madrid, 12 th april 2010 14th ig meeting south gas regional initiative

Madrid, 12th April 2010

14th IG Meeting

South Gas Regional Initiative

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14th IG meeting S-GRI- Agenda

I. Opening

I.1 Welcome

I.2 Approval of the agenda and last meeting minutes (for approval)

II. Second phase of the 2015 OS:

II.1 Comments on the procedure received from Stakeholders (for information, by

Regulators)

II.2 Figures of capacities to be sold (for information, by TSOs)

II.3 Progress on economic test and tariff visibility (for information, by Regulators)

II.4 Documentation development (for discussion)

II.5 Next steps and calendar (for discussion)

III. Development of coordinated Congestion Management Procedures (CMPs) at the

borders

III.1 Current CMP at the borders in force in Portugal (for information, by ERSE)

III.2 Current CMP at the borders in force in Spain (for information, by CNE)

III.3 Current CMP at the borders in force in France (for information, by CRE)

III.4 Next steps and calendar (for discussion)

IV. Update of 2007 Transparency Study: action plan and calendar (for discussion)

V. AOB and next meetings

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II.1 Stakehoders‘ comments on the Open Season 2015 procedure

• After last SG meeting, held on the 16th of March 2010,

Stakeholders were requested to send their comments on the

work developed by TSOs and Regulators regarding the procedure of

the Open Season 2015

• Twelve responses have been received, nine from shippers, one

for a customers association, one from a stakeholders association

and one from a TSOs

• One shipper argues that, due to delays in the documentation

publication, there has not been enough time to analyze it in detail

• A French customer association sees the OS as a great

opportunity for industrial clients, particularly in the South of France

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1. Investments• Four responses points out that costs in France has been sharply increased since 2007;

they are considerably higher than the result of calculating them with the Spanish

standard built infrastructures in Spain, which fully comply with the best international

regulation according to a TSO. On shipper expresses the possibility of a benchmarking

between different TSOs should be appropriate

• Five agents express a need for defining clearly infrastructures to be built and their

cost, in particular, how costs are going to be allocated in the case of investments

that are associated with two or more entry-exit points. One company suggests that,

since infrastructures should be built in the most effective way to pass the economic test,

other investment scenarios could be considered

• One shipper explains that if some infrastructures will be constructed independently of the

results of this OS (Rhône axis), it is not possible to admit that the total cost it’s borne

by the OS

• Finally, other agent considers that discussing the investment increase and the network

planning in France may delay significantly the process

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2. Tariffs

• Three responses indicates that tariffs at the S-F border must reflect fairly the cost

and be economically justified, requiring further clarification for the proposed

increased

• Five agents state that a different tariff to access France from Spain would be

discriminatory with regard to similar entry points to France from other places as

Fos LNG terminal. One company explains that at the moment other OS (Fos Tonkin)

is being carried out in France without tariff increase. Other response understand

that, in a system, small price differences in the entry points could occur.

• One company asks CRE to clarify if their proposal is to set a premium at the

border S-F over other entry points or to set a tariff at the border that will not

be modified in the future, regardless the evolution of tariffs at others entry points.

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2. Tariffs (cont.)

• Arguments defending the current tariff:

Shippers entering France through the North will not pay extra fees although a

lot of investment are going to be made also in the North of France, where

congestion exists, reducing the competitiveness of gas coming from the

Iberian Peninsula (2 shippers)

The increase of current TPA tariffs is not in line with CRE Deliberation

of July 2009 to provide guidance on the French system access organization,

so a clarification is required (3 agents)

A more expensive tariff will increase the possibility to leave capacity available

after the OS and, consequently, some shippers could be interested in

waiting after the OS to request that capacity at a lower price (1 agent)

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2. Tariffs (cont.)

• Three shippers prefer only an Open Season based in one request at the current

tariff

• Five agents underline the possibility to establish a scale of offers system that

fluctuates between 90 €/GWh/day and 140 €/GWh/day. Consequently, shippers

could indicate how much capacity at several prices they are interesting in booking.

This increases the probability of passing the economic test at a lower price. Other

agent indicates their preference to request, at least, different capacities with two

different prices.

• One company requests for clarification on how possible tariff increase could

affect future ST OSPs

• Three responses say that the fact that only shippers participating in the OS

must establish a financial guarantee for investments that are required by other

shippers (LNG terminal users) will affect competition

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3. Economic test

• Four agents consider that although more transparency is being given to the

current economic test, it is not sufficiently explained, justified and

discussed (i.e. infrastructure working life, TSOs’ rate of return or the role of the

European funds have not been indicated)

• Two agents think that the economic test has to be designed with a certain

degree of flexibility when analyzing the different options, and, with this aim, they

propose to offer 90% of capacity for LT contracts. Other company reminds

the need for a decision on ST capacities, consistent with the probability of

MIDCAT passing the test.

