Ga st r a n spor t Se r vice s
Draft applicat ion for an exem pt ion for t he Balgzand Bact on Pipeline proj ect ( BBL)
Con t e n t
1 . I nt r oduct ion
2 . Ge n e r a l Ba ck gr ou n d t o t h e pr oj e ct
3 . Applica t ion for a n e x e m pt ion
4 . D u r a t ion of a n e x e m pt ion
5 . Conclusion
1 . I nt r oduct ion
1 . 1 . Gast ransport Services ( GTS) is current ly planning t he const ruct ion of a gas pipeline bet w een t he UK and t he Net her lands, connect ing Balgzand and Bact on. The pr oj ect is referred t o as t he Balgzand Bact on Line ( BBL) . The BBL proj ect is a very large invest m ent , w hich car r ies cor r esponding r isk . To deal w it h t his r isk , t he BBL w ill only be built on t he basis of longer-t er m cer t aint y about t he cont r act ed capacit y as w ell as t he applicable legal/ regulat ory fram ew ork. The lat t er is also im port ant because t he BBL is an int er connect ing pipeline bet w een t w o EU m em ber st at es inv olv ing m ult iple j ur isdict ions.
1 . 2 . I n t he past m ont hs, GTS has m et r egular ly w it h t he r egulat or y aut hor it ies and gov er nm ent s in t he UK and t he Net her lands, as w ell as w it h t he Eur opean Com m ission, in order t o gain m ore clarit y and cert aint y about t he regulat ory fram ework for t he BBL. The assurances GTS has been seeking are not ably relat ed t o t he proposed access regim e of t he BBL on t h e basis of an open season an d t h e t er m s and condit ions of t he long-t erm cont r act s t hat t he BBL w ill need in or der t o under pin t he BBL inv est m ent .
1 . 3 . The uncert aint y wit h regard t o t he legal/ regulat ory fram ework m ay be at t ribut ed t o a large par t t o t he fact t hat at t he EU lev el, new legislat ion ( w it h dir ect im pact on t he r egulat ion of int er connect or s) has been in pr epar at ion since 2001. Only r ecent ly has t he “ second” EU Gas Dir ect iv e ( 2003/ 55/ EC) been adopt ed by t he Eur opean Par liam ent and Council. I m plem ent at ion of t he new Dir ect iv e in nat ional legislat ion has y et t o st ar t .
1 . 4 . GTS believ es t hat t he assur ances sought for t he BBL ar e in line w it h t he pr ov isions of ar t icle 22 of t he new EU Gas Dir ect iv e. The pr ov isions of ar t icle 22 allow for an ex em pt ion by t he Dut ch and UK r egulat or y aut hor it ies w hilst at t he sam e t im e infor m ing t he Eur opean Com m ission. The Eur opean Com m ission m ay subsequent ly decide on t he ex em pt ions.
1 . 5 . DTI and Ofgem have recent ly issued an init ial views docum ent set t ing out t he way DTI and Ofgem ar e m inded t o im plem ent t he r equir em ent s of t he EU gas Dir ect iv e w it h r espect t o t he r egulat or y r egim e - and ex em pt ions t her efr om - for int er connect or s. I n t he init ial v iew s docum ent , int erest ed part ies are invit ed t o give t heir view s on t he proposed regulat ory r egim e for int er connect or s, as w ell as t o m ak e a dr aft applicat ion for an ex em pt ion.
affa ir s w ill subsequent ly give r egulat or y guidance w it h r espect t o t he applicat ion for an exem pt ion.
1 . 7 . GTS her eby subm it s it s dr aft applicat ion for an ex em pt ion fr om t he r equir em ent s of t he r egulat or y r egim e for int er connect or s accor ding t o Ar t icle 22 of t he recent ly adopt ed EU gas Dir ect iv e. This applicat ion w ill be for m ally subm it t ed once t he pr ov isions of t he new Gas Dir ect iv e ( 2003/ 55/ EC) hav e been t r ansposed int o Dut ch and UK law . This docum ent is subm it t ed in four ver sions, allow ing DTe and Ofgem t o consu lt sim ult aneously in t he Net her lands and t he Unit ed Kingdom . The four v er sions com pr ise a confident ial and public ver sion, in bot h English and Dut ch. GTS is hopeful t hat t he applicat ion w ill r eceive sym pat het ic consider at ion, and t hat t he dr aft applicat ion w ill allow t he Dut ch and UK aut hor it ies t o giv e r egulat or y com for t t o t he BBL pr oj ect1.
1 . 8 . Ar t icle 22 of t he EU Gas Dir ect iv e fur t her st ipulat es t hat t he Eur opean Com m ission w ill be inform ed of any exem pt ions grant ed and t hat t he EC m ay subsequent ly m ake a decision. GTS is equally seek ing com for t fr om t he Eur opean Com m ission, w ho w ill be infor m ed of t he r egulat or y com for t t he Dut ch and Br it ish aut hor it ies w ish t o gr ant GTS.
