XV Madrid Forum, 6 and 7 November 2008 ERGEG Guidelines of Good Practice for Gas Balancing (GGP-GB): 2008 ERGEG Monitoring Report Mr. Walter Boltz ERGEG’s Gas Focus Group (GFG)

2 XV Madrid Forum, 6 and 7 November 2008 Structure of the presentation  Brief overview  ERGEG 2008 Monitoring Exercise: GGP-GB  Presentation of top level findings  TSOs  Users  ERGEG Conclusions  Outlook  Relevance of compliance monitoring

3 XV Madrid Forum, 6 and 7 November 2008 Brief review: ERGEG GGP-GB monitoring 12/2006ERGEG presentation of Guidelines of Good Practice for Gas Balancing (GGP-GB): Voluntary guidelines 01/2008Beginning of ERGEG’s monitoring work Focus on 2 dimensions - TSO perspective: transmission systems - User perspective: Ask market participants directly AIM: Validation of responses via cross-check 07/2008First deadline for the submission of information two extensions granted 10/2008Inclusion: NRA perspective: Additional questionnaire 11/2008at MF15: Presentation of initial findings after MF15: Presentation of an ERGEG report 12/2008Finalisation of 2008 ERGEG monitoring work Publication of the ERGEG 2008 monitoring report Finalisation of 2008 ERGEG monitoring work

4 XV Madrid Forum, 6 and 7 November 2008 Brief review: Structure of the monitoring process Inclusion of the following groups/market participants  TSOs  Users Responses received cover the following countries 21 TSOs submitted responses29 users submitted responses

5 XV Madrid Forum, 6 and 7 November 2008 GGP-GB monitoring: Top level findings GGP-GB not specific enough  More than 80% of TSOs state that following the introduction of the ERGEG GGP-GB, they have not made any changes to their current balancing regime.  More than 55% of users state that the publication of the ERGEG GGP-GB has not had any impact whatsoever. Timely information about balancing positions needed  In almost 60% of the cases, it takes TSOs more than 12h to inform users of their system reg. their balancing position.  More than 40% of users responding in the survey do not consider the time interval of updating of information to be sufficient. In almost 70% of the cases, users report that it takes the TSO longer than 12h to inform them reg. their balancing position.

6 XV Madrid Forum, 6 and 7 November 2008 GGP-GB monitoring: Top level findings User-friendliness of information provided on balancing  Almost 50% of users do not consider the information system of the TSO to be user-friendly. More than 40% of the users state that they have not been consulted on the level of information to be published by the TSO.  Almost 60% of the TSOs do not make demand forecasts for their transmission system available to their users.  55% of users find that they do not have access to the information that they need to manage their imbalance positions efficiently.  Almost 70% of users state that existing balancing rules do not reflect their needs.

7 XV Madrid Forum, 6 and 7 November 2008 GGP-GB monitoring: Top level findings Harmonisation of balancing regimes  Almost 60% of users have actually encountered difficulties related to balancing when shipping gas through different pipeline systems.  Almost 70% of TSOs claim that they have cooperated with other TSOs to seek greater harmonisation of their balancing rules and balancing mechanisms, however the majority of users says this has not had any effects.  More than 70% of users in the survey think that greater harmonisation of balancing regimes is needed.

8 XV Madrid Forum, 6 and 7 November 2008 GGP-GB monitoring: ERGEG conclusions Lack of compliance with GGP-GB/GGP-GB not specific enough Better specification and more stringent implementation needed Differences in balancing regimes need to be reduced Need for greater harmonisation, in particular: balancing period A reduction of the balancing zones needs to be achieved Depending on the balancing regime in place users need to have access to appropriate options to manage their positions: e.g. trading, pooling The procurement of balancing energy should be done in a market based manner to ensure that balancing energy is procured in the most cost efficient manner ERGEG’s primary conclusion: Need to make the existing GGP-GB more specific and to transform them later on into binding balancing guidelines