• Two shippers suggests asking for additional European Funds in the frame

work of the Recovery Plan, in order to help the economic test to be fulfilled

despite insufficient requests from shippers

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3. Economic test (cont.)

• One shipper points out that if the economic test were based on the estimated cost

by TSOs in 2007, the allocation of the 100% of the capacity in the direction

Spain-France direction would just cover 70% of the investments costs. Other

companies (2) indicates, in particular, that 70% of the investment coverage must

be reviewed lowering the threshold

• One agent thinks that the current economic test must be reconsidered, since it

make no sense applying the cost-reflectivity principle to one entry when this is not

the general rule for the rest. It explains that large investments in the Rhône axis is

contradictory with freezing GRTgaz North-GRTgaz South tariff or with no revision

of cost allocation at exit points. Marginal cost should not be considered in the

test, but average costs, to guarantee a fair situation if new entry points benefit

from investments triggered by the OS. In other projects the working life considered

is 20 years instead of 10 years considered in the OS.

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3. Economic test (cont.)

• Finally, one company request the southern corridor contribution to

European Security of Supply not to be overlooked: the European internal

market won’t be completed if a large interconnection between Spain and

France is not built.

• A new interconnection between France and Spain will increase

competition in the South of France, involving a decrease in the gas

prices that may justify a higher investment costs.

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4. Priority criteria: MIDCAT versus Irún

• One shipper agrees with the priority criteria foreseen but require

investments scenarios and their cost to be revised

• Other agent considers that MIDCAT maximizes the capacity utilization in

the Spanish system and the cost recovery (€/GWh/day). Other reason is

that MIDCAT investments are linked to the reinforcement of GRTgaz North

and GRTgaz South interconnection, allowing the gas to flow to the north of

France, while Irún validation increases the possibility of not validating of

GRTgaz North and GRTgaz South interconnection

• One company prefers building Biriatou first if the entry tariff is not

maintained for MIDCAT.

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5. Capacities

• One response asks for a clear definition of the capacity at GRTgaz North-

GRTgaz South IP if investments at Biriatou are validated, while other

agent points out that capacities presented by TSOs and by CRE are different,

and asks for clarification

• One shipper asks not to offer capacities inside France in the OS

• One agent is in favor of minor modifications of the maximum duration of

multiannual capacity requests (244 months instead of 240) and of the

highest priority requested duration (124 months instead of 120)

• Additionally, proposes to remove multiseasonal capacities to simplify the

procedure if these capacities are marginal, which may be offered in OSPs on

ST basis

• Two respondents are in favor of lifting the coordinated restrictions at

different points in order to avoid capacity not assigned

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6. Requesting phases

• Five responses express their preference for only one phase, including capacity at IP

4. Other is against it

7. Calendar• While one agent indicates the possibility to delay up to the 30th of September

the launching of the OS as long as it won’t imply any risk, other asks for preserving the launching of the OS in the first semester of the 2010 and a third one asks for a quick launching of the procedure

• Two responses states that time pressure can not be used as an excuse to impose figures and rules that have been scarcely clarified and agreed

8. Other comments• One response explains that shippers should be lifted from their obligations when

contracting in the North of France, in the case of a lot of gas will end up coming from the South of France, which will reduce congestion at IP 4 and may make easier a possible merge between GRTgaz North and GRTgaz South zones

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II.2 Figures of capacities to be sold

OS 2015: FIGURES OF CAPACITIES TO BE SOLD

Information by TSOs

TSOs to send regulators, before Friday the 16th , the final capacities with the investments and cost associated.

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II.3 Progress on economic test and tariff visibility

OS 2015: PROGRESS ON ECONOMIC TEST AND TARIFF VISIBILITY

Information by CRECRE to send to the CNE the economic test to be shared

also with Ministries

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II.4 Documentation development

Documents to be produced by TSOs according to TSOs’ presentation in the 11th SG meeting:

• Information Memorandum

• Allocation Rules for 2015 capacities

• Application forms and related letter of commitment for 2015 capacities

• Non-Disclosure Agreements between each TSO and interested subscribers (to be signed only by new participants)

• Capacity booking contract between each TSO in France and subscribers interested in capacities between GRTgaz South-TIGF and/or TIGF-Spain

• Transmission contract between each TSO in Spain and interested subscribers

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II.5 Next steps and calendar

Calendar proposed by TSOs in the 11th SG meeting:MARCH – APRIL 2010:

12th April: S-GRI IG meeting (final decisions)

MAY 2010:

3rd May: Publication of final documents

Before 30th May: Signing of Confidentiality Agreements between each TSO and interested subscribers not participating in the First Phase.

