Investment workstream 19 May 2009 Cross-border gas transmission‏ Investment project (I1) Update The Manual for near term investment procedures for (cross- border) transmission Kristien van de Laar (NMa/EK)

2 Investment workstream, GRI NW Outline presentation 1. Overview “Manual” topics 2. Illustrative examples on what to expect (eg on risk allocation) 3. Way forward to September 2009 Workshop

3 Investment workstream, GRI NW 1. Overview “Manual” topics 1) Regulatory model 2) Type of investment 3) Investment Planning 4) Determining whether an investment proposal is efficient, required and sufficient 5) Allocation of risks (cross border only) => see examples on next slide. 6) Allocation of costs (tariff based only) 7) Bearing the costs and risks 8) Determining allowed return

4 Investment workstream, GRI NW 2. Illustrative examples on what to expect (a) (eg on risk allocation, answer for German regulatory framework) Question in the Manual: Could you give an example of how the risk is distributed between parties (please take into account the following parties: network users (shippers) end users (consumers), the TSOs and other parties which are in your country of relevance). Answer to question in the Manual: In Germany the risk allocation for example for a single TSO’s extension project can be handled by the approval of an investment budget if the investment project complies with the conditions of section 23 ARegV. The costs of an approved investment budget are treaded as non-controllable costs. Consequently, they are passed on to the network users by adding these costs to the given revenue cap for the respective regulatory period. These investment costs remain uncontrollable costs until the scenario, the investment budget is based on, is put into effect. That is to say, in Germany there is not a fixed percentage of risk allocation between network users and network operator but a changing risk allocation over the years. In the first phase (after the approval of the investment budget and before the scenario is put into effect) the risk for the network operator might be very high. Besides, during this period the probability of a framework changes, which cannot be controlled by the network operator, is of great importance. In order to set incentives to invest, the whole risk is allocated to the network users.

5 Investment workstream, GRI NW 2. Illustrative examples on what to expect (b) (eg on risk allocation, answer for German regulatory framework) Question in the Manual: Could you give an example of how the risk is distributed between parties (please take into account the following parties: network users (shippers) end users (consumers), the TSOs and other parties which are in your country of relevance). Answer to question in the Manual: As soon as the costs become controllable costs there is a risk shifting between network users and network operators. The degree of risk shifting depends on several factors like for example the individual efficiency factor of the network operator. But even in this phase the BNetzA takes care that the risk of changing quantities is taken into regard: The difference between the permitted revenues and the revenues achievable by the network operator taking into account the actual quantity development can be considered in the regulatory account. As a consequence the network operators do not have to bear the risk of a changing quantity. Besides, an important instrument for the risk allocation between network users and network operators is the value for the equity rate and in detail the beta-factor as part of the equity market risk premium. By determining the beta-factor the risks for which a diversification is not possible are already considered. From our point of view, this mixture of different instruments in the incentive regulation allows an efficient risk shifting between network users and network operators and incentives for investment.

6 Investment workstream, GRI NW 2. Illustrative examples on what to expect (c) (eg on risk allocation, answer for French regulatory framework) Question in the Manual: Could you give an example of how the risk is distributed between parties (please take into account the following parties: network users (shippers) end users (consumers), the TSOs and other parties which are in your country of relevance). Answer to question in the Manual: As we concentrate on cross border investments, the shippers are absolutely master of (managing) this risk. As the system relies on long term user commitments, a shipper gets what he asks for and the tariff is upfront set based on the costs of the investment. We assume shippers all have good business strategies to decide to this investment. If afterwards one shipper do not use its capacity, not only he will have to get its money back from his existing clients, the capacity shall be used on the short term by its competitors. Of course, there is always a secondary market as well (to allow for reselling of unused capacity).

7 Investment workstream, GRI NW 2. Way forward to September 2009 Workshop 1. By 8th of June 2009 the manual will be filled in for frameworks of Germany, Netherlands, Belgium and France To allow for background material to the test discussions Focus on “key” elements required for the discussion “key“ shall be driven by discussions on the model 2. By 24 September 2009 (workshop) overview of all nine regulatory frameworks of GRI NW To allow for practical guidance for current and future regional investment processes In order to allow for potential comparison on lessons learned from the test process