Madrid, 30 th January 2013

1. 18thSG Meeting South Gas Regional Initiative Madrid, 30th January 2013

2. Agenda

3. II. Capacity Allocation Mechanisms II.1. Draft Roadmap for Capacity Allocation Mechanisms (CAM Roadmap) II.2. NW Capacity Allocation Platform II.3. Improvements in the SP-PT CAM II.4. 2012 OSP between SP-FR II.5. Next steps and calendar

4. II. Capacity Allocation Mechanisms • II.1. Draft Roadmap for Capacity Allocation Mechanisms (CAM Roadmap) • ACER/ENTSOG CAM Roadmap for Europe (for information by ACER) • CAM Roadmap for SGRI (for information by NRAs)

5. II. Capacity Allocation Mechanisms II.1. CAM Roadmap for South Gas Regional Initiative • GOAL: early implementation of the provisions from the CAM NC • In line with the Roadmap for the early implementation of the CAM NC, developing by ACER and ENTSOG. 1 2 3

6. II. Capacity Allocation Mechanisms II.1. CAM Roadmap for SGRI Capacity product definition and calendar (I) • Main issues to be decided: • Bundled/Virtual products to be offered • Standard capacity products to be prioritised • Capacity reserved for each product • Allocation calendar for 2014 and onwards • IP where the products will be allocated (physical or virtual points) • Coordination CMP-CAM 1

7. II. Capacity Allocation Mechanisms II.1. CAM Roadmap for SGRI Capacity product definition and calendar (II) • Definition of available bundled capacity for the next 15 years (Oct 2014...), agreement on the split of capacity (Q, yearly, 15 years • VIP or two IP ? • Common criteria on: unbundled / interruptible / backhaul • Monthly capacity products have been allocated by OSP until 31st March 2014 • Capacity products to be offered before March 2014 for the period April 2014-September 2014. Proposal: Maintain prorate or new CAM NC? 1 SPAIN-FRANCE (I)

8. II. Capacity Allocation Mechanisms II.1. CAM Roadmap for SGRI Capacity product definition and calendar (III) • Proposal of Auctions: • Annual quarterly capacity auction in June 2014: first Q capacity products from Oct 2014 to Sept 2015 (Q1-Q4) ---- common platform • Rolling monthly auction in Sept 2014 ? • Daily auctions from October 2014 ? • Annual yearly capacity auction in March 2014/2015: first yearly capacity products from Oct 2014/2015 (Y1-Y15) 1 SPAIN-FRANCE (II)

9. II. Capacity Allocation Mechanisms II.1. CAM Roadmap for SGRI Capacity product definition and calendar (IV) • Definition of available bundled capacity for the next years (Oct 2014...), agreement on the split of capacity (Q, yearly, 15 years), Longest allocation period = 1 year ? • VIP • Common criteria on: unbundled / interruptible / backhaul • Yearly and Monthly capacity products have been offered by auction in June 2012, from Oct 2012 to Sept 2013 • To be decided: Quarterly capacity product could be offered in June 2013 (Oct 2013-Sept 2014) the same methodology than last year? Yearly capacity product in March 2013? 1 SPAIN-PORTUGA L (I)

10. II. Capacity Allocation Mechanisms II.1. CAM Roadmap for SGRI Capacity product definition and calendar (V) • Proposal of Auctions: • Annual quarterly capacity auction in June 2014: Q capacity products from Oct 2014 to Sept 2015 ----- common platform for the first time • Rolling monthly capacity auction Sept 2014 ? • Daily auctions from October 2014 ? • Annual yearly capacity auction in March 2014/2015: first yearly capacity products from Oct 2014/2015, for one year? 1 SPAIN-PORTUGA L (II)

11. II. Capacity Allocation Mechanisms II.1. CAM Roadmap for SGRI 1 Annual yearly auctions: 1st Monday of March / Y1: 1st Oct-31st Sept Annual quarterly auctions: 1st Monday of June / Q1: 1st Oct-1st Jan. Monthly capacity auctions: 3rd Monday of each month Daily auctions: 16.30 CET D-1

12. II. Capacity Allocation Mechanisms II.1. CAM Roadmap for SGRI Regulatory needs (I) • Auction mechanism as a default CAM in the interconnections • Moving towards bundled and virtual capacity • Harmonizing the capacity products and timeframes • New regulation need to be consistent with European NC: • CMP NC • Balancing NC • Agreement on nomination and renomination schemes • Interoperability and Data Exchange NC • Harmonization of gas day / gas year- 2014 • Temperature to measure gas- 2014 • Units used to allocate capacity and sign contracts- 2014 • Tariffs NC: • Reserve price • Price to be paid by subscribers during all the contract life 2

