Katrien Prins Electricity and Gas Unit DG Energy and Transport European Commission Second Asia Gas Buyers Summit Mumbai, 2-3 February 2004 Regulating the

Katrien PrinsElectricity and Gas Unit

DG Energy and TransportEuropean Commission

Second Asia Gas Buyers’ SummitMumbai, 2-3 February 2004

Regulating the gas Regulating the gas market: the EU market: the EU

experienceexperience

StructureStructure

The EU Internal Gas Market

The state of play

The new Directive

The Madrid Forum

Gas Regulation

The EU Internal Gas MarketThe EU Internal Gas Market

European Union is based on free movement of goods, services, capital and people

In nearly all sectors, an internal market was achieved by 1992

The energy sector lagged behind1998 Adoption of the first Gas Directive –

transposition in national legislation – mid 20002003 Adoption of second Gas Directive –

transposition in national legislation – mid 2004

EU25 - Demand and SupplyEU25 - Demand and Supply

339376

556

630

191 197

112 117 155186

381513

0

100

200

300

400

500

600

700in bcm

Demand Production Imports

2000 EU 15 2000 EU 25 2030 EU 15 2030 EU 25

Growth of demand: 67% Growth of imports: 175%

Key provisions of Key provisions of the current Gas Directivethe current Gas Directive

Abolition of exclusive rights - non-discrimination;Non-discriminatory right to build new gas facilities;Unbundling of accounts of integrated companies;Third Party Access to the system, which includes storage;TPA can be negotiated or regulatedGradual market opening – 30% of demand; eligible

customersExceptions.

refusal of access (capacity; PSO; TOP) “emergent” markets and other areas

System of Access

RegTPANegTPA

Hybrid

Derogation

Benchmarking

Unbundling measures in Member States

Benchmarking

Unbundling transmission system operator

Unbundling distribution system operator

Austria Legal Accounts Belgium Legal Legal Denmark Ownership Legal France Accounts Accounts Germany Management Accounts Ireland Management Management Italy Legal Legal Luxbg Management Management Neth Management Legal Spain Legal Legal Sweden Accounts Accounts UK Ownership Ownership

Regulation in the EURegulation in the EU

The second Gas DirectiveThe second Gas Directive

MARKET OPENING

July 2004 : all non-household consumers can freely choose their gas supplier

July 2007 : all consumers are free to choose

The second Gas DirectiveThe second Gas Directive

UNBUNDLING Legal unbundling of Transmission system

operators by July 2004Legal unbundling of Distribution system

operators at the latest by July 2007Functional unbundlingAccounting unbundling

The second Gas Directive The second Gas Directive Third Party AccessThird Party Access

Third party access to transmission and distribution system on the basis ofpublished tariffsapplicable to all eligible customersapplied objectively and without discrimination

between system usersex ante approval of tariffs or methodology

underlying their calculationpublished prior to their entry into force

The second Gas Directive The second Gas Directive Third Party Access to StorageThird Party Access to Storage

Access to storage facilities and linepack necessary for providing efficient access to the system for the supply of customers

in accordance with objective, transparent and non-discriminatory criteria

negotiated TPA:publication of Main Commercial Conditions for the use

of storage facilities, linepack and other ancillary services

regulated TPA:on the basis of published tariffs and/or other terms and

obligations for use of storage and linepack

Access to the network on the basis of regulated terms and conditions – storage can be NTPA

Regulation by regulatory authorities to be designated by Member States

Ex-ante regulation of at least the methodologies with regard to network access conditions, including tariffs and balancing services

At least ex-post regulation with regard to other important aspects

Regulator to decide on complaints in reasonable timeframe (2 months+2)

Regulating network accessRegulating network access

Regulating network accessRegulating network access

Regulator to monitor and - if necessary to ensure non-discrimination - to require TSO/DSO to modify:

rules on congestion management, including allocation of interconnector capacities

unbundling of accounts to exclude cross-subsidies

Regulating network access – Regulating network access – exemption for new infrastructureexemption for new infrastructure

Derogation from non-discriminatory TPA for major new gas infrastructureInterconnectors between Member States, LNG and

storage facilitiesExemptions depends on a series of preconditionsRestrictive approach

Decision by regulatory authority and Commission review

The provision aims to safeguard investments in The provision aims to safeguard investments in very high-risk projects, which would not take very high-risk projects, which would not take

place without such an exemptionplace without such an exemption

Minimum competencies of regulatory authorities in all Member States

Responsible for ensuring non-discrimination, effective competition and the efficient functioning of the market

