1. 7 th IG meeting, South Gas Regional Initiative Madrid, 10 th July 2008 Consultation on Requirements for Gas Interconnection Capacity between Spain and France after 2012 CAPACITY ALLOCATION RULES

2. 2 1. Introduction  TSOs are committed to elaborate a complete draft of allocation procedures as part of the OS procedures for consultation.  This presentation contains some initial thoughts on the development of allocation rules to be discussed in the framework of the Implementation Group of the South Gas Regional Initiative.  TSOs acknowledge that the main terms of the rules for the allocation of capacity at interconnection points between balancing areas need to be known by shippers in advance, since the rules might influence their demand for capacity.  However, the rules will also be influenced by the opinions expressed by stakeholders during the consultation process.

3. 3 2. Factors that condition the design of rules  The design of the allocation procedures is conditioned by:  The ultimate objective of the OS: interconnecting balancing areas, creating energy corridors between liquid hubs, etc.  The physical reality of the infrastructures: what areas will they connect (Western and Eastern corridors).  Commercial decisions: single price between balancing areas, regardless the physical structure? Or even single contractual link between balancing areas, regardless the ownership structure?  The possibilities of coordination in the allocation of existing and future capacities.  Security of supply criteria and the protection of the interests of consumers in all balancing areas.  Economic feasibility of the infrastructures. OS only in one direction?  Other.

4. 4 3. Coordination between existing and new capacity  Clarifications to be provided by the CRE:  TIGF – GRTgaz (both directions): intention to fully coordinate the OS with the OSPs, way forward to be clarified.  GRTgaz South – GRTgaz North: intention to allow for coordination, way forward to be clarified.  GRTgaz North – GRTgaz South: intention not to allow for coordination due to contractual and physical congestion expressed by the CRE in prior meetings, to be confirmed at 7 th IG S-GRI (10 th July 2008).  Difficult to progress if capacities to be commercialised are not fully defined.

5. 5 4. Coordination between balancing areas  Different possibilities: 1.Independent allocation of capacity between adjacent balancing areas. A rule could be introduced to let shippers renounce to capacity which is not matched in subsequent interconnections, thus introducing coordination along corridors. Risk: capacity hoarding at a single interconnection point might impede the development of the energy corridor. 2.Part of the capacity at each interconnection point is reserved for the “energy corridor” (requests matched along the interconnection points of the corridor).  Corridors to be defined.  Portion of capacity reserved for the corridor to be decided. Risk: a too high portion might interfere with the rights of existing consumers in intermediate balancing areas, or impede an efficient trade of gas.  These possibilities can be dealt with in the allocation rules.

6. 6 5. Physical reality of the infrastructures  Western corridor:  Developments are clear and costs are roughly known. Only new capacities and dates at Biriatou need to be clarified – studies are almost finished.  Progress on allocation rules is possible without any further major development right now.  Larrau and Biriatou are two different interconnections between the same balancing areas, and will be contractually different. It is necessary to clarify if the price will be or not the same before accepting capacity requests.  Eastern corridor:  Capacities between France and Spain are defined, but the physical structure in France, and the contractual structure (ownership, operation), are under discussion.  Costs are uncertain and depend on other entry-capacity developments on the French side (as explained in the new 10-year Investment Plan, June 2008).

7. 7 6. Priority rules – which options? Priority for requests from the earliest date Priority for requests for the longest period Pro rata Priority to requests matched along certain route Part of the capacity reserved for a corridor Auction First Come, First Served Priority for current capacity holders (existing capacity) Priority for new entrants (new capacity) Lottery Caps Possibility to renounce to capacity not matched along a corridor/route Possibility to renounce to capacity not matched in different years Long-term / Short-term split Only long-term capacity for the forward flow Multiseasonal capacity No. of phases / rounds

8. 8 6. Priority rules: initial thoughts (I) Economic feasibility Priority for requests from the earliest date Priority for requests for the longest period + Security of supply Competition in supply/flexibility 80% of capacity for LT contracts 20% of capacity for ST contracts 80/20 split might be appropriate % of new capacity or of total capacity? Same percentage in all interconnections? Same priority for requests ≥ 10 years Pro rata

9. 9 6. Priority rules: initial thoughts (II) Possibility to renounce to capacity not matched in different years Stability of supply …shippers may achieve very limited capacity if they renounce to capacity not matched along the corridor and in different years Possibility to renounce to capacity not matched along a corridor/route + No. of phases 1 st phase 2 nd phase + Binding requests except for pre-established exceptions (matched requests) Energy corridors Priority to requests matched along certain route Part of the capacity reserved for a corridor/route or

10. 10 7. Open questions (I)  Allocation mechanism: Pro-rata? FCFS? Auctions? Lottery? Other?  TSOs advocate priority rules based on the economic feasibility (mainly a minimum duration of contracts, around 10 years) and other criteria, and then pro-rata.  Are regulators committed to make the necessary regulatory changes to allow for new allocation procedures and for coordination in the commercialisation of capacity?  Ministerial Order in Spain (OSPs/OSs).  Coordination between OSPs and OS in France.  To what extent can shippers submit binding requests for both axes without an indication on future TPA tariffs, taking into account the different costs involved in each corridor? – Regulatory visibility.

11. 11 7. Open questions (II)  Should energy corridors be favoured? If so, how?:  Giving priority to requests matched along a corridor?  Reserving part of the capacity for corridors?  How should a corridor be defined in order to design the allocation rules? Should any pair of subsequent interconnections be defined as a corridor?  Should the same allocation rules be applied for the Western and Eastern corridors? If so, how can any progress be made before the Eastern corridor is defined?  Should the same allocation rules be applied in both directions?  Economic feasibility – different rules would apply if an OS is only required in the forward direction, while backhaul flows could be commercialised through OSPs.  The route in one direction might include more interconnections than in the other!  Should there be a single price between balancing areas with more than one interconnection, regardless the physical structure? Could two different prices coexists between two balancing areas?

12. 12 7. Open questions (III)  What LT/ST split should be set? Criteria:  Economic feasibility.  Competition in the supply market / flexibility.  Split of existing capacity.  Security of supply.  Same LT/ST split at all interconnections?  How many phases should be envisaged? Will shippers be able to renounce to capacity if their requests are not matched?  In different years/seasons.  Along a corridor.  LT capacity to be commercialised by seasons? Years? Months?  Will multiseasonal capacity requests be accepted? (same capacity for all winters or summers) If so, with what level of priority?  Should caps be applied? (e.g. on incumbents’ bids)

13. Thank you for your attention