1. Achieving a sound investment climate – the role of regulators Boaz Moselle Joint-Chair, CEER Gas Working Group Managing Director – Corporate Strategy Ofgem

2. 2 Background  Infrastructure investment generally happens through: –Regulation (e.g. for onshore transmission networks); or –Competitive markets (e.g. for power stations).  Changing industry environment –Moving towards the new world –Increasing reliance on the market –Inevitable changes to the way investment is secured

3. 3 Regulation and Investment  Appropriate level of infrastructure is key for: –development of an internal energy market –Security of supply  It is also necessary but not sufficient for effective competition within the EU gas market –Also need transparent and non-discriminatory access  Promotion of investment and protection of regulated investment are core duties of the regulator –For example, Ofgem has a duty to ensure that licencees can finance their duties and statutory obligations.

4. 4 Moving towards the ‘new world’  In the past, the European gas industry developed largely on the basis of national or regional monopolies, with investment often co- ordinated through planning rather than market-based means –Much was achieved!  Now however Europe faces new challenges and has committed to a new approach  In the new world: “full liberalisation…is the dominant prerequisite for the efficient use of existing infrastructure and the development of new infrastructure. In these circumstances, a key focus should be on the ability of signals emerging from trade to highlight the need for new investment” (CEER, March 2003)

5. 5 CEER infrastructure principles  CEER set out a number of principles for infrastructure investment: –Public authorities should encourage sufficient investment to implement the internal energy market, facilitate competition and safeguard security of supply –TSOs must manage networks in a way that ensures efficient use of infrastructure –Public Authorities should establish transparent, non- discriminatory and standardised options for development of infrastructure and minimise regulatory risk as far as possible

6. 6 CEER infrastructure principles –Public Authorities should enforce a minimum procedure or publication of TSOs’ infrastructure plans –TSOs must be effectively unbundled to ensure no conflict of interest when making investment decisions and sufficient incentives for non-discriminatory 3rd party access  So…transparency (by all parties), market signals and minimisation of regulatory risk (i.e. ensuring stability) are key to efficient investment..

7. 7 Possible approaches  Applying the CEER principles gives three broad approaches: –Regulated reinforcement with regulated tariffs –Non-regulated reinforcement with regulated tariffs –Non-regulated reinforcement with non regulated tariffs – “merchant line” approach

8. 8 Example: bringing new gas to GB UKCS Forecast Decline

9. 9 Proposed new projects ProjectSize (mcm/day)Start date Isle of Grain LNG12 (phase 1)Early 2005 Belgian interconnector compression 22 (phase 1) 19 (phase 2) Late 2005 Late 2006 Dutch interconnector232006/7 Ormen-Lange (Langeled)702006/7 Exxon LNG36 (phase 1)2007/8 Petroplus LNG16.5Late 2007 Various storage60 or more2005–8

10. 10 Consultation  Transparency (by all parties) is key to stable framework and efficient investment –ERGEG formally established by Decision of the European Commission. ERGEG consultation procedure approved. –Madrid Forum – key forum for consultation –Industry initiatives – e.g., UK offshore data release

11. 11 Conclusions  Investment in infrastructure is key to the development of effective competition in EU energy market  Investment must be efficient and respond to needs of market participants  Transparency, reduction of regulatory risk and increasing use of market based signals are key to achieving this aim  Market opening and the promotion of competition should not and need not undermine a sound investment climate for the European gas industry

12. 12 Promoting choice and value for all gas and electricity customers