13. II. Capacity Allocation Mechanisms II.1. CAM Roadmap for SGRI Regulatory needs (II) • To be discussed: • Shipper license to participate in auctions process, allowing the same shipper to book unbundled capacity. Qualification steps. • Price steps definition and allocation of revenues arising from the auction among TSOs • Release of information to the market. Calendar • Capacity contracts: obligation to subscribe the capacity allocated in the auction, timing, financial deposit... • Responsibilities of TSOs (implementation) and NRAs (supervision) • Secondary capacity market: bundled virtual capacity to remain as allocated in the auction • Coexistence of old and new contracts 2

14. II. Capacity Allocation Mechanisms II.1. CAM Roadmap for SGRI IT System • To develop a single platform to allocate capacity: Best available technologies, functionalities, secure, smooth exchange of information • Calendar to join European Capacity Platform by TSOs in the SGRI • TSOs to develop its own IT system to integrate the information from the capacity auctions • TSOs to collaborate bilaterally to develop IT systems for nomination and renomination of bundled capacity, CMP implementation, exchange information for balancing process. 3

15. II. Capacity Allocation Mechanisms II.1. CAM Roadmap for SGRI Way forward • Further discussion on this draft Roadmap with TSOs - ASAP • Public consultation of this document with Stakeholders- February 2013 • Final CAM Roadmap of the SGRI – March 2013 • Discussions and definition of the capacity products, available capacity and IT systems– April/May 2013 • Start of the implementation of IT systems –Summer 2013 • Start of proposing national regulation modification – Summer 2013.

16. II. Capacity Allocation Mechanisms II.2. North West Capacity Allocation Platform (to be presented by Platform member)

17. II. Capacity Allocation Mechanisms II.3. Improvements in the Spain-Portugal allocation of capacity (to be presented by TSOs)

18. II. Capacity Allocation Mechanisms II.3. Improvements in the Spain-Portugal allocation of capacity • Enagás and REN will develop a similar procedure than the previous year. • The intention is to carry out the auction process during the 2Q, earlier than the previous year. • Enagás and REN suggest to open a short period for comments on top of the consultation already held in October. • Enagás and REN will jointly study the possibility to adapt the products to the NC on CAM subject to the approval of NRAs.

19. II. CAM II.3. Improvements in the SP-PT CAM (I) • Capacity Products to be offered for the gas year 1st Oct 2013 to 30th Sept 2014: • Firm yearly products • Firm quarterly products • Interruptible products if less than 95% of firm capacity has been allocated at the previous firm products auctions. • IT system to allocated capacity to shippers

20. II. CAM II.3. Improvements in the SP-PT CAM (II) • Annual Transmission Capacity Auction will take place in June 2013. • National regulations to be aproved in advance in order stakeholders will be timely informed: • Resolución CNE on methodology for the coordinated capacity allocation at the IP between Spain and Portugal. • Mecanismo de atribuição de capacidade da RNTGN - ERSE • Information Memorandum and Standard Contracts: to be elaborated by TSOs describing the procedures for the annual auction (following the Draft CAM NC): rules, price steps, reserve price, capacity offered, application form, contract information, calendar…. To be approved by NRAs.

21. II. Capacity Allocation Mechanisms II.4. 2012 OSP ST Capacity between Spain and France (to be presented by TSOs)

22. II. Capacity Allocation Mechanisms II.5. Next steps and calendar (for discussion)

23. III. Congestion Management Procedures • III.1. CMP Roadmap (for information by TSOs) • III.2. Next steps and calendar (for discussion)

24. III. Congestion Management Procedures III.1. Draft Roadmap for Congestion Management Procedures (CMP Roadmap) (for information by TSOs)

25. III. Congestion Management Procedures III.2. Next steps and calendar (for discussion)

26. IV. Ten-Year Network Development Plan and Project of Common Interest (PCI) IV.1. Update on PCI Identification (for information by regulators)