MAY – JUNE – JULY 2010:

SG required?.

10th-12th May: Information meetings for stakeholders organized by TSOs

17th May/31st May: Starting date for submitting requests in the Second Phase of the OS.

31st May/14th June: Deadline for submitting requests in the Second Phase of the OS.

30th June/8th July: Publication of results of the Second Phase of the OS.

31st July: Deadline for the signing of contracts.

JANUARY 2011:

31st January 2011: Approval of GRTgaz and TIGF global investment programs by their respective Boards of Directors.

31st January 2011: Approval of GRTgaz and TIGF global investment programs by CRE.

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III.1 current CMP in force at the borders in Portugal

CURRENT CMP IN FORCE AT THE BORDERS IN PORTUGAL

Information by ERSE

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III.2 current CMP in force at the borders in Spain

• CMPs in Spain are regulated in the Royal Decree 949/2001, modified by the Royal Decree 1434/2002

• Two long term UIOLI mechanisms are established, not only for entry/exit capacity at international connections but also for the rest of infrastructures including the national transmission system, the LNG terminals and the underground storages

• Anti hoarding: guaranteeing the use of the contracted capacity, when accessing the infrastructure for 12 month or more, users must establish a deposit equivalent to 12 months of the fix term of the corresponding TPA tariff, taking into account only 85% of the booked capacity.

A shipper contracts 100 MWh/day of entry capacity at Larrau to deliver the gas at the AOC

TPA tariff in force for this delivery (monthly payment): 8,905 €/MWh/day/month (only fix term)

Deposit to be established: 100 MWh/day (contracted) x 0,85 (85% of booked capacity) x 8,905 €/MWh/day/month (fix term) x 12 (months) = 9.083,1 €

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First UIOLI mechanism in force

• Applied by TSOs to new access contracts or existing contracts in which capacity has been modified

• Users must use, at least 80% of the monthly contracted capacity, at least one month of the first six natural months once the service starts (or the first six months after any capacity modification)

• TSOs must calculate monthly capacity used by their users during this period

• If the user does not reach the 80% of the monthly contracted during the six months period, it losses the capacity that has not been used, and the proportional part of the deposit

• Capacity released by application of this mechanism is offered by the TSOs in the primary market

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A shipper contracts 100 MWh/day of entry capacity at Larrau to deliver the gas at the AOC, and establishes a deposit of 9.083,1 €. The contracted services starts 1st January 2010

Month

Monthly contracted capacity

(MWh/month)

Monthly used

capacity(MWh/month)

Monthly used capacity(% referred to monthly contracted capacity)

Jan 3.100 2.400 77.4%

Feb 2.800 2.100 75.0%

Mar 3.100 2.700 87.1%

Apr 3.000 2.000 66.7%

May 3.100 2.000 64.5%

Jun 3.000 1.600 53.4%

(used capacity above 80% of contracted capacity in March)

UIOLI not applicable

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A shipper contracts 100 MWh/day of entry capacity at Larrau to deliver the gas at the AOC, and establishes a deposit of 9.083,1 €. The contracted services starts 1st January 2010

Month

Monthly contracted capacity

(MWh/month)

Monthly used

capacity(MWh/day)

Monthly used capacity

(% referred to monthly

contracted capacity)

Jan 3.100 2.400 77.4%

Feb 2.800 2.100 75.0%

Mar 3.100 2.200 70.9%

Apr 3.000 2.000 66.7%

May 3.100 2.000 64.5%

Jun 3.000 1.600 53.4%

UIOLI applicable(used capacity always less than

80% of contracted capacity)

• Minimum capacity that has not been used = 22.6%

• User losses 22.6% of contracted capacity (22.6 MWh/day). The user’s contracted capacity is reduced to 77.4 MWh/day

• User losses 22.6% of the deposit (2,052.78 €)

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Second UIOLI mechanism in force

• Applied by the Technical System Manager to all existing contracts

• When the Technical System Manager detects a continuous underuse of

contracted capacity (during 12 months, without any month above 80%) by

an user at an infrastructure that is congested (there has been access

denials due to the lack of available capacity), the Technical System

Manager will release not used capacity. Consequently, the user losses the

part of the contracted capacity that has not been used and the

corresponding part of the deposit.

