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Incentive Regulation for business development GTE Conference, Copenhagen 24th September 2004

Incentive Regulation for business development GTE Conference, Copenhagen 24th September 2004. Paolo Caropreso, COO Business Development. Liberalisation Policy Makers. Free Market Security of Supply. Market dynamics Network access. Regulation Authority Antitrust.

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Incentive Regulation for business development GTE Conference, Copenhagen 24th September 2004

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  1. Incentive Regulation for business development GTE Conference, Copenhagen 24th September 2004 Paolo Caropreso, COO Business Development

  2. Liberalisation • Policy Makers • Free Market • Security of Supply • Market dynamics • Network access • Regulation • Authority • Antitrust • Competitiveness • Producers • Network Users • Consumers • Fair competition • Market efficiency • Attractive return • Min regulatory risk • Financing • Shareholders • Financial Institutions Players and forces at work in the newunbundled/regulated framework TSOs

  3. Policy Targets Market opening Market development Tariff reduction Market liquidity Incentives on Volume transported Incentives on Develop. CAPEX Incentives on Cost Reduction Incentives on Quality Management optimisation Gas flows maximisation Network expansion plans BPR and ICT investments Productivity Growth Efficiency Quality Shareholders’ Value The key Success Factor: Convergence of Interests between TSOs and Stakeholders

  4. Allowed Revenues Calculation Allowed Revenues + Incentives Premium on incremental gas transported (commodity) 1st Year Volumes RAB * WACC + Opex + DDA Profitability Incentives on new Development Capex CAPEX 2nd- 4th Year OPEX Efficiency Incentives 1st Year Revenues + Inflation - Efficiency Targets YQW Factors lower X-cap Quality Following Periods Claw-Back Rules defined ex-ante 6 years incentives The Italian case: convergence thanks to a Clear, Attractive and Stable Regulation

  5. Policy Targets Market opening Market development Tariff reduction Market liquidity Incentives on Volume transported Incentives on Develop. CAPEX Incentives on Cost Reduction Incentives on Quality Management optimisation Gas flows maximisation Network expansion plans BPR and ICT investments Productivity Growth Efficiency Quality Shareholders’ Value The key Success Factor: Convergence of Interests between TSOs and Stakeholders

  6. No network congestion • Easy users’ access • Flexible capacity mgmt • No capacity hoarding • Capacity expansion • Entry-Exit Tariff System • Interruptible contracts • Use-It-Or-Lose-It Fully satisfied Stakeholders’ wealth

  7. +3,6% +2,7% 42,9 76,4 +5,7% 41,4 74,4 70,4 Higher Volumes Transported

  8. Policy Targets Market opening Market development Tariff reduction Market liquidity Incentives on Volume transported Incentives on Develop. CAPEX Incentives on Cost Reduction Incentives on Quality Management optimisation Gas flows maximisation Network expansion plans BPR and ICT investments Productivity Growth Efficiency Quality Shareholders’ Value The key Success Factor: Convergence of Interests between TSOs and Stakeholders

  9. PIPELINE IN OPERATION OR UNDER CONSTRUCTION PIPELINE IN ENGINEERING PHASE STUDY FOR ADRIATIC STREAM Projects for network development:in progress and under design Northern Europe Russia LNG Rovigo LNG LNG Brindisi Algeria Libya

  10. Evolution of transport capacity Transport capacity needed in Italy (million scm/d) Needed capacity Capacity under construction Existing capacity Capacity expansion at the Entry Points

  11. Policy Targets Market opening Market development Tariff reduction Market liquidity Incentives on Volume transported Incentives on Develop. CAPEX Incentives on Cost Reduction Incentives on Quality Management optimisation Gas flows maximisation Network expansion plans BPR and ICT investments Productivity Growth Efficiency Quality Shareholders’ Value The key Success Factor: Convergence of Interests between TSOs and Stakeholders

  12. Maintenance decision model risk-based BRP Telediagnostic Systems New procurement & logistic contracts 100% OPERATIONAL FIXED COSTS NETWORK OPERATIONS COMPRESSION STATIONS SUPPLY & LOGISTICS 0% Base :Year 2002 = 100% Potential for additional efficiency

  13. -14,5% cagr (*) (*) Net of Sicily Tax Opex efficiency

  14. Policy Targets Market opening Market development Tariff reduction Market liquidity Incentives on Volume transported Incentives on Develop. CAPEX Incentives on Cost Reduction Incentives on Quality Management optimisation Gas flows maximisation Network expansion plans BPR and ICT investments Productivity Growth Efficiency Quality Shareholders’ Value The key Success Factor: Convergence of Interests between TSOs and Stakeholders

  15. Gas transportation services • capacity booking • nominations management • scheduling • M-Gas Measurement Gas Allocation System • allocations on shared city gates • gas flows • Measure Services • Profiling • REMI technical infos • Other data management • SIT Center services Portal for Gas exchange Portal for Capacity Transportation exchange National Balancing Point Interactive Tool for tariff calculation Call Center On line services offered on the Snam rete Gas website

  16. 3.8 3.6 3.4 3.2 3.0 2.8 2.6 2.4 VOLUMES (Scm) * 2.2 2.0 1.8 1.6 1.4 1.2 1.0 0,8 0,6 0,4 0,2 0 Market liquidity and transparency improved • 30 network users • 7.000 nomination/g • 7.000 meters owned by the final • customers • 4.500 telemetered • 3.500 CityGates • 760 shared • 250 DSOs NBP Transaction Regulated Market • Distribution Codes • Metering Efficiency • Balancing Regimes Evolution • Secondary Capacity Market • 1.800 transaction/year • National Balancing Point • 1.800 transactions • 23 shipper • 300 Mm3 of gas

  17. Policy Targets Market opening Market development Tariff reduction Market liquidity Incentives on Volume transported Incentives on Develop. CAPEX Incentives on Cost Reduction Incentives on Quality Management optimisation Gas flows maximisation Network expansion plans BPR and ICT investments Productivity Growth Efficiency Quality Shareholders’ Value The key Success Factor: Convergence of Interests between TSOs and Stakeholders

  18. Regulated Revenues evolution during the 1st Regulatory Period Gas year01-02 Gas year04-05 VAR €m From initial RAB 1,651 1,699 48 (*) Capacity 1,164 1,188 24 Commodity 487 511 24 New development investments - 83 83 Regulated revenues (1) 1,651 1,782 131 (*) (*) Net of RA adjustment due to storage tariff

  19. Allowed Revenues +8 % 100 - 13 % Tariffs Thermal year 2001-02 Thermal year 2004-05 Regulated Revenues vs. Tariffs evolution during the 1st Regulatory Period

  20. Incentive Regulation for business development GTE Conference, Copenaghen 24th September 2004 Paolo Caropreso, COO Business Development

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