EU Tariff Code Update

1. EU Tariff Code Update 23rd June 2014

2. EU Tariff Code Update – early feedback • Informal ACER feedback: • Draft code not on line with FG and insufficient harmonisation • Not coherent and “trying to please everyone” • Fixed price: don’t like indexation but use of premium could have merit • “open for discussion” on one-off reset of capacity (Commission thinks stakeholders have good arguments so want to hear counter arguments from TSOs) • Informal Prime Movers feedback • Draft code too open with no harmonisation and little progress • For Cost Allocation Methodologies it would be better to have general principles rather than writing methodologies into law • Confusion over which revenues subject to code and which are not

3. EU Tariff Code Update • Draft Tariff Code open for consultation • Stakeholder workshop 25 June ENTSOG shall focus on: • Scope and interaction with CAM • Mitigating measures (including discussion of one-off capacity reset) • Capacity Allocation Approach (including how capacity/ commodity split could work for revenue recovery) • Multipliers • Interruptible (including justification for use of ex-post discount and pricing of non-physical back-haul the same as physical) • Use of fixed prices at IPs

4. Mitigating measures • Spread increase or decrease in tariffs over a couple of years so that there is a glide path for tariff changes • Use the auction premium, if any, to mitigate against tariff increases • While ENTSOG is not in favour of the one off capacity reset option, it is open to discussing other mitigating measures that would not undermine contractual commitments

5. One off capacity reset option • ENTSOG concerns include: • Could lead to severe instability in the market and impact on tariff stability in the future • Could cause cross-subsidisation between different users and a non-cost reflective redistribution of costs • Penalises network users needing gas, the remaining gas users will pay for the choices of other gas users • Discourages new entrants from coming into the market • Impact on investments. Those that triggered investment in the past and made commitments to underpin that investment may return the capacity and then that investment would have to be paid for by those that rebook capacity or keep their existing capacity bookings.

6. Transmission services definition • ACER want: • clarity of what is in scope and what is out. • cap on amount of allowed revenue not included in definition of “transmission services” • detailed list of what is not part of “transmission services” • Prime movers want to know: • how revenue recovery works for services that are not part of “transmission services” • how does “complementary revenue recovery charge” work • how one regulatory account works with other rules

7. Cost Allocation Approach – with Capacity, Commodity and Complementary ReRe Charge Transmission Services Revenue Total Allowed Revenue CAP Part of Transmission Services Revenue Reference Prices CAP Part of Transmission Services Revenue €40m €2/u €90m €80m €60m CRRC €20m €1/u Cap/Com split = 75%:25% COM Part of Transmission Services Revenue €1/u €20m Assumptions Booked capacity: 20 units Throughput: 20 units Revenue from other regulated activities (exclusions from Trans services definition) €10m

8. Multipliers • Concern from TSOs over multipliers • Definition of congestion (link to CMP) • Safeguard to allow multipliers greater than 1.5 if certain criteria met

9. Fixed Price Mechanisms Some suggested fixed price mechanisms could be: fixed price + indexation fixed price + a risk premium fixed price + a variable charge fixed price + a combination of indexation, and a premium or variable charge.

10. Payable Price = Fixed Price + A Combination