first step? First description of the input in the model (costs, risks, regulatory regimes) Development of the Excel model Realisation of the differences between views and perceptions of TSOs, NRAs and market parties Realisation of the differences between markets Basis for one model per country Main result: Better understanding between TSOs, Regulators, Market parties

4 Shippers’ Input Capacity booking interest depending on shippers’ type: –E&P companies : Secure Sales Mainly LT firm base-load capacity –Midstream : Access to various hubs and LT transit from E&P Reduced exposure to secondary market volatility Partly LT and ST optimization –Traders Capacity and spread optimization (Arbitrage) From Intraday/Day-Ahead to 2-3 years Shippers’ position about investment –Capacity bookings are key, NOT flows –Agree for LT commitment, as requested by TSO –Avoid scarcity of capacity by regular development process (Open Seasons or other) –Need for spare capacity when FID is taken –Transparent & Visible Tariff (but not mandatorily fixed for the whole period) –Efficient capacity management practices

5 Tariff methodology calculation impact WACC IRR (Internal Rate of Return) –Combination of assumed costs and assumed revenues –Rate (%) and regulatory period depending on country regulation –Initial XX years tariff (depreciation period), to be revised after each regulatory period Assumed revenues –Tariff (calculated) * Capacity bookings (assumptions) Capacity bookings have various structure: –LT booking before FID and –Actual additional ST bookings and –Future bookings assumptions (new & future LT and future ST) IRR upsides –X years tariff (Regulatory period) –After revision of costs and revenues, new tariff applies for on-going regulatory period –LOW variation expected and smoother tariff compare to WACC –Fair reward in a low risk environment for TSO

6 Investment Trigger : visibility for TSO To answer market needs, TSO must still have visibility Trigger necessary for shippers to have transparency on TSO decision All revenues could not be 100% guaranteed –spare capacity and commitment duration shorter than depreciation Tariff is set on assumptions Trigger for investment : Net Present Value (NPV) ratio Guaranteed NPV based on tariff * Firm bookings before FID (commitments) XX% level to be discussed and agreed between stakeholders Trigger should respond to all stakeholders concerns

7 Other issues What decision after depreciation period ? –Economic value is 0 BUT market value > 0 Efficiency of Investment –What does that mean ? Regulated Asset Base –New investment : dedicated tariff or RAB ? Coexistence with existing tariff –Socialization of cost and revenues ? –Different tariffs for same “route” ? Is this discriminatory for new entrants ? Dedicated New Transit model (Hub-to-Hub) –Entry-Exit Model evolution to Hub-to-Hub model ?

8 Way forward after Dublin Completion of per country overview Integration of national and regional models into one European common methodology Transparent differentiation between costs, risks and risk premiums Clarify investment thresholds Link investment model of Core Group with Economic test and Bidding sheet of EFET

9 Back-up

10 Hub-to-Hub model