1. The big picture in the EU Managing conflicting objectives in tariff design Tom Maes, Vice-Chair CEER Gas Working Group Understanding the impact of regulatory incentives 4 th Workshop of Eastern Partnership, Moldova, 26-27 March 2015

2. Presentation outline Unbundling and regulation Regulatory regimes From revenues to tariffs Objectives and incentives

3. Unbundling and regulation Production / import TransportSupply 3 Gas producer / Power generator Transmission system operator Distribution system operator Consumer WholesaleRetail Competitive activities Monopolistic activities Competitive activities

4. Defining a regulatory regime Cost-plus Pass through of system operator’s costs (no incentive) Fair return on investments (no excessive monopolistic return) Revenue cap Only efficiently incurred costs shall be covered (RPI-X) No volume risk Price cap System operator is exposed to demand fluctuations Need for assumptions on the cost drivers per unit sold RIIO Revenue using Incentives to deliver Innovation and Outputs Quality control needed to assess primary and secondary deliverables 4

5. Setting the (allowed) revenues... REGULATORY ASSET BASE (RAB) RATE OF RETURN X = RETURN ON RAB + DEPRECIATION + OPERATING COSTS (OPEX) + OTHER COSTS ALLOWED REVENUES Transporting gas has a cost which has to be recovered by regulated tariffs ►Only efficiently incurred costs shall be covered

6. Allowed Revenue Transmission Services Revenue Cost Allocation Methodology Secondary adjustments Non- standard products (multipliers) Publication Revenue Reconciliation … to fixing the tariffs System users shall pay their share of the costs ►Transparency ►Non-discrimination ►Avoidance of cross- subsidies ►Cost reflectivity 6

7. Balanced incentives Cost efficiency Quality Investments 7

8. 8 Publication requirements Consultation requirements Minimum notice period for tariff publication Transparency Capacity based pricing Default rule on entry-exit split Limited range of multipliers / seasonal factors Harmonised pricing of non-firm products Efficient trade & competition Harmonised approach to cost allocation – one of 4 methodologies determined by circumstances, counterfactual and cost-allocation test Harmonised approach to rescaling, equalisation and benchmarking Avoidance of cross-subsidies & discrimination Harmonised revenue reconciliation Economic test for incremental/new capacity Payable price – predictability for all users Framework for efficient investment 0 € Future EU network code on harmonised gas transmission tariff structures

9. Thanks for your attention! Thank you for your attention! 9

10. 10 Tom Maes  + 32 22 89 76 57  tom.maes@creg.be tom.maes@creg.be  www.energy-regulators.eu www.energy-regulators.eu Contact