1. Investment workstream 08 June 2009 Cross-border gas transmission‏ Investment project (I1) Update for Joint GRI NW Meeting Where are we heading since last SG? (Special focus at Virtual Test)

2. 2 Investment workstream, GRI NW 2 NW GRI Project Objectives (*): By end 2008: understand existing incentives on TSOs to make additional capacity available efficiently By end 2009: an agreed regional framework for new cross border (**) investments should be in place By end 2009: begin to establish and implement co-ordinated incentive mechanisms Success Criteria summary: Efficient TSOs can recover their costs & earn a reasonable return commensurate with risk Adequate cross-border investment leading to increased trade & greater price convergence Regulatory regimes support investment in capacity beyond contractual commitments from network users, if adequate * A Vision and a Roadmap for the Gas Regional Initiative North West, 4 April 2008 * Based on ‘A Vision and a Roadmap for the Gas Regional Initiative North West’, 4 April 2008 * * Leading to in/decrease of capacity at a regional interconnection point 1.Reminder roadmap: this project is about path to agreed regional framework

3. 3 Investment workstream, GRI NW 3 Base Case: 2-3 parameters differ from today: ‘market test’, ‘Risk dialogue’. Innovative Case: All parameters are allowed to vary Reality Greenfield thinking Last year’s GRI NW stakeholder group showed broad agreement among participants that the regional investment framework could be enhanced and more was to be learned about incentivising investment It was voiced by a.o. EFET that the current way we sell capacity and investments are triggered in the current investment framework could be improved The above lead to choice of Virtual Test environment based on following keys to success: -Simplicity (executable in given resources) -Balance between realism and reality in order to have open dialogue in “reasonable comfort” Current projects “Tilburg” experiment Virtual Test 2.For safe arrival to discussing regional framework, stakeholders supported Virtual Test as means. Sufficient realism

4. 4 Investment workstream, GRI NW 3. Visualising virtual test steps and outcomes (1) A published “Economic Test” “Market-based Allocation” Basis of decision (e.g. NPV test) to share risks, costs and benefits, agreed between regulators, TSOs and others Bidding process for capacity determines level of build plus allocation of initial (mid/long-term) capacity. Step 1 (Brussels => Dublin) Step 2 GermanyNetherlandsBelgiumFrance10-20 bcm

5. 5 Investment workstream, GRI NW The process is about iteration, especially between steps 4, 5 and 6. 1. Route 2. Initial size 2. Initial size 3. Capex 4. Reg frame Work (revenue) 4. Reg frame Work (revenue) 5. Risk distribu tion 5. Risk distribu tion 6. Design test process 6. Design test process 7. Conclude 7. Conclude November September May February 3. Process of the case: the first 6 steps are ready to be finalised by September (2).

6. 6 Investment workstream, GRI NW 3. Visualising virtual test steps and outcomes (3);the regional investment climate is a sum of national climates working Expected outcomes test case (to be recorded in a test report): A shared model and a better appreciation for (cross-border, NW) pipeline investment risks and how they should be distributed, including: - stress testing key elements of current regulatory frameworks and some innovative improvements to cross-border investment processes like EFETs bidding process/economic test concept. - assessing are “the outcomes acceptable from a regulators, tso’s and stakeholders perspective”(*) and, if relevant, potential advise on enhancement of the regional investment climate. * See the ToR 8 January 2009, page 4.

7. 7 Investment workstream, GRI NW 4. With support of stakeholders we keep test executable by making simplifications, but also sufficiently realistic, in order to learn from results. Some notes Managing realism is achieved by: -a) introducing an overview of all detailed aspects of regulatory frameworks in the region (“Manual”) -b) being clear on assumptions (simplifications) in the test ‘journal’ -c) working with regulatory experts who work on investments in reality

8. 8 Investment workstream, GRI NW 5. Way forward Manual By 24 September 2009 (workshop) RCC practical level overview of all nine regulatory frameworks of GRI NW for investment. (including consideration of questions by stakeholders) Serves as means to use VT findings for regional discussion. The Virtual case Summer ’09: busy testing (!). Shippers – TSO – Regulator interaction. 24 September workshop : discussion of preliminary findings Virtual Test including input from Tilburg university study on bidding processes November workshop: final conclusions workshop (Ministerial representatives especially invited) By end of ’09. If found required, advisory report (letter) to appropriate stakeholders with proposals for addressing found during the test concerns.

9. 9 Investment workstream, GRI NW THANK YOU. Finally, this opportunity is important to stress the positive value of efforts invested by members of core- and reference group so far.

10. 10 Investment workstream, GRI NW ANNEX (for questions)

11. 11 Investment workstream, GRI NW Main relevant documents (excl. other EU discussions going on in parallel, setting the context) Current Roadmap ToR as approved VT document for Brussels Conclusions Brussels and Dublin workshops Developed Excel model Developed bidding sheet Potential (in “pipeline”) Manual (with 4 (9) frameworks) Test “journal” report with findings on the way  Including outline of followed process Advise (report) on bidding process test from “Tilburg” experiment Finally, advise to all stakeholders on enhancing regional framework for investment (if required, by end of 2009)

12. 12 Investment workstream, GRI NW In order to be realistic, we must be clear on differences to current world of the Test. Bundled product at borders Proven congestion, test of societal need out of scope  Dedicated unilateral direction pipeline: in reality pipeline is often incremental to existing pipes - This applies below 2-3 bcm, not at 10-20 bcm like with us. Transparency on investment model at all levels Simplified (to key elements) frameworks, adopted to the “virtual purpose” 100% same bidding process for all 4 “test” countries  With a price schedule and flexible contracts durations Pre-defined investment trigger: “when is it economic to invest”  If trigger is met, capacity comes  Trigger is per definition set illustratively as risk dialogue is not finalized Open discussion on principles of settling potentially “uncovered” by contracts part of investment => risk distribution/risk dialogue No other constraints like NIMBY (permits); finance etc…

13. 13 Investment workstream, GRI NW The questions to be addressed in “journal of findings” for discussion in September are focused at regulatory detail affecting risk distribution Concept of Investment trigger (we start with 60-80 % PV as illustrative number; and subject to adding risk mitigation tools to reflect qualitative nature of investment trigger in various national frameworks) as means to enable transparent risk distribution dialogue Various risk mitigation tools available (20 years, inv. budgets) Bidding process design as a way to economically test the demand Stabilisation of tariffs (IRR/WACC) SIZE of RAB effect National issues reflection now left out (time delay; reg. periods; regulatory risk like ex-post assessment) Incentives for TSO to keep CAPEX and OPEX low Explicit assumptions (eg no reverse flow; booking assumptions) (Source: Dublin conclusions)