Investment in Gas InfrastructureInvestment in Gas InfrastructureA regulator´s viewA regulator´s view

Nina GRALLNina GRALLSeminarSeminar on Gas Industry Restructuring in SEEon Gas Industry Restructuring in SEE

4/5th October 2005, Belgrade

AgendaAgenda

Infrastructure – Impact on Market DevelopmentInfrastructure – Impact on Market Development

Investment RequirementsInvestment Requirements

Market/Regulatory RequirementsMarket/Regulatory Requirements

AgendaAgenda

Infrastructure – Impact on Market DevelopmentInfrastructure – Impact on Market Development

Investment Requirements

Market/Regulatory Requirements

Infrastructure – Impact on market developmentInfrastructure – Impact on market development

Strategic scope of SEE gas marketStrategic scope of SEE gas marketSupporting diversification of EU gas supply competitionMeeting SEE´s increasing demand

Availability of grid capacities key requirement forAvailability of grid capacities key requirement fordevelopment of national and regional gas market(s)gas-to-gas competition

Barriers for well functioning market exist whereBarriers for well functioning market exist whereno (physical or contractual congestion) ortoo little (need capacity expansion)

capacity is available to allow (new) suppliers to meet customers demand

RequirementsRequirementsAvailability of domestic capacities national SoS, increase of

competitionAvailability of transit capacities regional SoS, increase of

competition, diversification of EU supply

AgendaAgenda

Infrastructure – Impact on Market Development

Investment RequirementsInvestment Requirements

Market/Regulatory Requirements

What do investors need?What do investors need?

CertaintyCertainty

Legal binding market rules (law, regulator)

Clear roles and responsibililties

StabilityStability

Stable legal framework

Stable regulatory rules

PredictabilityPredictability

Meeting the long term nature of infrastructure

investment

Maximum utilisation of capacity market rules, capacity allocation

Standardised rules for the regional market Standardised rules for the regional market ECSEE, market rulesECSEE, market rules

AgendaAgenda

Infrastructure – Impact on Market Development

Investment Requirements

Market/Regulatory RequirementsMarket/Regulatory Requirements

Capacity Allocation RequirementsTransparency on Available CapacitiesEfficient Use of Existing CapacitiesMeeting the Future Capacity DemandUnbundling RequirementsTariff Derivation

What does the market need? What does the market need? Regulatory Requirements – 1Regulatory Requirements – 1

Stable frameworkStable frameworkLegal binding market rules (law, regulator)

Clear roles and responsibililties

Easy access to the system and non-discriminationEasy access to the system and non-discriminationSimple TPA modell (national and cross border) one stop shop on TSO

and regulatory level, inter-TSO cooperationStandardised TPA rules Standard Transportation ContractStandardised allocation mechanisms and congestion managementStandardised nomination proceduresNon-discriminatory tariff settingNon-discriminatory treatment Unbundling!

Transparency and informationTransparency and informationServices offered Rules applied congestion, allocation, nomination, balancing, standard

documentsTariffs and tariff derivation, tariff calculatorAvailable capacities forecast and historical data, calculation

methodologyGrid data entry/exit pointsDisruption management and maintenance

Mindest Standards

Requirements GGP2/Gas Regulation

What does the market need?What does the market need?Regulatory Requirements – 2Regulatory Requirements – 2

CapacitiesCapacitiesSufficient availability of capacities

Efficient use of existing capacities UIOLI, 2ndary market

Meeting future capacity demand long term planning, system expansion

Fair and non – discriminatory capacity allocation

Firm and interruptible capacities

Short- and long-term capacities Range of services offeredRange of services offered

Bundled and unbundled services

Critieria1: Market demand? Which services does the market really need?

Criteria2: Maximum flexibility for system users FlexibilityFlexibility

Bundled and unbundled services storage, balancing energy

Market based system balancing energy

Mindest Standards

Requirements GGP2/Gas Regulation

Capacity Allocation RequirementsCapacity Allocation Requirements

For each round offering available capacitiesFor each round offering available capacities Open season for evaluation of market demand identifying market

demand for-intake and offtake points capacity should be allocated-relative amount of capacity requested at each point;-minimum lot size to be offered -products to be offered: long term/short term down to a minimum

period of […], firm/interruptible

Open season shall already indicate-Allocation procedure to be applied-Indicative tariff

Following the open season results (declared demand)Following the open season results (declared demand)Percentage to be offered on a short term basis

-Short term capacities not booked to be re-offered on a long term basis

Percentage to be offered on a long term basisPreferred to new market entrants

Transparency on Capacity AvailabilityTransparency on Capacity Availability

Efficient Use of Existing CapacitiesEfficient Use of Existing Capacities

PrinciplePrincipleUnused capacity has to be made available to the market

InstrumentsInstruments1.Users shall trade their unused capacity rights on the 2ndary

market-No restriction by TSO-Not limited to approval by TSO as long as payment obligation

remains with the original holder of the relevant capacities -Obligatory trading via a bulletin board of TSO transparency!

