1. The Role of TSO

2. Madrid, 7-8 Feb. 2002 The Role of TSO2 The roles of industry players First vision of role of TSO in GTE position paper Industry players and functions Topics associated with defining the role of the TSO Conclusions Scope :

3. Madrid, 7-8 Feb. 2002 The Role of TSO3 GTE Position Paper 2001 Provision of technical transmission capacity is responsibility of TSO Commercial matching of supply and demand is responsibility of shipper/supplier

4. Madrid, 7-8 Feb. 2002 The Role of TSO4 The Industry Players Producers Shippers Suppliers / Retailers End Consumers STORAGESTORAGE Traders/Wholesalers source Meter Traders/Wholesalers Meter TransmissionDistribution Meter

5. Madrid, 7-8 Feb. 2002 The Role of TSO5 Role of Shipper May buy gas from producer or trader or other shippers Buys services from transporter May buy storage services Nominates gas flows to transporter May sell gas on to supplier May be supplier as well

6. Madrid, 7-8 Feb. 2002 The Role of TSO6 Role of Supplier Sells gas to final consumer Buys gas from shipper Does not contract directly with transporter May be integrated with shipper role

7. Madrid, 7-8 Feb. 2002 The Role of TSO7 Role of Trader Buys and sells gas May buy from producer or shipper May sell to shipper or supplier Does not need to contract with transporter May be a shipper or supplier as well

8. Madrid, 7-8 Feb. 2002 The Role of TSO8 Minimum role of Transporter Develops & maintains network Maintains physical system balance Receives gas at point of input Delivers gas at point of offtake TSO offtake may be another TSO, a distributor, a direct connection to a consumer, or a storage facility

9. Madrid, 7-8 Feb. 2002 The Role of TSO9 Key topics for the TSO Provision of transmission capacity, including sufficient (long term) investment Maintaining system integrity and safety These topics are closely related to Security of Supply

10. Madrid, 7-8 Feb. 2002 The Role of TSO10 Transmission Capacity (1) Long term investments Traditionally provided by long term supply and transmission contract arrangement, or a regulatory framework such Transmission services may be provided by competing TSOs, especially in international transmission

11. Madrid, 7-8 Feb. 2002 The Role of TSO11 Transmission Capacity (2) Physical transmission capacity facilitates diverse supplies Continued and growing interdependence of networks throughout the EU Adequate transmission capacity in any one Member State does not guarantee its supplies How do we ensure adequate investment in all parts of the transmission chain? Ensure a healthy investment climate for the transmission companies

12. Madrid, 7-8 Feb. 2002 The Role of TSO12 Transmission Capacity (3) Contract option: –TSO responds to (long term) commitments from shippers –Shippers incentivised/obliged to book sufficient capacity –TSO has no direct security obligations, just contracts Regulated option: –TSO has security obligations (e.g. peak day capacity level) –Investment planned by TSO without long term shipper commitments –Funding provided by regulatory contract In either case, the regulatory and/or legal framework should be clear, stable & encourage investment

13. Madrid, 7-8 Feb. 2002 The Role of TSO13 Balancing and Flexibility Transporter manages physical system using: –Line pack inventory; –Access to additional flexibility (e.g. storage) Shipper manages commercial balancing, including: –Supply/demand portfolio management; –Purchase of flexibility services; –Contracting directly with storage operator; –Paying imbalance charges Shippers are responsible for balancing & should be incentivised to do so - Transporter should have only a residual balancing role

14. Madrid, 7-8 Feb. 2002 The Role of TSO14 Security of Supply Ensuring that consumers physically receive the gas that they have contracted or are otherwise entitled to expect Security of supply depends upon adequacy of: Transmission and/or distribution capacity; and Gas supply (including storage)

15. Madrid, 7-8 Feb. 2002 The Role of TSO15 Roles and Obligations TSO should not have supply responsibilities; only physical integrity requirements For larger consumers, suppliers are responsible but may not need security obligations (will need controllable and measurable offtakes) For smaller consumers (including residential), there is a public good case for suppliers to have security obligations

16. Madrid, 7-8 Feb. 2002 The Role of TSO16 PSO for Transporters GTE is concerned about supply PSOs being placed on transporters because: –confuses primary roles of transporter & supplier; –risks market distortion & perverse incentives; –fair allocation of costs is difficult; and –may encourage supplier gaming Obligations to supply should rest with suppliers, not transporters

17. Madrid, 7-8 Feb. 2002 The Role of TSO17 Conclusions and Recommendations Public policy framework should be confined to prescribing outputs (e.g. security standards to be achieved) not inputs (e.g the means) Market forces and industry should be allowed to find the most efficient solutions Transporters are responsible for determining infrastructure investment – but need long term investment signals and funding Hence consider obligations on suppliers to make adequate provision for both gas supplies and transport capacity to meet security standards