2. EU Tariff Code – Emerging Issues

EU Tariff Code – ACER Feedback No.ACER Request/Issue 1Redefine Transmission Services Definition -Harmonised definition e.g. exhaustive list of exclusions -Should there be a cap e.g. 10% for dedicated services -Provide transparency for non-transmission services [STKHs] 2Publish the Allowed Revenue/Target Revenue not just the transmission services revenue 3Include a provision on implementation monitoring 4Remove references to ‘the confidentiality of commercially sensitive information shall be preserved 5The cost allocation methodologies should have at least the same level of detail as the TAR FG

EU Tariff Code – ACER Feedback No.ACER Request/Issue 6Further consideration of the circumstances for selecting a methodology need to be included 7Eliminate the additional methodology on the grounds that its added value has not been demonstrated on objective grounds - Concerns about revenue reconciliation being separate based on different users of assets 8One and the same cost allocation methodology per entry / exit zone -Deviation from the TAR FG -Concerns about use of cost allocation methodologies, entry/exit split and VIPs 9The application of rescaling must be done consistently amongst all IPs 10Homogenous sets of points must be described/explained for equalisation (e.g. insert footnote from the TAR FG) 11Benchmarking should not allow for tariffs to be increase at other IPs to compensate for reduced tariffs at certain points - Concern about the conditional elements for using benchmarking

EU Tariff Code – ACER Feedback No.ACER Request/Issue 12ACER believes that the safeguard allowing multipliers does not provide harmonisation and is unnecessary as any issues can be solved by adjusting the reference price 13For the approach to congestion the TAR NC should be aligned with the TAR FG 14ACER believes that the introduction of the ‘A’ and ‘B’ factors does not contribute to harmonisation 15ACER does not support the ex-post discount - Majority of stakeholders are against the ex-post discount 16The pricing of non-physical backhaul should be aligned to the TAR FG and based on marginal pricing 17ACER requests that ENTSOG align the payable price chapter with the TAR FG -Concern about offer of fixed and floating tariffs at the same time -Concern about impact of fixed tariffs on revenue reconciliation

EU Tariff Code – EU Associations Topics of Concern  EFET: Capacity reset, transparency, storage (nominal entry/exit tariffs as already paid), tariff publication timescales (need to know price if buying long-term), transmission services (need clearer definition), dedicated services(what’s in / what’s out), ex-post discount on interruptible  OGP: scope (should focus on IPs), capacity reset, transparency, flight to short term, tariff publication timescales, multipliers and seasonal adjustments, fixed tariffs

Current Main Issues Discussed in ENTSOG  Harmonisation of the Tariff Setting Year  One-off Capacity Reset  Fixed versus Floating Tariffs

Harmonisation of the Tariff Setting Year Extract from Tariff Framework Guideline 1.4 Implementation ………, ENTSOG shall carry out an impact assessment on harmonising the transmission tariff setting year,……… ……..The Network Code on Tariffs may also include provisions to harmonize the tariff setting year across the EU.…….  No real appetite from stakeholders for harmonisation but if harmonised then should be 1 st October.  Publication of tariffs aligned to auction calendar is more important for stakeholders

Harmonisation of the Tariff Setting Year  Number of options have been considered  Move tariff setting year to October  Move tariff & revenue setting year to October  Publish tariffs for 2 years  Publish binding tariffs prior to capacity auctions  Publish indicative tariffs (or ranges) prior to auctions  Publish tariff model so shippers can estimate tariffs  Move auction (March -> June/July

Harmonisation of the Tariff Setting Year  Most TSOs have Tariff Year starting 1 st January but harmonising to this is being considered – therefore no real impact on GB on this topic  Harmonisation unlikely  Main options currently being looked are aimed at publication timing – such as publishing “indicative tariffs”; fixed tariff in annual auction for October to September; publishing 2 years of tariffs; moving auction timings

One-off Capacity Reset Responses stated: Proposed mitigation measures not sufficient Current contracts may not be fit for purpose in the ‘new world’ Issue of reset for transit countries is justified but can be solved Increases in tariffs may result in users moving to alternative sources of heat, reducing requirement for gas. Long term capacity holders may challenge legality of the Code Want to work with ENTSOG to develop proposals Large number (27 out of 33) of respondents indicated that they would like an option for a one-off capacity reset Consultation Feedback

One-off Capacity Reset  Paper being produced to state reasons against reset  for public external discussion  Initial thinking to be presented at Stakeholder WS on 24 th (final paper not approved by Board until 9 th Oct in time for MF)  ENTSOG Legal team have already stated that nothing stops a reset option being included in code  meeting 3/9 to review arguments against  There is no plan at this stage to include a re-set option within the Code

Fixed versus Floating Tariffs Main issues from responses Stakeholders are generally supportive of the inclusion of fixed price options (24/38) Need more clarification on how this would work in practice Should it be the only option for bundled capacity at IPs or for incremental / new capacity Concern that the use of a variable charge may provide too little certainty Some respondents were supportive of the combination of options but others felt that it undermines the concept of fixed price. Options: Fixed price plus indexation (5 respondents) Fixed price plus a premium (6 respondents) Consultation Feedback

Fixed versus Floating Tariffs  Things to consider: Should there one option or more than one option for fixed price mechanisms in the TAR NC? ACER opinion ‘Where the FG offers a consistent and harmonised approach to payable price, the NC remains completely open. The solutions in the NC are multiple, not consistent with other sections of the Code and may be difficult to apply under the bundled capacity arrangements mandated by the NC CAM at IPs. The Agency asks ENTSOG to remain within the principles detailed in both the FG and the Justification Document, and align the NC accordingly.’

Fixed versus Floating Tariffs  Current ENTSOG thinking:  The Code will include a fixed priced mechanism at IPs  A simple “fixed price” will not be an option at IPs  No obligation to offer a fixed price mechanism  Fixed price mechanism will be detailed in Code  Aims to give price predictability to market to aid long-term commitments but also to address ACER concerns re potential cross-subsidies  Actual mechanism to consulted upon as part of cost allocation methodology consultation

Fixed versus Floating Tariffs  Payable price shall be:  (Reserve price X index) + risk premium  Index used to be consulted upon  e.g. could be inflation but could equal 1  Risk premium fixes price for duration of contract  could be zero or positive and will be known prior to auction  How additional revenues from risk premium treated shall be NRA decision  ENTSOG to give rational for inclusion of fixed price mechanism in Analysis of Decisions Document to be published with final draft Code.  Shall address ACER’s cross-subsidy concerns and state positive case such as facilitating long term bookings and giving meaningful economic test for incremental release

Main GB specific issues  Single Regulatory Account  Impact on GB TO/SO model and reconciliation process  Cost Allocation Test  Development of meaningful test for GB  Short-haul  How can EU Tariff Code accommodate this?  EU Tariff Code discussions overlaps with Ofgem’s Gas Transmission Charging Review & activities of NTSCMF