1. Dipl. Ing. Dr. Stephan Ressl CChair EFET SSE Head of Business Development Econgas Joint Workshop GRI SSE Prague, 21/01/2008 European Federation of Energy Traders

2. Stephan Ressl Prague, 21.01.2008 2 EFET RECIT Model – Introduction 1  The political decision makers decided in the Lisbon Strategy to make also the European energy market an efficient and competitive one and hence the goal is to create a single European energy market for gas and electricity  To achieve that the EC has produced a series of legislative text which have to be complied with on a European level  However, several problems are in the “detail” and thus ERGEG created the regional initiatives to support the Madrid process and EFET has proposed as a pragmatic and intermediate step forward a paper on how to overcome potentially these challenges via a regional approach  Also for EFET the goal is to achieve a single European energy market in due time

3. Stephan Ressl Prague, 21.01.2008 3 EFET RECIT Model – Introduction 2  EFET presented a vision on a “Regional Independent System Operator model” at the IG SSE GRI meeting in Maribor. In order to avoid misunderstanding EFET considers to change the name of the model to a “Regional Cooperation of Independent TSOs” model – “RECIT”  EFET believes that the RECIT model will effectively provide market integration in a swift manner  The proposed model is not a new “proposal” for design of the European gas market, it is simply a possible and more detailed interpretation of the draft 3rd package published by the EC in September 2007  The model as such would be fully neutral and compatible with all suggested types of unbundling of TSOs (OU, national ISO or OU+ISO) ---> the “political” decision on structure of the TSOs would not have a particular influence on the processes and interactions determined in the model

4. Stephan Ressl Prague, 21.01.2008 4 EFET RECIT Model – Introduction 3 RECIT and aspects of security of supply  physical capacity available from source to final customers?  Transport cost clearly calculable at point of supplier‘s decision on where to source gas from?  Historically, many major investments happened because of international (cross-border) consortia/cooperation (e.g. Megal, TAG, BOG,…)  Aim must be that at least some different supply sources must potentially physically arrive in each area – no security of supply without physical interconnection (long term and short term)

5. Stephan Ressl Prague, 21.01.2008 5 EFET RECIT Model – Introduction 4 RECIT and aspects of competition  final customer  Pooling of consumption within one balancing area – increase of negotiating power  Larger netting of imbalance positions reduces opportunity costs for suppliers  More potential suppliers, reduction of market concentration  for shippers/suppliers  More similar customers in one market area  Reduced opportunity cost: nomination, balancing, registration, etc.. reduced risk to deliver  Macro-economic/political  Potential of economies of scale for system operation  Eg potential for higher capacity provision through larger flow optimisation  Reduced national influence Grid 2007

6. Stephan Ressl Prague, 21.01.2008 6 EFET RECIT Model - Objectives Objectives of the model:  to reduce the existing market areas through establishment of Regional Independent System Operators  to enable all stakeholders of gas industry to take part in the drafting of binding documents on topics that affect parts of the industry (market rules for future European gas market) at equal terms

7. Stephan Ressl Prague, 21.01.2008 7 EFET RECIT Model  The first aspect derives from market knowledge and the finding of the Sector Inquiry – where it was stated that a decent market size is a prerequisite for increase of liquidity (through diversity of source, routes, storages, players) and small balancing areas hinder competition  Additionally a bigger market area with flow optimisation based on regional ((intra))/inter-national) coordination will improve security of supply in the relevant region and increases potentially supply diversity  A R_ISO might be able to better compete against third party take over bids if designed in such a way  The merging of the market zones with now different operational, technical and commercial (balancing) rules, will implicitly optimise cross-border trade and enhances market entry opportunities (bigger customer potential) and reduces market concentration  Establishment of clear regional governance for the R_ISO backed by a consistent and stable regulatory framework with a strong European approach will overcome pure national interests and also increase investment incentives.

8. Stephan Ressl Prague, 21.01.2008 8  xy 0 1 2 4 see 3 5 Atlantic bassin LNG Spot price LNG Potential regional market development with determining of the short term index prices Border price Border price Border price Border price R_ISO 4 R_ISO 1 R_ISO 3 R_ISO 5 (Spot) price index R_ISO xy

9. Stephan Ressl Prague, 21.01.2008 9 Decision making process concerning EU Grid Code GTE+ EFET OGP IFIEC Eure lectric Secondary Legislation If empowered Execution Monitoring Controling Policy and legislation Draft EU-Grid Code ….. Consultation process on the EU-Grid Code

