The EU’s Third Energy Package European Code Development UNC Transmission W/S - 4 th December 2008

2 The Third Package – Towards a single EU Market  On 19 th September 2007 the EU published it’s proposals for a Third Energy Package.  The Third package builds upon changes that have not been enacted under the first two gas and electricity Directives.  The Package is designed to facilitate single, liberalised EU markets in gas and electricity.  Despite the UK’s already relatively liberalised regime, the package still has broad reaching consequences for the UK.

3 Progress So Far…  In order to be adopted the package must go through the EU’s main legislative procedure, the “co-decision” process under which the European Parliament and the European Council must agree common text.  In July 2008 the European Parliament adopted all 5 reports on the 3rd Package (to the Gas Regulation/Directive, Electricity Regulation/Directive, Agency Regulation).  These reports include all amendments that the Parliament would like to see made to the Commission’s original proposals, and formally ends the European Parliament’s involvement in the first reading stage of the co-decision process.  The Council have reached political agreement in October 2008, though not fully in alignment with the Parliament. It is therefore anticipated that the second reading stage will start in early 2009, with a view to finding a common position by May 2009.

4 Creation of Network Codes  The legislation proposes the creation of: An Agency for the Cooperation of Energy Regulators (ACER). A European Network of Transmission System Operators (ENTSO’s)  For gas this would see current GTE+ evolve into ENTSO(G). European Network Codes.  The codes should be broadly based upon: Security & Reliability Data Exchange & Settlement Interoperability Emergency Operation Capacity Allocation & Congestion Trading Grid Connection & Access Transparency Balancing Harmonised Transportation Tariff Structures Network Energy Efficiency

5 Implementation of Network Codes  Proposes the creation of high level “Framework Guidelines” by ACER,  Detailed codes, drafted by ENTSO-G.  The ACER will then review approve / disapprove.  The codes would co-exist with nat’l codes and are likely to be binding.  Public Conference: Brussels, 11 th December  Consultation responses requested by: 31 st December  The way in which the proposed European Network Codes would be written and implemented, including their potentially binding nature, is currently being debated within various EU fora. ERGEG/CEER consultation paper: 21 Oct 2008

6 Delivering Network Codes Commission & Agency set priorities Network Code delivery Commission & Agency approval processes time Define Code Project Plan Code Proposal Development Code Finalisation

7 Define Code Project Plan Invitation from Commission or code requirement established in AWP First draft Project Plan Project Plan Consultation Finalisation of Project Plan and launch documentation Project Plan inc launch documentation To Code Proposal Development Process time

8 Code Proposal Development Process * Stakeholders’ Joint Working Sessions to meet and discuss with stakeholders be responsive, having due regard to opinions justifying acceptance or rejection ENTSOG chaired time Stakeholders’ Joint Working Sessions * EFET IFIEC Others OGP Eurogas ENTSOG Endorsement Consultation To Code Finalisation process Project Plan including launch documentation Inputs, analysis & proposals First draft Code

9 Code Finalisation Process Process consultation responses Proposal refinement Stakeholder Opinion/ Support Final Proposal & Report To ACER Stakeholder interaction & clarification Stakeholder input comprises opportunity for all stakeholders to deliver final opinion associations to support or reject Consultation response inputs time

10 Network Code Development Timeline Invitation and Receipt of Framework Guideline Establish plan and commitments Essential preparatory work Interactive development Consultation Interaction, refinement & finalisation Preparatory work and some parallel working essential to deliver codes in 12 months