9 XV Madrid Forum, 6 and 7 November 2008 Further conclusions  ERGEG’s 2008 monitoring exercise of the GGP-GB has helped to substantiate the view that differences in balancing regimes are indeed impediments to the creation of the IEM  Greater harmonisation of balancing regimes and balancing rules is urgently required  Harmonisation of balancing periods: Move towards daily balancing  Reduction of balancing zones: Creation of greater balancing areas  Use of market based systems for the procurement of residual balancing energy  Non-discriminatory and transparent balancing regimes for gas are key to functioning gas markets  Current rules are NOT assuring non-discriminatory and transparent gas balancing  ERGEG is committed to ensure that the balancing regimes are modified to overcome current shortcomings

10 XV Madrid Forum, 6 and 7 November 2008 Outlook: Relevance of compliance monitoring  Regular monitoring of relevant EU regulation is absolutely required to ensure the functioning of the markets in both electricity and gas and to promote competition  Where there is non-compliance, findings from monitoring need to be used to ensure and enhance compliance at a national level  This implies: Proper use of enforcement procedures  Where existing: national regulators will use their enforcement powers to assure compliance  Where insufficient: national regulators need to be given adequate powers to ensure compliance with relevant EU regulation  Close cooperation with European Commission’s on the study on methodologies for gas transmission network tariffs and gas balancing fees in Europe (Tender No. TREN/C2/ )

11 XV Madrid Forum, 6 and 7 November 2008 Future ERGEG compliance monitoring Elements for the future approach of compliance monitoring  Identification of monitoring priorities by subject areas by EC, ERGEG and the Madrid and Florence Fora  ERGEG Work Programme lists scope and timetable for monitoring  Monitoring at clearly defined cut-off dates backed up by proper IT infrastructure, i.e. online  Questionnaires addressed at NRAs, which are responsible for compliance at national level  Infrastructure users to be involved for the assessment of user-friendliness and practicability of the systems implemented by infrastructure operators  When monitoring legally binding regulation, enforcement action by NRAs to be surveyed  For each subject area monitored by ERGEG, the enforcement powers available to NRAs shall be surveyed

12 XV Madrid Forum, 6 and 7 November 2008 #IssueDeliverableCut-off date GA approval Monitoring GGP-GB Request by the 14 th Madrid Forum ERGEG Compliance Monitoring Report on the Implementation of the Guidelines of Good Practice on Gas Balancing JUL 08DEC GMM-1 Monitoring the Gas Regulation Request by the 14 th Madrid Forum ERGEG Compliance Monitoring Report on Art. 5 and 8 of Reg. 1775/2005 JUL 09OCT GIF-1 Monitoring GGP-OS Request by the 14 th Madrid Forum ERGEG Compliance Monitoring Report on the Implementation of the Guidelines of Good Practice for Open Seasons JUL 09OCT 09 Monitoring GGPLNG Request by the 15 th Madrid Forum ERGEG Compliance Monitoring Report on the Implementation of the Guidelines of Good Practice for LNG System Operators NOV 09FEB 10 Timetable for monitoring gas-related regulation

13 XV Madrid Forum, 6 and 7 November 2008 Further information is available at Thank You !

14 XV Madrid Forum, 6 and 7 November 2008 Extra slides

15 XV Madrid Forum, 6 and 7 November 2008 Contextualisation of findings Findings from ERGEG’s 2008 monitoring work have to be seen in the wider context of:  European Commission’s inquiry into competition in gas and electricity markets in 2005, pursuant to Article 17 of Regulation 1/2003 EC (‘ Sector Inquiry’).  ERGEG’s work at the regional level: Gas Regional Initiative (GRI) and its Regional Energy Markets (REM)  Work carried out by independent consultants, e.g. PwC: regional market development and impediments for traders in the South South East (SSE) European region (‘Trader Survey Gas 2008’)  European Commission’s project on methodologies for gas transmission network tariffs and gas balancing fees in Europe (cf. Tender No. TREN/C2/ )

16 XV Madrid Forum, 6 and 7 November 2008 GGP-GB monitoring: Participation: TSOs  21 TSOs (draft report) countries highlighted in green several late submissions of information: Will be considered in the final report  Good participation rate and geographic coverage  TSOs (and users) were given enough time to submit their information: Two extensions granted timewise ERGEG is please with the overall response rate All material will be made available via the ERGEG web page This includes any additionall material that TSOs/users have submitted

17 XV Madrid Forum, 6 and 7 November 2008 GGP-GB monitoring: Participation: Users  29 submitted respones (draft report) Countries highlighted in green Users were able to submit multiple responses for different TSO systems  80% shippers, 15% traders  TSO systems covered: Countries highlighted in green Major European natural gas transmission systems covered by users’ responses

18 XV Madrid Forum, 6 and 7 November 2008 GGP-GB monitoring: Top level findings  More than 80% of TSOs admit that following the introduction of the ERGEG GGP-GB, they have not made any changes to their current balancing regime. This is actually reflected by what users say:  More than 55% of users state that the publication of the ERGEG GGP-GB has not had any impact whatsoever.

