GIE Annual Conference, Madrid, 23 November 2007

1. Gas Regional Initiative Status and outlook towards the 3rd package Walter Boltz, Chairman ERGEG Gas Focus Group GIE Annual Conference, Madrid, 23 November 2007

2. Overview Gas Regional Initiative (GRI)3 Regional Energy Markets (REM) • North-West (NW) • South (S) • South-South East (SSE) ≈ 58% Figures represent an approximation, France member in two regions ≈ 12%of total natural gasconsumption ≈ 30%

3. Coherence and convergence • All regions work on similar priority topics - reflecting EU wide problems: • Interconnections and insufficient access to capacity • Lack of Transparency • Interoperability as entry barrier (including especially gas balancing) • Development of gas hubs and gas trading • Differences are generally due to local market conditions • Treatment of priority topics broadly similar and in principle allow further integration at later stage • As more solutions are developed convergence and coherence will be closely watched

4. Practical Results • More transparency • More information made available on storage levels in NW Europe. • Periodic publication of the progress on the French-Spanish interconnections • TSOs starting to offer a one-stop shop service for capacity bookings • The monitoring of Reg. 1775 has improved compliance Better access to capacity • Co-ordinated open seasons between Fluxys and GRTgaz at Taisnières • Launch of secondary Day Ahead Pilot planned by APX and/or TRAC-X at Oude Statenzijl/Bunde and Ellund • TSOs committed to implement a standardized bulletin board for secondary market trading • Common new infrastructure plan to develop further capacity in the French-Spanish interconnections • More x-border regulatory co-ordination: • MoU between Regulators of the NW region was signed on 23 October 2007

5. Still many Problems • Day-ahead auction of primary and secondary capacity stalled: • Primary capacity:Dutch as well as German legislation prescribes FCFS principle • Secondary capacity:German regulation prescribes that prices for capacity on the secondary market may not be significantly higher than the tariffs on the primary market • Legal limitations for information exchange between regulators: • Exchange of confidential information between NRA’s is in most cases impeded by law. In the work of the regional initiative this proves to be a real bottleneck as it is difficult to analyse for example interconnection points. These impediments have been reported to the appropriate ministries.  MoU in NW will bring some improvements • TSO cooperation: • Missing framework for effective TSO x-border cooperation with regard to capacity allocation, congestion management, harmonising and bundling of capacity products and investment  only 3rd Package can provide a practical solution

6. Still many Problems • Still insufficient Transparency: • Only partial compliance with transparency rules from Reg. 1775 • The most important transparency requirements – details on physical use of capacity is not even legally required !But essential for the use of interruptible capacity! • Coordinated infrastructure expansion still lacking

7. Why utilities love network business

8. GRI – in the Context of the 3rd Package • The Role of the RIs is recognized by the EC: “The regulatory framework should promote, coordinate and develop regional initiatives between transmission system operator and regulatory authorities, as happens with the Regional Initiatives led by ERGEG and initiatives such as the Pentalateral forum in Northwest Europe and as recommended by major stakeholders like Eurelectric.” • The 3rd package includes several “regional provisions” for NRAs, TSOs, Member States and the Agency • Conclusions of the 13th Madrid Forum, October 2007:”The Forum underlined its ongoing support for the Regional Initiatives as a useful interim stepping stone towards a fully integrated and well functioning market”

9. Regional provisions in the 3rd package (1) • Provisions for Member States • Article 5a (2003/55/EC)In order to safeguard a secure supply on the internal market of natural gas, Member States shall cooperate in order to promote regional and bilateral solidarity • Article 5a (2003/54/EC) / Article 5b (2003/55/EC)Member States shall cooperate among themselves for the purpose of integrating their national markets at least at the regional level. In particular, Member States shall promote the cooperation of network operators at a regional level, and foster the consistency of their legal and regulatory framework.The geographical area covered by regional cooperations shall be in line with the definition of geographical areas by the Commission in accordance with Article 2h(3) of Regulation (EC) No 1228/2003 / Article 2h(3) of Regulation (EC) No1775/2005 (defined by the Commission after consultation with the TSO organisation and the Agency).