27. IV. TYNDP and PCIs IV.2 Update on PCIs identification (I) North-South Gas Interconnections in Western Europe • 6th meeting held on 18 January: Previous meeting organized by EC with NRAs with the aim to know NRAs’ opinion. Summary on NRAS’ opinion on impact areas • Main rule: a project must impact on at least two Member States to be eligible • Clusters: projects considered in a cluster represent just one PCI. • Presentation of analysis of qualitative and quantitative assessment carried out by consultants, as well as a preliminary PCIs list • Main comments from attendants: impact areas, quantitative assessment (formulas application, parameters used, inputs, etc.). As a result, new calculations are being considered and a new list will be elaborated • Participants were given time to send their opinion on impact areas and clusters • Next meeting to be held in late February-early March

28. IV. TYNDP and PCIs IV.2 Update on PCIs identification (II) North-South interconnections in Western Europe

29. IV. TYNDP and PCIs IV.2 Update on PCIs identification (III) North-South interconnections in Western Europe

30. IV. TYNDP and PCIs IV.2 Update on PCIs identification (IV) North-South interconnections in Western Europe

31. V. Developing hub-to-hub trading in the South region V. 1. Proposal of models for the integration of the Spanish and Portuguese gas markets in an Iberian natural gas hub

32. V. Developing hub-to-hub trading in the South region V. 1. Proposal of models for the integration of the Spanish and Portuguese gas markets in an Iberian natural gas hub (for information by NRAs)

33. MIBGAS Models for the integration of the Spanish and Portuguese gas markets in a common Iberian Natural Gas HUB

34. General Objetive Analysis of the possible models for the integration of the Spanish and Portuguese gas markets in a common Iberian Natural Gas HUB (National Market Areas, Regional Market Zones or Supra National Market), analyzing the advantages and drawbacks, the regulatory harmonization requisites for its implementation and a proposal roadmap for its entry into force

35. Context: European Gas Target Model • The 3rd package sets a new regulatory framework for a single European Market with: • Decoupled entry-exit tariff system & not based on transport routes • Capacity allocation and balancing, both market-based • Competitive & liquid markets for gas trading, with wholesale price transparency

36. Context: European Gas Target Model • The European Regulators have established, as an objective at a medium term, a model of European Market based in balancing zones with organized markets interconnected through systems of entrance and exit tariffs with independent trading. • In the Madrid Forum, ACER and the EC encouraged regional initiatives to develop pilot projects in the framework of the objectives of the GTM, to ensure the implementation of the common market under this model gas 2014. • The European Gas Target Model has two objectives: • To promote the creation of series of harmonized liquid and functional regional gas markets within the EU. • To facilitate trading between these regional market.

37. Enabling functioning wholesale markets in Spain and Portugal 5.200 FR ES PT 4.000 HHI < 2000 > 3 supplysources Demand≥ 20 bcm Churnrate ≥ 8 RSI > 110% > 95 days per year    1.900 2000 1.600    FR ES PT Iberia    Demand 47    33 20 bcm  ?  6 FR ES PT Spain complies with most of the liquidity parameters to develop a liquid Hub, which would even become higher if considered at regional level with Portugal has no structural conditions to create a stand-alone wholesale gas market 37

38. IBERIAN GAS HUB • IBERIAhas some conditions that favor the development of a Gas Hub: • High regasification capacity. • Available transport capacity. • Potential bridge of gas from North-Africa to Europe • High volume of LNG

39. Current OTC gas market in Spain has a lack of price transparency • In Spain, the OTC market (based on bilateral transactions) is used mainly as a tool used by traders to manage/optimize the stock of LNG in terminals after unloading shippers • In Spain, in terms of energy, the volume of operations associated to the OTC market is very high, particularly in regasification terminals • Transactions already closed are notified to system operator through the system MS-ATR • The CNE is in charge of publishing the traded volumes and purchasing quotas in the OTC market • OTC market has a lack of price transparency There are 8 balance and trading gas points in the Spanish system: the virtual point, the 6 LNG terminals and the UGS

40. Current OTC market in Spain Most of the OTC trade is done at the LNG terminals.

41. In 2010, CNE proposed a roadmap for the development of a gas exchange in Spain General objective Accelerate the creation of a gas hub in the Spanish Gas System in order to promote competitiveness, transparency, and reduce the lack of transparency of the current OTC market Regulatory instrument Creation of an gas exchange market in Spain

42. In 2013, CNE will create a working group for the development of a gas exchange in Spain • In 14th December 2012, The CNE has approved a proposal of actions in order to speed up the development of the organized market of natural gas in Spain and Portugal (Iberian Hub). • The CNE has approved a working plan with the next targets:  • Decoupled entry – exit TPA contract models for the Spanish system • Regulatory reforms needed in the logistic model to facilitate gas trading, and the development of a market based balancing model. • Report about the current situation of the gas hubs in Europe and Monitoring the development of the different market platforms in Spain. • Analysis of the model for the Iberian gas market (for Spain and Portugal), to be realized in the framework of the South-European Regional Initiative from the European Regulators Group.