10. Stephan Ressl Prague, 21.01.2008 10 EFET RECIT Model – role of market players  The model propose clear definition and separation if the task and responsibilities of particular market players:  R_ISO –Management of capacities in the Regional Gas Grid; –Balancing services – implementation of market place for them; –Long-term planning; –Drafting of the grid standard transportation contracts following the framework agreed within EASEE-gas; –Facilitation of a secondary market platform for trading and secondary markets for capacity –Dispatching centre; –Collection of E/E fees and redistribution to the relevant TO;  TO –Maintenance of transmission pipelines in accordance with the R_ISO´s standards; –Compute and announce the available capacity to the R_ISO; –Enter into contract on exchange data with others TO and R_ISO; –Contribute to long-term adequacy;

11. Stephan Ressl Prague, 21.01.2008 11 EFET RECIT Model – role of actors on the regional/European market  Regulatory level – EU/regional: monitor, approve, enforce –To ensure convergence between the regulatory principles and practices –To approve the long term plans, methodology for calculation of tariffs –To approve Regional Grid Code based on European Grid Code chapters (regional appendix)  Easee-Gas –Procedures for a coherent and common grid access to the EU; –Drafting of the grid standard transportation contracts; –Harmonisation of Invoicing and payments; –Harmonisation of Balancing rules / charges; –Defining of data format of communication –Defining codification method; –Defining and agreeing on quality specification: –Harmonisation of trading arrangements;  ENTSO (GTE+) –Setting up of the Inter-TO compensation model –Preparing of the ten Year Statements on system enhancement –Ensuring closer communication and coordination among TOs; best dispatch –Agreeing of the minimum safety and maintenance requirements –Agreeing standardized methodology for capacity calculation –Deciding on emergency procedures

12. Stephan Ressl Prague, 21.01.2008 12 GRI SSE: EFET RECIT Model – Comments received  Stakeholder consultation on the paper on RECIT model was taken, the deadline was 10 January 2007  Comments from following parties has been received so far :  CEER – supportive, asks for more details  OGP – rather supportive, wants to avoid inefficient structures and more detail on the economies  Eurelectric – supportive  Eurogas – rather supportive  GTE – rather negative, does not want to make effort before 3rd package ready  OMV Gas – rather negative, asks for impact assessment

13. Stephan Ressl Prague, 21.01.2008 13 GRI SSE: EFET RECIT Model – Evaluation of comments  OGP position:  OGP Europe supports the principle of establishing regional ISOs as an interim measure leading to single European market, the measures leading to free market for importing gas into and through Europe via investments in LNG; interconnectors etc.; establishment of independent NRAs with similar power and aim to achieve a single grid code via regional grid codes.  However the costs for usage of network (economics between R_ISO and TOs) should be more explained  EFET: ok, point taken, think on sort of impact assessment

14. Stephan Ressl Prague, 21.01.2008 14 GRI SSE: EFET RECIT Model – Evaluation of comments  OGP position:  Statements regarding control of flows in supplying pipelines see 2.2. should be more explained and suggest to insert “proposal for” prior to future grid investments decisions.  EFET: positive consideration, after WS clear

15. Stephan Ressl Prague, 21.01.2008 15 GRI SSE: EFET RECIT Model – Evaluation of comments  OGP position:  Criteria set out for independence of the R_ISO in 2.3. could prevent the R_ISO for being a commercially viable operation without significant additional cost to network users.  EFET believes that the independence (effective unbundling) of R_ISO is a key issue in the whole model as only company/entity with no possible influence by particular interested parties will be able to fulfill its responsibilities like efficient management of capacities and gas flows in the regional grid, balancing market based regime coordinated on regional level etc.  We believe that a really functioning regional (European) market based on the clear determination of role for particular market players will bring significant benefits (less capacity congestion, harmonised market and technical rules etc.) to the network users  ? Could be part of a potential impact assessment

16. Stephan Ressl Prague, 21.01.2008 16 GRI SSE: EFET RECIT Model – Evaluation of comments  OGP position:  Increasing number of interfaces (from this proposal and proposal for 3rd package – ACER, ENTSOG, R-ISOs) could result in increased bureaucracy.  In comparison to 3rd package the model does not propose any “new” interfaces, it only elaborates on possible way for regional integration and actually significantly reduces the number of interfaces (not each TSO is an interface to the market – parts of the one-stop shop principle)  It only determines roles of particular market players more precisely and gives a clear form for the proposed public consultation process in the 3rd package  It has to be taken into account that the R_ISOs should be established only in the regional/areas where it is reasonable in accordance with the physical and technical conditions/limitations