10. Regional provisions in the 3rd package (2) • Provisions for TSOs (Art 2h(3) of Regulation) • Regional TSOs shall cooperation on a regional level • Regional TSOs shall publish a regional investment plan every 2 years; • Regional TSOs shall promote operational arrangements in order to ensure optimum management of the network; • Regional TSOs shall promote the development of energy exchanges, • Regional TSOs shall promote the allocation of cross-border capacity through implicit auctions and; • Regional TSOs shall promote the integration of balancing mechanisms

11. Regional provisions in the 3rd package (3) • Provisions for NRAs • Article 22b (2003/54/EC) / Article 24b (2003/55/EC)(b) NRAs shall take all reasonable measures to achieve the development of competitive and properly functioning regional markets within the Community in view of the achievement of the internal market. • Article 22d (2003/54/EC) / Article 24d (2003/55/EC)1. Regulatory authorities shall closely cooperate and consult with each other, and shall provide each other and the Agency with any information necessary for the fulfilment of their tasks2. Regulatory authorities shall cooperate at least on a regional level to foster the creation of operational arrangements in order to ensure an optimal management of the network, develop joint electricity exchanges and the allocation of cross-border capacity, and to ensure a minimum level of interconnection capacity within the region to allow for effective competition to develop.

12. Regional provisions in the 3rd package (4) • Provisions for the Agency • Article 6 6. The Agency shall monitor the regional cooperation of transmission system operators referred to in Article 2h of Regulation (EC) No 1228/2003 and Article 2h of Regulation (EC) No 1775/2005 (investment plan to be published every two years, operational arrangements, energy exchanges, cross-border capacity allocation through implicit auctions, balancing market). • Article 7 3. The Agency shall promote cooperation between the national regulatory authorities and between regulatory authorities at regional level. Where the Agency considers that binding rules on such cooperation are required, it shall make the appropriate recommendations to the Commission.

13. 5 Steps from the GRI to the IEM • Identify and solve practical problems hampering market integration on a regional level • Develop, agree and implement harmonized operational and technical standards for network and market operation • Monitor and report on compliance • Assure effective and harmonized enforcement across the EU • Coordinated Infrastructure expansion to improve Security of Supply

14. The tasks for the future – 1 1. IDENTIFY AND SOLVE PROBLEMS 2. HARMONISE STANDARDS 3. MONITOR COMPLIANCE 4. ENFORCEMENT Examples: • Assure full implementation of interconnection agreements and OBAs on a regional level • Implement non-discriminatory balancing on ALL transport systems • Improve hub services and assure impartial hub operation • Implement trading plattforms (PX, etc.) • Assure gas quality concerns do not hamper trading unnecessarily • Transparency and access to LNG 1. GRI as platform for identifying and solving practical problems of market integration

15. The tasks for the future – 2 1. IDENTIFY PROBLEMS 2. HARMONISE STANDARDS 3. MONITOR COMPLIANCE 4. PROPER ENFORCEMENT • Based on practical experience in some RIs technical and operational standards and approaches can be developed for the whole EU gas market • On a regional level they can be tested and their practicality can be assured • Once proven to work, their adoption will be easier 2. Develop harmonised (technical)standards

16. The tasks for the future – 3 1. IDENTIFY PROBLEMS 2. HARMONISE STANDARDS 3. MONITOR COMPLIANCE 4. PROPER ENFORCEMENT Monitoring: • Directive • Regulation • Codes issued by the TSOs on EU level • GGPSSO • Transparency • GGPLNG • GGP Balancing • Etc. 3. GRI to serve as a forum for monitoring compliance

17. The tasks for the future – 4 1. IDENTIFY PROBLEMS 2. HARMONISE STANDARDS 3. MONITOR COMPLIANCE 4. PROPER ENFORCEMENT • Monitoring alone is insufficient – as shown at the last few Madrid Fora • Effective enforcement needs to be assured and coordinated at least across the region (e.g. on both sides of an interconnector!!) • Coordinated enforcement actions by NRAs should assure a level playing field for all market participants 4. Regulatory Oversight and coordinated enforcement

18. Next steps and the Way forward • Public consultation on GRI coherence and convergence report until 17 December • ERGEG Regional Initiative Annual Conference and Annual Report – 27 February 2007 • Key challenge for 2008 is to strengthen active stakeholder participation (shippers, governments) • As 3rd package discussion unfolds, regulators are ready to contribute by providing practical experience (and frustration !) from the work in the GRIs

19. Further information • WWW: www.ergeg.org • Contact: Walter Boltz • Email: walter.boltz@e-control.at • Tel.: +43 1 24 7 24 201 • Fax: +43 1 24 7 24 900

20. Extra slides

21. Several regional initiatives (co)-exist • ERGEG‘s RI • TEN initiative of the Commission (regional coordinators) • Pentalateral forum • New political approach in the CW region • Energy Community • Medreg

22. Several regional initiatives (co)-exist • ERGEG‘s RI • TEN initiative of the Commission (regional coordinators) • Pentalateral forum • New political approach in the CW region • Energy Community • Medreg

23. Several regional initiatives (co)-exist • ERGEG‘s RI • TEN initiative of the Commission (regional coordinators) • Pentalateral forum • New political approach in the CW region • Energy Community • Medreg