1. Walter Boltz, Chairman ERGEG Gas Working Group 19th Madrid Forum 21 March 2011 Monitoring Report Capacity Allocation and Congestion Management

2. 219th Madrid Forum, 21-22 March 2011 Starting point DG Competition’s energy sector inquiry report sets out some of the problems in accessing gas transmission capacity It highlights contractual congestion and presents evidence of this occurring on a number of key pipelines; Access to capacity is key to the development of a competitive European gas market and facilitation of cross-border gas trade; Mechanisms applied today have not been successful in facilitating a functioning capacity market; Two antitrust-settlements by DG Competition against incumbents show that long-term capacity booking which prevents access of competitors to infrastructure needed to supply gas to customers can be considered as abuse of a dominant market position.

3. 319th Madrid Forum, 21-22 March 2011 Experiences with existing measures Art. 5 and 8 Regulation (EC) 1775/2005 3 Surveys NRAs 2008; NRAs 2009; TSOs and NRAs 2010 – 21 selected IPs representing a broad majority of EU capacities. Crossing borders is often difficult for shippers Capacity fully booked in the long-term mostly by incumbents; Different legal frameworks appear to be an obstacle; Lack of cooperation between TSOs in capacity calculation. Inconsistencies hamper TPA Different allocation mechanisms: FCFS, pro-rata, auctions; Short term capacity products exist in most (western) countries; Different designs for interruptible capacity; Different nomination procedures; Implementation of congestion management procedures insufficient.

4. 419th Madrid Forum, 21-22 March 2011 Physical congestion Source: ERGEG 2010 monitoring

5. 519th Madrid Forum, 21-22 March 2011 Contractual congestion Source: ERGEG 2010 monitoring

6. 619th Madrid Forum, 21-22 March 2011 FCFS predominately used Source: ERGEG 2010 monitoring

7. 719th Madrid Forum, 21-22 March 2011 Applied CMPs Source: ERGEG 2010 monitoring

8. 819th Madrid Forum, 21-22 March 2011 Harmonisation of procedures is limited Source: ERGEG 2010 monitoring

9. 919th Madrid Forum, 21-22 March 2011 CMP – Problem identification All capacity is booked long-term at most IPs but often not fully used; Currently, in many countries there are no mechanisms to bring unused capacity back to the market; Market participants ask for firm capacity; The more shippers book the existing capacity the more severe the impact of contractual congestion will be; Secondary markets do not work properly.  Capacity should link markets and not result in a barrier to market integration

10. 1019th Madrid Forum, 21-22 March 2011 Macro Economic Effects of CMP Bunde / Bocholtz  Maximum aggregate technical capacity between market areas GTS (The Netherlands) and NCG-H (Germany) is higher than actual flows for most days of the years (contractual congestions)  Implementation of ERGEG principles (option 2) will increase gross social welfare by more than 10 Mio EUR p. a. while additional investments to increase physical capacities seem to have minor impact (< 2 Mio. EUR gross benefit p. a.)  Prices between markets will converge on more than 340 days p. a. Additional capacity in million kWh p.d. Price difference D A in €/MWh Maximum price difference average price difference to Germany to The Netherlands Source: E-Bridge Remaining price difference after elimination of contractual congestions (option 2) Higher day ahead price in The Netherlands

11. 1119th Madrid Forum, 21-22 March 2011 Conclusions Applied CMPs differ widely throughout Europe Physical compared to contractual congestion seems to be a smaller problem; For ~ 50% of the surveyed IPs the EASEE-gas CBPs for nomination procedures are not used; Maximisation of available capacities is done via investment by about 2/3 of the TSOs Measures which increase the efficient use of existing capacity are only applied by a minor number of TSOs; Little information is available on how the reservation for short term capacity products is achieved. Harmonised CMPs are essential for well functioning gas markets.

12. 1219th Madrid Forum, 21-22 March 2011 Recommendations A wider use of long-term UIOLI procedures appears as a reasonable possibility to reduce the problems linked to congestion for users; Further possibilities include the surrender of booked capacity and making available more firm day-ahead capacity; Harmonisation at both sides of IPs would decrease shipper’s transaction costs Only for less than 1/4 of the selected IPs this could be affirmed at the moment; There is further need for harmonisation and for common definitions. Common CMPs should aim at maximising technical and available capacities on a firm basis.

13. 1319th Madrid Forum, 21-22 March 2011 Thank you for your attention! www.energy-regulators.eu