1 . 9 . This docum ent is st r uct ur ed as follow s. Fir st , t he gener al back gr ound t o t he proj ect is giv en, including an ov er v iew of t he open season. I n t he second par t of t he docum ent t he applicat ion for an ex em pt ion is fur t her elabor at ed, not ably t he w ay GTS believ es t hat t he BBL w ill fulfil t he cr it er ia set out in ar t icle 22 of t he EU Gas Dir e ct ive. Ofgem has indicat ed a num ber of t opics t hat GTS should t ak e int o account w hen dev eloping t he applicat ion for an ex em pt ion in t he init ial v iew s docum ent . A num ber of addit ional t opics hav e been r aised by Ofgem and DTe. These t opics are addressed in t his docum ent . Finally, at t ent ion is given t o t he dur at ion of t he ex em pt ion for w hich GTS is apply ing. Any infor m at ion t hat is deem ed t o be confident ial w ill be disclosed t o DTe, Ofgem and t he Dut ch Minist r y of Econom ic Affair s in separ at e annex es t o t his applicat ion. The availabilit y of addit ional confident ial infor m at ion is indicat ed in t his applicat ion w her e r elev ant .
1 This applicat ion is draft ed in English. A Dut ch t ranslat ion has been m ade available for t he benefit of t he
2 . Ge n e r a l Ba ck gr ou n d
2 . 1 . A gener al int r oduct ion and back gr ound t o t his pr oj ect is descr ibed in t he br ochur e t hat GTS published t o infor m the m ar k et . The br ochur e has been w idely dissem inat ed and a copy is enclosed w it h t his applicat ion for an exem pt ion [ ANNEX 1] .
BBL pipeline will be an independent com pany
2 . 2 . The BBL pipeline com pany w ill be ow ned and m anaged by a separ at e legal ent it y specifically incorporat ed for t his purpose ( t he " BBL-Com pany " ) . This ent it y w ill be ow ned by GTS and - probably - one or t w o ot her sy st em oper at or s. Oper at ions of t he BBL w ill be sour ced out by t he BBL Com pany t o GTS on t he basis of a ser v ice agr eem ent on an arm s lengt h-basis. All agreem ent s for t ransm ission t hrough t he BBL-facilit ies and all agreem ent s for r elat ed ser v ices, if any , w ill be concluded bet w een t he BBL Com pany and cust om er s and t he r ev enues t her eof w ill be for t he BBL Com pany .
2 . 3 . GTS is cur r ent ly part of N.V. Nederlandse Gasunie. The Dut ch Gas Act requires t he unbundling of t he account s of v er t ically int egr at ed com panies ( ar t icle 32) , as w ell as t he put t ing in place of m easur es pr ev ent ing t he use of com m er cially sensit iv e infor m at ion w hen negot iat ing for - or in providing t ransm ission services ( art icle 37) . N.V. Nederlandse Gasunie has chosen t o im plem ent t hese legal r equir em ent s by w ay of or ganisat ional unbundling and a sy st em of fir ew alls bet w een t he div isions. As such, GTS is unbundled in or ganisat ional for m fr om Gasunie Tr ade & Supply , pr ov iding am ongst ot her s for :
(i) Firewalls bet ween Gast ransport Services and Gasunie Trade & Supply, including yearly audit ing t her eof by independent ex per t s;
(ii) The locat ion of t he t w o div isions in separ at e buildings; a n d
( iii) The r equir em ent for Gasunie Tr ade & Supply t o cont r act for t r anspor t at ion capacit y and ser v ices w it h Gast r anspor t Ser v ices on t er m s and condit ions t hat do not discr im inat e bet w een Gasunie Tr ade & Supply and ot her shipper s.
(iv) A com plian ce officer h as been appoint ed t o ensur e t he cor r ect applicat ion of t he r equir em ent s of ar t icle 37 of t he Dut ch Gas Act .
2 . 4 . I n ANNEX 2 t o t his applicat ion, an abst ract from t he int ernal firew alls handbook det ails t he ar r angem ent s t hat hav e been put in place w it h r espect t o t he organisat ional unbundling, fir ew alls, and t he r esponsibilit y of t he Com pliance Officer .
w it h t he pr ov isions of t he new EU Gas Dir ect iv e, and is ant icipat ed by July 2004. Wor k how ever is cont inuing on a separat ion of t he shareholding of t he t w o com panies and t his is expect ed t o be com plet ed at a lat er st age. I t is for eseen t hat GTS will be fully owned by t he Dut ch Gov er nm ent w hen t he separ at ion of ow ner ship has been com plet ed.
