1. Dipl. Ing. Dr. Stephan Ressl CChair EFET SSE Head of Business Development Econgas SSE SG Prague, 22/01/2008 European Federation of Energy Traders

2. Stephan Ressl Prague, 22.01.2008 2 GRI SSE: EFET RECIT Model - Recapitulation  EFET presented a vision on a “Regional Independent System Operator model” at the IG SSE GRI meeting in Maribor  EFET believes that this model will effectively provide market integration in a swift manner  Proposed model does not try to find a new “solution” for design of the European gas market, it is more likely an interpretation of the draft of 3rd package published by EC in September 2007  The model as such would be fully neutral and compatible with all types of unbundling of TSOs (OU, national ISO) ---> the “political” decision on structure of the TSOs would not have influence on the processes and interactions determined in the model  Two key results are awaited from this model:  Reducing of the existing market areas through establishment of Regional Independent System Operators  Enabling 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)

3. Stephan Ressl Prague, 22.01.2008 3 GRI SSE: EFET RECIT Model  The first aspect derives from the finding of 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)  Additionally a bigger market area with flow optimisation based on regional ((intra)/inter-national) coordination will improve security of supply in the relevant region  A stronger R_ISO might be able to better compete against third party take over bids  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)  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.

4. Stephan Ressl Prague, 22.01.2008 4  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

5. Stephan Ressl Prague, 22.01.2008 5 GRI SSE: 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

6. Stephan Ressl Prague, 22.01.2008 6 GRI SSE: EFET RECIT Model – role of market players  The model propose clear definition and separation of 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;

7. Stephan Ressl Prague, 22.01.2008 7 GRI SSE: EFET RECIT Model – role of market players  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

8. Stephan Ressl Prague, 22.01.2008 8 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 :  EC – proposal is fully in line with 3rd package  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, question on investment  GTE – rather negative, does not want to make effort in regional initiative before 3rd package ready  OMV Gas – rather negative, asks for impact assessment

9. Stephan Ressl Prague, 22.01.2008 9 Barriers to enter national markets in the SEE  Austria  Lack of transit capacity  Not harmonised rules for transit and domestic use  Incumbent has the advantage of good knowledge about the market  OBAs at Baumgarten etc… missing;  Hub Baumgarten not virtual point yet

10. Stephan Ressl Prague, 22.01.2008 10 Barriers to enter national markets in the SEE  Hungary  Different transit and domestic use regime  Calculation of the capacity rights (80% Ukraine, 20 % HAG)  No capacity without customer  No firm capacity at the border  Still partly regulated market (possibility for the customers to switch from free prices to regulated), partly different transportation tariffs  No market based balancing regime (in case of offering optional gas for balancing purposes the provider gets higher tolerance)  No confidence in the market as the rules are changing very often  Incumbent has the advantage of good knowledge about the market

11. Stephan Ressl Prague, 22.01.2008 11 Barriers to enter national markets in the SEE  Czech Republic  No free storage (fully booked by incumbent), negotiated regime in spite of nearly monopolistic position of incumbent  No market based balancing regime (as wished by the traders)  No transparency – prices, usage of capacity (traffic lights)  Incumbent has the advantage of good knowledge about the market

12. Stephan Ressl Prague, 22.01.2008 12 Barriers to enter national markets in the SEE  Italy  Not enough storage capacities available to free market participants  Limited transport capacity to Italy  No market based balancing regime which would give price transparency and free up storage capacities  Incumbent has the advantage of good knowledge about the market  Not enough liquidity at the virtual trading point PSV  A lack of transparency and data availability (measurements, etc..)

13. Stephan Ressl Prague, 22.01.2008 13 Barriers to enter national markets in the SEE  Germany  To many market zones with different regimes, capacities are scarce  Balancing regimes with different tolerances and extreme differences between payments for excessive and missing gas ---> no free market for balancing  Potential cross subsidisation of short term contracts via long – term contracts  Only interruptible capacity available  Setting up of the tariffs for transit pipelines (Ferngasunternehmer) not cost based – as a competition is postulated ----> no evidence for this assumption to market users  Incumbents have the advantage of good knowledge about the market