Core duties relating to network access and balancing

Number of other requirements/options

Regulatory authoritiesRegulatory authorities

All Member States to appoint regulatorPreferred model is independent regulator –

limited Ministry involvementLocal regulators are possibleMulti-MS regulators : regional regulator also

an optionRegulators must have sufficient resources and

rights to information: technical and financial


Ex-ante approval of: overall network tariff methodology balancing methodology

Ex-post intervention possible for: individual network tariffs individual balancing charges mechanisms to deal with interconnectors and national congestion time taken for connections and repairs publication of appropriate information the effective unbundling of accounts the access conditions to storage, linepack and to other ancillary

services


15 liberalised market do not constitute and internal market

Lack of rules concerning cross-border trade of gas

Addressed in Regulatory Forum of Madrid, assembling Regulators (CEER), Member States, Commission, gas industry (GTE and Eurogas), consumers, traders

Creating an internal marketCreating an internal market

Tariff methodology : need for tarification regimes to converge, to avoid tariff pancaking and ensure cost reflectivity;

Strong support for an “entry-exit” tariff structure (would best facilitate the development of competition)

Importance of ensuring non-discrimination with regard to access to information on system use including available capacities of the system

ensure publication of available capacities Principles adopted as overall guidelines with regard to

capacity allocation and congestion management

Madrid Regulatory ForumMadrid Regulatory ForumTarification, transparency, congestionTarification, transparency, congestion

Overall objective:to ensure TPA to the networks which would meet the

requirements of a well functioning competitive market for natural gas in line with the principles of non-discrimination and transparency

Guidelines aim atclarifying the roles and responsibilities of the main parties in

gas transportationensuring the principle of non-discriminationfacilitating cross-border trade and customer choice through

competition in the internal marketavoiding distortions in trade

Madrid Regulatory ForumMadrid Regulatory ForumGuidelines for good practiceGuidelines for good practice

Offer unbundled TPA services for access to the different parts of the system including all necessary ancillary facilities operated by TSOs including storage when technically necessary for efficient TPA;

Offer the same range of services on the same conditions according to the principle of non-discrimination to any eligible third party within the EU as to marketing affiliates;

Publish the main conditions for all services;Publish available capacities on a regular and user-friendly

basis;Co-operate with other TSO’s on interoperability


Offer both firm and short-term services (flexible in time) and interruptible in certain circumstances;

Design services to facilitate trading and liquidity in the European market;

Standardise request and response procedures according to best practice, co-ordinate maintenance to minimise disruption;

Implement non-discriminatory and transparent capacity allocation mechanisms and congestion management procedures subject to review by relevant authorities;

Ensure sufficient functionally independence of SOs from supply business to avoid conflicts of interest.


Tariff structure and derivationTSOs should publish reasonably and sufficiently detailed

information on tariff derivation and tariff structure;As far as differences would hamper cross-border trade,

TSOs should pursue convergence of charging principles and tariff structures.

Secondary capacity trading:Allow TPA capacity rights to be freely tradable in a

secondary market;Endeavour to discourage capacity hoarding and facilitate

reutilisation of un-used capacity.


Tarification modelsTarification models

Progress made on tariffs: EU15 - 32001 Benchmarking

5 DR, 4 postalised, 3 e/e

2002 Benchmarking4 DR, 4 postalised, 4 e/e

2003 Information 1 DR, 4 postalised, 7 e/e

By 20040-1 DR, 3 postalised, 8-9 e/e

Guidelines Guidelines Regulation Regulation

The Madrid Forum and the Guidelines of Good Practice have one major drawback: they are voluntary

Compliance is mixed

Commission decided to propose in December 2003 a Gas Regulation to change these voluntary arrangements in legally binding instruments

Directive on security of gas supplyDirective on security of gas supply

Why?The new market environment necessitates having

security of supply arrangements compatible with the requirements and needs of a competitive market

What?Member States are required to define security of supply

policies clarifying the general roles and responsibilities of different market players in terms of security of supply

Minimum requirements in the form of output standards

Crisis mechanism (extraordinary supply situation)

Documents

Katrien Prins Electricity and Gas Unit DG Energy and Transport European Commission Second Asia Gas Buyers Summit Mumbai, 2-3 February 2004 Regulating the