Benoît Esnault Commission de Régulation de l’Energie (CRE) - ERGEG 19th Madrid Forum, March 2011 Preparatory work for Framework Guideline Tariffs

219th Madrid Forum, March 2011 Agenda Background Identification of problems Identification of objectives Scope Process

319th Madrid Forum, March 2011 Background Legal requirements on transmission tariffs De-coupled entry-exit systems; No distinction between domestic transport and “transit”; Qualitative requirements (Commission Staff Working Document). KEMA study 2009 Evaluation of existing differences in the methodologies for gas transmission network tariffs in Europe; and If these lead to barriers to cross-border trade. 17th Madrid Forum invited ERGEG to start preparatory work on framework guideline on tariffs ACER to launch official FG development process

419th Madrid Forum, March 2011 Main legal requirements Article 41 Gas Directive (2009/73/EC) The NRA shall ensure that TSOs are granted appropriate incentive, over both the short and long-term, to increase efficiencies, foster market integration and security of supply and support the related research activities. Article 13 Gas Regulation (EC) 715/2009: Transmission tariffs or methodologies Shall facilitate efficient gas trade and competition, while at the same time avoiding cross-subsidies between network users and providing incentives for investment; Reflect the actual costs incurred; Tariffs may also be determined through market-based arrangements, such as auctions, provided that such arrangements and the revenues arising from them are approved by the NRA.

519th Madrid Forum, March 2011 Identification of problems Tariffs can act as barriers to efficient gas trade and competition Premium on short term capacity products allocated with a short lead time may frustrate arbitrage flows and price alignment; But: need to assess the relation between prices for short term and long- term capacity products and the risks associated to optimisation strategies by shippers; Pricing of interruptible and non-physical backhaul capacity. Need to find a proper balance between facilitating short term gas trading and providing long-term signals for covering costs and promoting efficient investments Cross subsidies between cross-border and domestic network usage Cross subsidies within a market; and Cross subsidies between two adjacent markets.  Cost-reflectivity as a main principle

619th Madrid Forum, March 2011 Identification of problems: Further issues Issues resulting from FG on CAM and Balancing: Cost recovery and revenue sharing among TSOs: under- and over-recovery of allowed revenues, risk of sunk costs, articulation between capacity and commodity, definition of the appropriate reserve price; Split of auction revenues between TSOs for bundled capacity products. Infrastructure development: to ensure a proper remuneration and investment incentivisation Relation with the work on the Energy Infrastructure Package.

719th Madrid Forum, March 2011 Analysis of national charging systems Ongoing complementary analysis to the KEMA study (10 Member States until now); Picture of current situation – changes are foreseen with the implementation of the 3rd Package; Entry and Exit capacity separately bookable in some cases – for others distinction between tariffs on cross-border and domestic network  No common rule for the breakdown of costs Between entry and exit on the IPs; Between domestic exits and exits on the border. Different role for distance in tariffs calculation; Short term vs. long-term prices: Higher prices for daily and monthly products, with seasonality factor in some cases; Discount for interruptible products based on the probability of interruption; Few TSOs offer non-physical backhaul products.

819th Madrid Forum, March 2011 Identification of objectives Objective 1: Harmonised transmission tariff structures shall facilitate efficient gas trade and competition; Objective 2: Harmonised transmission tariff structures shall avoid undue discrimination between cross-border and domestic network usage; Objective 3: Harmonised transmission tariff structures shall provide incentives for new and efficient investments Objective 4: Harmonised transmission tariff structures shall guarantee recovery of allowed revenues associated to cross-border interconnection points. The work on the Gas Target Model to be taken into account in the Tariff FG development process.

919th Madrid Forum, March 2011 Proposed scope Cross-border interconnection points IPs between two or more Member States as well as IPs between adjacent entry-exit-systems within the same Member State; IPs to LNG and storage facilities may be included, if relevant for market integration and the contribution to non- discrimination, effective competition and the efficient functioning of the market. Contribute to recovering the allowed revenues (associated to interconnection points) ; However, detailed rules for the determination of costs (or allowed revenues) are not within the scope.

1019th Madrid Forum, March 2011 Process Process so far Preparatory work by ERGEG; 5 bilateral meetings with ENTSOG; Initial scoping discussion with the Commission. Next steps (according to 3-year plan) Q1/2011: Finalisation of scoping discussion; April-October 2011: Official FG development process by ACER.

1119th Madrid Forum, March 2011 Thank you for your attention!