19 XV Madrid Forum, 6 and 7 November 2008 GGP-GB monitoring: Top level findings  In almost 60% of the cases, it takes TSOs more than 12h to inform users of their system reg. their balancing position. This is actually reflected by what users say:  More than 40% of users responding in the survey do not consider the time interval of updating of information to be sufficient. In almost 70% of the cases, users report that it takes the TSO longer than 12h to inform them reg. their balancing position.

20 XV Madrid Forum, 6 and 7 November 2008 GGP-GB monitoring: Top level findings  95% of TSOs think that the cost of balancing are predictable for new suppliers when entering the market. Users do not necessarily agree with that:  Almost 45% of the users state that the existing penalty charges create indeed a barrier to market entry.

21 XV Madrid Forum, 6 and 7 November 2008 GGP-GB monitoring: Top level findings  Almost 60% of the TSOs do not make demand forecasts for their transmission system available to their users.  Almost 50% of users do not consider the information system of the TSO to be user friendly. More than 40% of the users state that they have not been consulted on the level of information to be published by the TSO. Users heavily criticise information availability:

22 XV Madrid Forum, 6 and 7 November 2008 GGP-GB monitoring: Top level findings  More than 70% of the TSOs admit that they do not publish online information regarding the overall costs incurred for balancing  55% of users find that they do not have access to the information that they need to manage their imbalance positions efficiently. Balancing cost is key information for effective balancing:

23 XV Madrid Forum, 6 and 7 November 2008 GGP-GB monitoring: Top level findings  Almost 65% of TSOs admit that they do not provide a system for neither pooling nor trading of imbalance positions. This is actually reflected by what users say:  Almost 40% of users in the survey state that they have never pooled their positions, 20% state that they have never traded their positions.

24 XV Madrid Forum, 6 and 7 November 2008 GGP-GB monitoring: Top level findings  Almost 70% of TSOs claim that they have cooperated with other TSOs to seek greater harmonisation of their balancing rules and balancing mechanisms, however the majority of users says this has not had any effects.  More than 70% of users in the survey think that greater harmonisation of balancing regimes is needed. Users heavily criticise the lack of harmonisation:

25 XV Madrid Forum, 6 and 7 November 2008 GGP-GB monitoring: Top level findings: TSOs  In more than 60% of the cases, TSOs procure residual balancing gas on a contractual basis.  Only in less than 20% of the cases, the balancing regime is based on market mechanisms, e.g. merit order. 90% of TSOs use line pack for balancing purposes.

26 XV Madrid Forum, 6 and 7 November 2008 GGP-GB monitoring: Top level findings: TSOs  More than 30% of TSOs apply different tolerance levels to different user types.  In more than 30% of the cases, there are different balancing regimes in place for transit and transport.

27 XV Madrid Forum, 6 and 7 November 2008  Almost 70% of users state that existing balancing rules do not reflect their needs. GGP-GB monitoring: Top level findings: Users  Almost 40% of users regard the allocation procedure of imbalance charges as being intransparent.

28 XV Madrid Forum, 6 and 7 November 2008 GGP-GB monitoring: Top level findings: Users  Almost 60% of responses to the survey state that users have not been consulted on the time period for settlement of provisional allocations.  Almost 60% of users said that the application of the so-called “3-rule” prevents them from accessing relevant information.

29 XV Madrid Forum, 6 and 7 November 2008 GGP-GB monitoring: Top level findings: Users  The harmonisation of balancing periods is the greatest priority (65% of responses): Almost 60% of users have actually encountered difficulties related to balancing when shipping gas through different pipeline systems.  More than 50% of users in the survey say that they do not consider the balancing period to be appropriate. Almost all users prefer daily balancing to hourly balancing.