Benoît Esnault, CRE Presentation Workshop Ljubljana, 7 March 2011

1.  Draft Framework Guidelines onCapacity Allocation Mechanismsfor the European Gas Transmission Network Benoît Esnault, CRE Presentation Workshop Ljubljana, 7 March 2011

2. Introduction • During the “transition period”, ERGEG assumed the role assigned to ACER by the 3rd package and worked on “pilot” Framework Guidelines • For gas, ERGEG has been working on 3 pilot FGs: • Capacity allocation mechanisms (CAM) • Balancing • Tariffs • CAM was considered as a priority topic and is the first pilot FG completed by ERGEG and the first FG addressed by ACER • CAM context: need to improve the access to cross border points • Different allocation rules on the two sides of borders • Different types of capacity products • Domination of First Come First Served  More integration to the benefit of competition and security of supply

3. Drafting process • Preparation of the implementation of the third package: pilot framework guideline • CAM selected for the pilot project at the 16th Madrid Forum • Letter from the Commission received on 22 September 2009 • Consultation on the draft framework guideline launched on 18 December 2009 • Final version adopted on 10 June 2010 • ERGEG principles on CAM & CMP published in January 2009 & public consultation provided the basis for the pilot framework guideline • Letter from the Commission requesting improvements sent on 9 September 2010 • Final version of the pilot framework guideline released on 10 December 2010

4. Requests from the Commission • The Commission asked for a revision of the Framework Guideline according to Article 6(4) of Regulation 715/2009 • “The draft FG does not in all aspects contribute to non discrimination, effective competition and the efficient functioning of the market” • 8 points were raised • Three months as from September 9 • Requests • More harmonisation: market based mechanisms only • Clarification of technical points and contractual issues • Reduce the role of regulators • Issues to be further elaborated • “Technical” parameters reg. bundling of capacities (timing, loss of capacities, relation to existing contracts) • Auction design (reserve price, existing capacities) • Rules for firm vs interruptible capacities • Harmonisation of gas day

5. Key points of the FG in its current version • Scope of the Framework guideline: interconnection points between entry-exit zones within the EU ( ) • Drafting the guideline required developing a “target model” • Simplified access to interconnections • Proper balance between short and long term • Developing hub liquidity • General principles • All market areas organized as entry-exit zones with virtual hubs • Limited numberof capacity products • Regular offer of capacity • Capacity allocation by auctions • Bundling of capacity products • Contractual IPs when several physical IPs between two zones

6. Amendments related to the EC requests (1) 1 Highest possible degree of harmonisation and minimisation of the role of NRAs • The pilot FG was amended in that direction • NRAs will still have room for decision since the NC cannot cover all potential operational arrangements (Gas Regulation, Article 13(1)) 2 Bundled products • Clarification of ”virtual interconnection points”: capacity at two or more points connecting two adjacent entry-exit systems is integrated into one single capacity service • Virtual interconnection points should not lead to a reduction of capacity • Implementation within 5 years but • Sunset clause: how to organize the bundling of capacity within existing contracts by 5 years after the entry into force of the code: definition of a “default” rule

7. Amendments related to the EC requests (2) 3 “Sunset clause” • Mandatory bundling of all the technical capacity within five years for shippers • Priority to voluntary agreements • Default rule: if no agreement, TSOs are entitled to split the bundled capacity between original capacity holders proportionally to their capacity rights • Should not entitle contracting parties to cancel supply contracts  A specific impact assessment is going to be launched on the sunset clause and the default rule

8. Amendments related to the EC requests (3) 4 Auctions as the standard allocation mechanism • Definition of a standard design with possible exemptions • Anonymous and online based auction procedures 5 Reserve price: decided by the FG on tariffs but reference to “regulated price” • Potential over revenues from auctions shall be affected to reducing tariffs, reduce congestions or to incentivise TSOs to maximise capacity offer  Interim period: alternative allocation procedures and duration to be decided by comitology

9. Amendments related to the EC requests (4) • Allocation of capacity yet to be built: auctions not sufficient • Incremental capacity excluded from the scope of the pilot FG • However processes for allocating incremental capacities should be consistent with this pilot FG • Clarification of the rules that apply for firm and for interruptible capacity • Priority to firm capacity: interruptible shall not restrict the use of firm capacity • Auctions are the single target model for both • Procedures regarding interruptions will be standardized • Clarification of the need for a common gas day • Standard duration for the gas day starting at 6 CET • Further evaluation by ENTSOG left open

10. Way forward • ACER consultation (2 months) • Launch of an impact assessment of the “sunset clause” and the default rule • Questions about the potential impact of the “sunset clause” and the associated default rule: analysis of the legal issues as well as the economic and strategic aspects • Study by an independent consultant sponsored by the regulators • The work on the target model could have an impact on the final framework guideline • Role of wholesale markets • Relations between the market design and the value of capacity products, etc.

11. How to participate in ACER Consultation • Process similar to ERGEG/CEER consultations • Deadline for submissions: 2 May 2011 • Register on ACER website • www.acer.europa.eu • www.energy-regulator.eu • Obtain a login • Submit comments through an on-line consultation form • Name and affiliation of all participants published on ACER website

12. thank you for your attention www.energy-regulator.eu