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Harmonization of Cross Border Transmission Tariffs betweenPortugal and Spain (CNE/ERSE)Public hearing

15th SG Meeting S-GRIMadrid, 7th February 2012

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Consulta Pública sobre harmonização das tarifas de interligação de gás natural entre Portugal e Espanha

SGRI WP 2011-2014 includes some short term priorities for SP-PT interconnections:

• Harmonized and coordinated mechanisms for capacity allocation and congestion management at interconnections

• Regulated TPA tariff harmonization, starting with cross border tariffs in MIBGAS

• Hub-to-hub trade development

• …

Context – SGRI WP 2011-2014

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Consulta Pública sobre harmonização das tarifas de interligação de gás natural entre Portugal e EspanhaContext – Joint task of CNE and ERSE

Some milestones of MIBGAS:

• ERSE and CNE approved a position document on the priorities for MIBGAS development, sent to Governments on September, 2011

• Portuguese Gov committed in the Memorandum of Understanding (w/ EC, ECB, IMF) to take measures that accelerate MIBGAS development through regulatory convergence, namely promoting the harmonization of tariffs, CAM and CMP in the interconnection networks

• CNE and ERSE have done a joint study on CBT tariffs at the SP-PT IPs, with the aim of setting up a public consultation on tariff harmonization and identifying any other obstacles to the internal gas trading

• The study was published through Public Hearing process on Jan,18th, 2012

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Case study methodology

Assessment of case studies based on the supply of a CCGT/industrial cons. from a MIBGAS entry point (LNG terminal/interconnection).

For each case study:• Entry costs into the transmission network are assessed as well as

regasification costs• Transmission costs include one country or two countries depending on the

origin and destiny of the supply• Costs for using underground storage or for balancing purposes are not

considered

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Consulta Pública sobre harmonização das tarifas de interligação de gás natural entre Portugal e EspanhaExample of the study results:

Industrial consumer located in Portugal

CBT comparison methodology

Gas supply from Spain

1,37+0,38+1,5+0,54 = 3,79 €/MWh

Gas supply from Portugal

0,95+0,49 = 1,44 €/MWh

Supplying the consumer bringing gas from SP has an added cost of 2,35 €/MWh due to CB Tariffs, entering the transmission system

Vs

PT ESIndustrial

1,37

0,38

0,95 0,49 1,500,54

2,92

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ESIndustrial

PT

0,54

2,33

0,95 0,49 0,78 0,61

1,37

Consulta Pública sobre harmonização das tarifas de interligação de gás natural entre Portugal e EspanhaExample of the study results:

Industrial consumer located in Spain

CBT comparison methodology

Gas supply from Spain

1,37+0,54 = 1,91 €/MWh

Gas supply from Portugal

0,95+0,49+0,78+0,61 = 2,83 €/MWh

Supplying the consumer bringing gas from PT has an added cost of 0,92 €/MWh due to CB Tariffs, entering the transmission system

Vs

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Summary results of the added costs observed by shippers who

supply their customers using the interconnectionUnit.: €/MWh

Consumer location

Consumer type

Withoutregasification costs

Withregasification costs

Spain Industrial 1,3 0,9

Spain CCGT 2,0 1,6

Portugal Industrial 1,9 2,4

Portugal CCGT 2,9 3,3

Cross border tariff payments for importing gas through the interconnection (€/MWh)

Summary results from the case studies

• Importing gas through the neighbouring country represents always an added transmission cost

• The added cost depends on the consumption profile (capacity price)• LNG regasification costs can either contribute to lower or raise the added costs

since average regasification cost is lower in PT (for the case studies)• % Impact on total grid access prices depends on exit tariff prices in each country

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Main conclusions

Access costs are higher when the transmission system of the neighbour country is used, partly due to the cost for the use of its transmission system and also because of the cross border tariffs are not harmonized in both systems

Note: Parallel development of harmonized CAM in SP-PT border will help much in establishing convergent and coherent pricing and allocation of capacity at interconnections

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Harmonization of cross border tariffs

CBT are a particular case of gas network tariff• Should comply at least with the same principles recommended for the

development of the gas network tariff• According to the Gas Directive 2009/73/CE, the European Gas Regulation

715/2009, the European Working Group for Tariffs and the recommendations by the Council of European Energy Regulators, tariffs or charges for the use of the gas transmission network should comply with the following principles: Cost recovery and cost reflectivity Facilitate efficient gas trade, hub development and market liquidity Non discriminatory Ensure high levels of transparency Adaptability to the specificities of the network ensure that any differences in tariff conditions applied to different customers for

similar services should reflect underlying costs.

Coherence check with the Target Model and the FGs under discussion• Study establishes the baseline on CBT (present situation)• Stakeholder views are welcome designing target scenario & interim steps

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Building blocks approach to market integration

MIBGAS market

integration

Cross Border Tariffs

CMPCAM

2012-13 And integrate released capacity in the CAM

Rules of balancing

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Consulta Pública sobre harmonização das tarifas de interligação de gás natural entre Portugal e Espanha

. Question 1: Would you agree with the analysis made on current market situation and on the major issues affecting cross border trade between Portugal and Spain?

. Question 2: How do you think that transmission network costs should be allocated at cross border IP (both in Spain and Portugal), taking into account the defined principles (coherence, transparency, cost recovery and cost reflectiveness, etc) and the starting situation of the regulatory tariff framework in both countries?

. Question 3: Which do you feel are the most important aspects where harmonization (apart from the cross border tariffs harmonization) can contribute significantly to short term market integration?

Public hearing poses some questions (I)

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Consulta Pública sobre harmonização das tarifas de interligação de gás natural entre Portugal e Espanha

. Question 4: How would you implement the proposed step-wise approach, aiming for a more integrated market in the longer term?. Question 5: Would you identify new issues you think are important to create a favorable cross border trade environment? How would you set the timing and prioritization for the discussion on these issues?

Public hearing poses some questions (II)

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Consulta Pública sobre harmonização das tarifas de interligação de gás natural entre Portugal e Espanha.All comments from the stakeholders to the questions

raised in the Public Hearing should be sent to ERSE or CNE until February, the 17th, 2012

cbtariffs@erse.pt | cbtariffs@cne.es

If comments are not to be publicly identified they must be explicitly marked as confidential

Participation

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Next steps

1. Receive, analyse and publish comments from stakeholders to the Public Hearing

2. NRAs will issue a proposal, where necessary, of measures to foster market integration through cross border tariff harmonization

3. European target model for market integration will provide guidance for short term developments