2.UIOLI in case user does not sell unused capacities on the 2ndary market

Double sided responsibilityDouble sided responsibilityTSO obliged to support 2ndary trade and UIOLI applicationUser obliged to free up unused capacityRoles and responsibilities to be included in Standard

Transportation Contract

Meeting the Future Capacity DemandMeeting the Future Capacity Demand

Role of TSORole of TSO

„develop the transmission system in such way to meet both the required capacity and reasonable demands to ensure the long-term availability of the system“ (Art 2 Directive 2003/55/EC)

Long term planning to evaluate the future capacity demandLong term planning to evaluate the future capacity demand

National and on cross border basis

Open season to evaluate specific capacity demandOpen season to evaluate specific capacity demand

Entry/exit points

Amount of capacity

Investors´/TSOs´ role to meet the demand by capacity Investors´/TSOs´ role to meet the demand by capacity expansion?expansion?

Tender process

Open for interested investors?

Unbundling Requirements Unbundling Requirements

TSO as a TSO as a subsidiary of parent companies has to carry out unbundled subsidiary of parent companies has to carry out unbundled transmission functionstransmission functions

TSO shall have enough human and physical resources at its disposal to TSO shall have enough human and physical resources at its disposal to carry out its work independently from other parts of the integrated carry out its work independently from other parts of the integrated companiescompanies

including especially personnel unbundling of staff employed from national affiliates and related companies from supply activities

including sufficient financial means available to fulfil its tasks to maintain and develop the network

TSO shall have effective decision-making rightsTSO shall have effective decision-making rightsindependent from the parent companieswith respect to assets necessary to operate maintain or develop the network parent company not permitted to give instructions regarding day-to-day

operations (individual decisions concerning construction or upgrading of the network)

but economic and management supervision rights of parent company in respect of return on assets (approval of annual financial plan)

TSO shall publish a compliance programme to TSO shall publish a compliance programme to ensure that the unbundling ensure that the unbundling provisions are met by all legal, operational and personell meansprovisions are met by all legal, operational and personell means

compliance programme shall contain rules of conduct, which have to be respected by staff in order to exclude discrimination

Tariff Derivation – 1Tariff Derivation – 1

Treatment of new infrastructureTreatment of new infrastructureSubject to criteria art 22 Directive 2003/55/ECSpecial focus on risk assessment and impact on competition

Risk assessment shall demonstrateRisk assessment shall demonstrateindividual risks associated with the project political,

regulatory, volume, businessexplanation why an special treatment would not be detrimental

to competition in the relevant markets concerned sensitivity to the extent and duration of special treatment

-reference to break even/pay back period?

financial-business model assessing the influence of different elements and duration of special treatment on the

business- positions of the projectsubject to variable elements

-expected total entry flow, expected exit flows on national markets, expected utilisation factors

Tariff Derivation – 2Tariff Derivation – 2

Tariffs shall be derivated according to the following principlesTariffs shall be derivated according to the following principlestariffs shall reflect efficiently incurred costs, including appropriate

return on investment; due regard may be taken to international benchmarking of tariffs; tariffs shall avoid cross-subsidies between network users;tariffs shall promote efficient use of the network and provide for

appropriate incentives on new investments; tariffs shall take into account: the duration, the load factor, the

distance of transportation, the capital investment per capacity unit and volumes etc;

In case the owner of the pipeline sells his pipeline system to In case the owner of the pipeline sells his pipeline system to another company the transaction price shall have no impact on the another company the transaction price shall have no impact on the value of the asset base taken into account for the tariff settingvalue of the asset base taken into account for the tariff setting

Backhaul flowsBackhaul flowsin case of congestion appropriate discounts shall be applied in the

case of backhaulsbackhauls shall be defined by reference to the direction of the

predominant physical flows in a network

Further InformationFurther Information

Mrs Nina GRALL

phone: +43 1 24724 dd 806

fax: +43 1 24724 dd 900

nina.grall@e-control.at

Regulator: www.e-control.at

Gas: www.e-control.at Natural Gas

Contact

Web

Tarif Calculator: www.e-control.at Tarif Calculator

Thank you for your attention !