• Capacity released by this application of this mechanism is offered by the

TSOs to those agents whose access requests were denied.

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III.3 current CMP in force at the borders in France

CURRENT CMP IN FORCE AT THE BORDERS IN France

Information by CRE

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IV. Transparency study update:2007 Transparency study

• In July 2007, Regulators published an study on the level of

transparency in the Region, since transparency was identified as one of

the main priorities to address, in order to overcome the potential obstacles

for the development of a functioning gas regional market

• The main objective was to identify what information is needed by the

market players to operate efficient and effectively, how this information

should be provided by TSO’s (and by other stakeholders when appropriate)

on a fair and non-discriminatory basis, and what regulatory arrangements

are necessary to ensure proper monitoring and enforcement

• Although the Regulation 1775/2005, still in force, only established

transparency requirements for TSOs, the study analyses transparency

level in transmission, LNG and storage.

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IV. Transparency study update: 2007 Transparency study

• The 2007 Transparency study analyzed the degree of detail and accessibility of

information published by the following agents (Portugal still derogated from

Directive and Regulation application):

Transmission

Enagas

Naturgas

GRTgaz

TIGF

• Results of the 2007 ERGEG monitoring on Transparency requirements of

Regulation 1775/2005/EC and 2006 ERGEG monitoring on GGPSSO were also

consulted

LNG

GDF DGI

Enagas

BBG

Reganosa

Saggas

Storage

GDF DGI

TIGF

Enagas

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IV. Transparency study update: 2007 Transparency study

• Conclusions of 2007 transparency showed that:

TSO’s in both countries, France and Spain, had made relevant

improvements on transparency issues during the last years,

mainly from the publication of the Regulation 1775/2005.

The level of transparency on transmission is, in general, greater than

in storage and or LNG terminals

There was still room for improvement

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IV. Transparency study update:New regulatory requirements

The third package introduces new requirements on transparency for

transmission, LNG and storage infrastructures (Regulation

715/2009):

• In transmission, obligations in Regulation 1775/2005 regarding transparency

are kept (services offered, capacities, tariffs, contractual conditions,

infrastructure use, etc.- art. 18 and the annex). Additionally, new requirements

are introduced:

ENTSO-G must develop a code on transparency rules (art. 8.6.(i))

TSOs must make public ext-ante and ex-post supply and demand information

(art. 18.6)

TSOs must publish measures taken as well as costs incurred and revenue

generated to balance the system (art. 18.6)

Information will be published in a meaningful, quantifiably clear and easily

accessible manner and on a non-discriminatory basis

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transmission, LNG and storage infrastructures (Regulation 715/2009)

(cont.):

• In LNG (art. 19):

Services offered and conditions applied

Technical Information necessary for users to gain effective access

Contracted and available capacities

Gas storage in LNG tanks, inflows and outflows and storage capacity

available on a daily basis, included exempted terminals

Tariff derivation, the methodologies and the structure of tariffs

Information will be published in a meaningful, quantifiably clear and

easily accessible manner and on a non-discriminatory basis

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transmission, LNG and storage infrastructures (Regulation 715/2009)

(cont.):

• In Storage (art. 19):Services offered and conditions appliedTechnical Information necessary for users to gain effective accessContracted and available capacitiesGas stored, inflows and outflows and storage capacity available on a daily

basis, included exempted terminalsTariff derivation, the methodologies and the structure of tariffs

Information will be published in a meaningful, quantifiably clear and easily

accessible manner and on a non-discriminatory basis

If the SSO is the only user of the storage, may submit to the NRA a reasoned

request for confidential treatment of information regarding gas stored

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The third package introduces new obligations for Regulators with

regard to transparency (cont.):

• Monitoring the level of transparency (Directive 2009/73/EC, art.

41.1.(i) and Regulation 715/2009)

• Ensuring that information regarding demand and supply is made

public by TSOs (Regulation 715/2009, art. 18.6)

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Work program proposed

1. Establish the detailed information to be published by TSOs, LSOs and

SSOs according to Regulation 715/2009, to be checked by Regulators. This

will include a list of agents obliged in the Region (Spain, France and Portugal –

deadline 15th May

2. Checking of agents’ information publication – deadline 30th June

3. Publication of the Study – Deadline 30st September

4. Public Consultation with Stakeholders – October

5. Definition of an action plan to comply with new Regulation - November

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TSOs to send regulators, before Friday the 16th , the final

capacities with the investments and cost associated. CRE

to send to the CNE the economic test to be shared also

with Ministries

Next SG meeting: In May, before launching the OS, to

inform Stakeholders

V. Conclusions and next meetings