17. Stephan Ressl Prague, 21.01.2008 17 GRI SSE: EFET RECIT Model – Evaluation of comments  GTE position :  Welcomes the EFET paper as a contribution how the European market might develop, nevertheless its first priority is the development and implementation of the 3rd package – establishment of ENTSOG and its role in consultation processes  EFET does not want to wait for 3-5 years and already tackles now the elements included in the 3rd package.  Current ENTSOG tasks are not operational at all  Like other stakeholders (OGP, CEER), EFET would prefer to define a system for a public consultation procedure which ensure for all parties same “power”, access to information etc. We believe that it can be more easily guaranteed by an organisation where all parties are represented than by a body where “only” TSOs have the control

18. Stephan Ressl Prague, 21.01.2008 18 GRI SSE: EFET RECIT Model – Evaluation of comments  OMV position:  Assessment of the impact – which benefits; will competition increase; how the proposal fit with existing contracts between Gazprom and its customers  As mentioned in the beginning the model does not try to find a “new way” to the proposal in 3rd package, it only provides a practical proposal how it can be interpreted  EFET accepts the proposal for the impact assessment, nevertheless in its opinion it should be done by and in the cooperation with ERGEG SSE members (E-Control, AEEG) as chairs of the regional initiative  EFET believes that the proposal of setting up a regional independent body which is responsible only for the issues relating to network (management of capacities, balancing services, dispatching etc.) should fit with the essentials of existing contracts between the importing company (Gazexport) and its customers (shippers) as their position will not change without legal changes

19. Stephan Ressl Prague, 21.01.2008 19 GRI SSE: EFET RECIT Model – Evaluation of comments  OMV position :  Short-term transportation contracts versus long-term  EFET describes in the paper in its opinion necessary types of markets which will support development of a competitive and integrated market facilitated at the wholesale level through trading which can be possible even beyond the national borders  The EFET RECIT paper does not at all propose to cancel all long-term contracts, it even requires that the forward market should cover also long-term periods at least up to 10 years. What EFET is stressing is the importance to increase traders´ confidence in short-term markets which can be ensured through its long term stable development --->short term markets (price transparency) facilitate new market entry and increases competition

20. Stephan Ressl Prague, 21.01.2008 20 GRI SSE: EFET RECIT Model – Evaluation of comments  OMV position :  Potential new legal entity has to face barriers given by different legal and market framework ---> long phase of implementation therefore TSO cooperation is more suitable  EFET is aware about the possible legal obstacles by creating of a regional legal entity nevertheless we believe that the discussion about the obstacles is constructive when a process of setting up such an entity starts (so far it will be only very theoretical discussion)  What is necessary in this case is the commitment of the decision making parties (state representatives, EC, regulators) to support regional integration with all its modalities like a regional independent system operator

21. Stephan Ressl Prague, 21.01.2008 21 GRI SSE: EFET RECIT Model – Evaluation of comments  OMV position :  ENTSOG´s responsibility for inter-TO compensation is superfluous as well as responsibility for operational issues  EFET believes that the proposed model cannot work without any system of payment for the usage of TO networks therefore we proposed an inter-TO compensation system (such a system has been already used in electricity) and as a most suitable entity for proposing such a system seems to be the ENTSOG  The model of R_ISO would bring benefits also to the region SSE which faces obstacles like a lack of supply routes, a lack of active players, a lack of transparency and optimisation of the gas flows however EFET believe that the model is applicable in the whole EU as can be seen by many examples already: - Ruhrgas-Eon and Bayerngas JV, several German zones are merging already -GTS and BEB -GRTG and TIGF; GATRAC; MOL

22. Stephan Ressl Prague, 21.01.2008 22 EFET RECIT Model - Conclusion  EFET is very much interested in the comments which will be given today and will envisage establishing an updated version with the ultimate goal to tackle all concerns and get support from all parties as reasonably possible  EFET believes that implementation of such a model is key for further development of the liberalised market starting now and taking already the elements of the 3rd package on board  The creation of such a model will lead to the development of regional markets and at the same time reduce the market concentration, ensuring better non-discriminatory and transparent market access.  Regions must be established on a pragmatic basis, e.g. Italy may well remain a region for the time being, however it must introduce a fully fledged balancing market as soon as possible etc..  Regions obviously must be compatible with each other

23. Stephan Ressl Prague, 21.01.2008 23 Addendum  According to information that EFET has just received  The transit regime in CZ und in SK (also in H und A) differs from national transport.  The situation for Poland and Slovenia is less clear. Clarification will be sought at this point.