43. Current initiatives to develop a gas exchange in Spain/Iberia • Two existing initiatives to develop a gas trading platform SociedadPromotora Bilbao Gas Hub, S.A. MIBGAS, S.A. TRADE MARK: MIBGAS is within the group of the Iberian Power Market Operator (OMI). STAKEHOLDERS: ENAGAS (main gas TSO), Kutxabank , La Caixa, EVE, Generalitat de Cataluña, and othersuppliers in process STAKEHOLDERS: OMIP (Portugal) and OMEL (Spain)

44. How to enable functioning wholesale markets according with the Gas Target Model? • Different pictures all over Europe call for different approaches which are not mutually exclusive • If a country is capable of establishing a functioning market itself the establishment of one (or two, based on C/B analysis) zone within this country is important (e.g. GB, Germany, France, Spain); • If a country is not capable of establishing a functioning market itself (e.g. due to lack of liquidity or size) • Cross-border market areas (full merger) is one solution; or • Access to a larger, already functioning market; or • Trading Regions – a single cross-border zone for wholesale markets with congestion-free interconnection to national end-user zones.

45. Possible models to study for the Iberian Market • 1. The Market Area Model (full integration) • 2. The Trading Region Model (full integration, except national balancing) • 3. The Implicit Allocation Model (One single Iberian wholesale platform, with implicit allocation of capacity) • 4. Two National wholesale markets (no Iberian market integration)

46. VP VP 1 The Market Area Model (full integration) Features (open to discussion): • One virtual point for wholesale trading • Fully integrated wholesale market • One balancing zone from import points to final customers • Full integration of DSO networks • Single set of balancing rules • Single balancing entity Country A Market Area A National market area Final customers (A) Country A Country B Market Area AB Cross-border market area Symbols Virtual point of the market area serving as the sole marketplace of the market area Entry or exit contract Exit contract VP Final customers (A) Final customers (B) 46

47. VP VP 2 The Trading Region Model (full integration, except balancing) • Features (open to discussion): • One virtual point for wholesale trading • Fully integrated wholesale market • Trading region is basically kept free of imbalances • Final customers are balanced in national end user zones that may reflect national specifics • End-user balancing may be done by national balancing entity • Congestion-free interconnection between trading region and end user zones through the common virtual point ( virtual exit to end user zone) Country A Country B Trading Region AB End userzone A End userzone B Final customers (A) Final customers (B) Legend and Symbols Entry or exit contract Exit contract Virtual point of the trading region serving as the sole marketplace of the trading region and all attached end user zones. Shifting of gas between trading region and end user zone is done by nominating a virtual exit on the VP. End user zone = National balancing zone for national final customers, no matter the system (distribution or transmission) they are connected to Trading Region AB = Cross-border entry/exit system including all nominated points on the transmission systems of countries A and B

48. 3. The Implicit Allocation Model Interconnection capacity is being reserved for implicit allocation • Features (open to discussion): • One single Iberian Wholesale Gas Trading platform • A certain amount of daily firm cross-border capacity is reserved to allow implicit allocation of capacity • Cross-border capacity is allocated through the trading activity. • Combining order books (buy / sell orders) of the exchanges on either side of the border • Cross border capacity would be allocated by the Market Operator at the same time of the matching of buy and sell orders. • The Market Operator will inform the TSO about the cross border nomination of gas, and will pay the capacity price (if any) • The price of the cross border capacity is added to the orders matched among the two countries. Price arbitrage happens automatically. Market participants make “bids” and “offers” for buying or selling of gas The implicit mechanism matches those bids and offer with the highest price differences Capacity is automatically assigned once a trade is made until cross-border capacity is sold out or prices have converged

49. IBERIAN GAS HUB Proposal of Schedule • Draft document analyzing the advantages and drawbacks of the possible models, the regulatory harmonization requisites for its implementation by CNE – ERSE (2013 Q-2) • Public hearing (2013 Q-3) • Analysis of stakeholders responses to the public hearing (2013 Q-4) • Final document to be approved by CNE- ERSE (2014-Q1)

50. VI. Review of actions in the WP 2011-2014 (I)