1. Pamela Taylor, Head of European Strategy, Ofgem Madrid Forum, 21-22 March 2011 ERGEG’s draft framework guideline for gas balancing

2. 219th Madrid Forum, 21-22 March 2011 Where are we now 17 th Madrid Forum invites ERGEG to develop input to FG on gas balancing rules; 6 August 2010: Commission issues invitation letter; 19 August 2010: Launch of ERGEG’s Public Consultation; 18 th Madrid Forum: ERGEG presented its consultation; 28 October: Public Consultation ended; Stakeholder engagement: through Expert Group, public workshop, consultation process, bilateral meetings, discussions and informal written comment from the Commission; 11 March 2011: ERGEG submit draft FG to the Commission.

3. 319th Madrid Forum, 21-22 March 2011 The vision Balancing framework guidelines – key to market design (not just technical rules) Facilitating a single market Remove barriers to cross- border trade created by different balancing arrangements Reduce fragmentation of the market by looking at ways to merge balancing zones Promote the development of regional markets by encouraging the use of interconnectors (and gas from cross-borders) in balancing Develop liquid traded market Facilitate new entry by ensuring balancing arrangements are non- discriminatory; Promote market liquidity at emerging gas hubs by encouraging shipper trading across timescales; by having market arrangements for TSO procurement of balancing gas Suitable for all parts of Europe Provides a coherent set of rules, which lead to a common vision of balancing arrangements; can be implemented in network codes and is enforceable by NRAs; take account of the different degree of market development across Europe (need for interim steps)

4. 419th Madrid Forum, 21-22 March 2011 Problem identification Lack of access to relevant information, flexible gas and network capacity reduces shippers’ ability to balance efficiently; Fragmentation of balancing zones may create barriers to cross-border trade; Some imbalance charges do not provide the right incentives to shippers and are potentially discriminatory; Non-market based methods for TSO procurement of balancing services reduce market liquidity; All of this results in TSOs doing most of the balancing instead of the market.

5. 519th Madrid Forum, 21-22 March 2011 Revised FG: Shipper and TSO roles and responsibilities TSO pro Problem Unbundled TSOs will be increasingly separate from the shippers trading gas. The balancing regime needs to promote shipper trading. ERGEG’s proposal in the August consultation document Target model: Where there is access to liquid intra-day markets, shippers take primary responsibility for balancing during the relevant balancing period and reduce the TSOs’ role as much as possible. Interim step: In absence of liquid short term wholesale gas markets, TSOs can provide day-ahead profiles, and through residual balancing be responsible for balancing intra-day. TSOs may require shippers to keep inputs and offtakes in a certain range and may provide tolerances. Changes resulting from the consultation Retain principles from target model in consultation document.

6. 619th Madrid Forum, 21-22 March 2011 Revised FG: TSO information provision obligations TSO pro Problem A lack of transparent and timely information availability reduces shippers’ ability to balance their portfolio efficiently; Risks of discrimination may result from lack of transparency. ERGEG’s proposal in the August consultation document TSOs provide to each shipper, for free, its inputs onto and off-takes from the system at appropriate intervals during the balancing period, and also provide regular updates of and hourly end-of-day forecasts on the system balance position (as per Chapter 3, Annex 1, Gas Regulation). Changes resulting from the consultation Retain requirements set out in IIA, but add a requirement on TSOs to provide forecast of offtakes volumes; Reflects stakeholder feedback that in a daily balancing regime shippers need within-day updates of this information.

7. 719th Madrid Forum, 21-22 March 2011 Revised FG: Balancing periods TSO pro Problem Differences in the definition of balancing periods may distort cross- border trade but different systems may have different physical requirements. ERGEG’s proposal in the August consultation document Target model: A common European gas day with the possibility for within-day constraints. Interim step: Any period other than daily subject to NRA approval. Changes resulting from the consultation Harmonised daily balancing regime (as per CAM NC), no interim step; Option for within-day obligations, which need to be market based and not pose undue barriers to new entry or cross-border trade; Within-day obligations are subject to NRA approval (and can be referred to ACER for a decision).

8. 819th Madrid Forum, 21-22 March 2011 Revised FG: TSO procurement of balancing services TSO pro Problem Non-market based procurement of balancing services in some systems reduces market liquidity and makes it difficult to set cost reflective imbalance charges. ERGEG’s proposal in the August consultation document Target model: TSOs to procure balancing services transparently in short term wholesale gas market or (subject to NRA approval) on balancing platforms; Interim step: Exceptionally, tenders or bilateral contracts can be used. TSOs to release flexible gas where they do not need this. Changes resulting from the consultation TSOs to trade in short term wholesale gas market; Balancing platforms an interim step but must be established; Exceptionally, tenders or bilateral contracts can be used; TSOs to release flexible gas where they do not need this; Harmonisation of products, TSOs to rely as much as possible on short term trading.

9. 919th Madrid Forum, 21-22 March 2011 Revised FG: Imbalance charges Problem Approaches to imbalance charges differ across Europe and are not always cost reflective. This may be a barrier to cross-border trade, discriminatory and provide inefficient signals. ERGEG’s proposal in the August consultation document Target model: Imbalance charge based on TSOs’ marginal price, including an option for dual pricing of imbalance charges (i.e. where charges reflect whether the individual imbalance exacerbates or reduces the overall system imbalance); Interim Steps: Imbalance charges based on a cost proxy. Changes resulting from the consultation Better defined marginal prices; Retain interim steps (imbalance charges based on a cost proxy); Removal of references to dual prices.

10. 1019th Madrid Forum, 21-22 March 2011 Revised FG: Cross-border cooperation TSO pro Problem European gas market is currently highly fragmented – how can we ensure efficient cross-border flows? ERGEG’s proposal in the August consultation document Target model: Shipper-led cross-border balancing (network users to net their imbalances between neighbouring balancing zones); TSO-led cross-border balancing; Merge balancing zones where this is technically feasible and economically reasonable; TSOs to implement OBAs. Changes resulting from the consultation Added a role for ACER in providing an opinion on market integration proposals; Added option for joint TSO balancing platforms where this interim step applies; Reflected that “gas target model” discussions also include market coupling.

11. 1119th Madrid Forum, 21-22 March 2011 ERGEG’s proposal in the August consultation document Changes resulting from the consultation process Compliance TSOs obliged to comply within 12 months of network code adoption. NRAs can allow additional 12 months if TSOs are not implementing interim steps; Obligation on TSOs to report yearly to ACER and NRAs on progress of and roadmap towards implementation; NRA role to approve these reports, taking into account ACER opinion. Nomination procedures The draft FG was silent on nomination procedures. Network code to set out principles to enable network users to participate effectively in the balancing regime, in line with other legal obligations. Revised FG: other issues

12. 1219th Madrid Forum, 21-22 March 2011 Thank you for your attention! www.energy-regulators.eu