Access based on an open season
2 . 6 . I nit ially , GTS st ar t ed t he BBL pr oj ect at t he r equest of Gasunie Tr ade & Supply on t he basis of t heir long t er m gas supply cont r act w it h a UK based com pany. Gasunie Tr ade & Supply hav e indicat ed t hat t hey w ish fir st gas t o com e on st r eam in t he sum m er of 2006. I n or der for t he const r uct ion of t he pipeline t o be com plet ed by t hat dat e, t he cur r ent deadline for t he invest m e nt decision is 5 Decem ber 2003. I n order t o m eet t his dat e, final proposals t o t he GTS boar d need t o be av ailable on t he 24 Nov em ber 2003.
2 . 7 . GTS has offer ed shipper s t he possibilit y of gaining access t o t he BBL on t he basis of long-t er m conlong-t r aclong-t s for capacilong-t y long-t hr ough an open season. The issuing of long-t he open season brochure m arked t he st art of t he open season ( which ran from 19 March 2003 t o16 May 2003) for shipper s w ishing t o cont r act capacit y .
2 . 8 . The capacit y and t echnical specificat ions of t he pipeline w ill be based on cont ract ed long t er m capacit y r ight s. Giv en t he pr oj ect ed incr ease in t he UK im por t dependency t he ex pect ed phy sical flow w ill be fr om t he Net her lands t o t he UK.
3 . Applica t ion for a n e x e m pt ion
3 . 1 . Wit h r espect t o t he legal/ r egulat or y fr am ew or k w it hin w hich t he BBL w ill oper at e GTS is seek ing an ex em pt ion, based on ar t icle 22 of t he Gas Dir ect iv e fr om bot h t he Dut ch and UK aut hor it ies. The ex em pt ion is not ably r elat ed t o t he pr oposed access r egim e on t he basis o f an open season and t he t er m s and condit ions of t he init ial long-t erm cont ract s t hat are needed t o underpin t he BBL invest m ent . GTS w ishes t he t erm s and condit ions in t he init ial BBL t r ansm ission cont r act s not t o be subj ect t o r egulat or y or gov er nm ent al approval for t he dur at ion of t hese cont r act s2.
3 . 2 . Ar t icle 22 of t he EU Gas Dir ect iv e ( 2003/ 55/ EC) allow s Mem ber s St at es t o ex em pt cer t ain new infr ast r uct ur e fr om t he pr ov isions of ar t icles 18, 19, 20 and 25 ( 2,3,4) under cer t ain condit ions. Ar t icle 18 r elates t o pr ov iding access t o net w or k s on t he basis of published t ar iffs and ar t icle 19 and 20 deal w it h access t o st or age and upst r eam pipelines r espect iv ely . Ar t icle 25 defines t he r oles and r esponsibilit ies of t he r egulat or , not ably w it h r espect t o t he ex a nt e appr ov al pr ocedur e for access t ar iffs. Ar t icles 18, 22 and 25 of t he Gas Dir ect ive ar e included in ANNEX 3
3 . 3 . The 5 condit ions r elat ing t o an ex em pt ion ar e:
a . The inv est m ent m ust enhance com pet it ion in gas supply and enhance secur it y of supply
b . The lev el of r isk at t ached t o t he pipeline is such t hat t he inv est m ent w ould not t ak e place unless an ex em pt ion is gr ant ed.
c. The infr ast r uct ur e m ust be ow ned by a nat ur al or legal per son w hich is separ at e at least in t erm s of it s legal form from t he syst em operat ors in whose syst em s t hat infr ast r uct ur e w ill be built .
d . Char ges ar e lev ied on user s of t hat infr ast r uct ur e.
e . The ex em pt ion is not det r im ent al t o t he effect iv e funct ioning of t he int er nal gas m ar k et , or t he efficient funct ioning of t he r egulat ed sy st em t o w hich t he infrast ruct ure is connect ed.
3 . 4 . Ar t icle 22 fur t her allow s t he r elev ant ( r egulat or y ) aut hor it y t o t ak e a decision on t he r ules and m echanism s for capacit y m anagem ent and allocat ion in t he int erconnect or, insofar t his does not obst r uct t he car r y ing out o f long t er m cont r act s.
3 . 5 . Finally , ar t icle 22 st ipulat es t hat t he Eur opean Com m ission m ay t ak e a decision aft er not ificat ion of t he ex em pt ions by t he r elev ant nat ional aut hor it ies.
2 The init ial cont ract s are needed t o underpin t he invest m ent in t he BBL and will define t he capacit y and
3 . 6 . Mor e det ail is giv en below w it h r egar d t o t hese cr it er ia and t he w ay DTe/ Ofgem have indicat ed t hese cr it er ia w ill be applied. GTS believ es t hat t he BBL pr oj ect sat isfact or ily m eet s t he r equir em ent s a - e and also believes t hat t he pr oposed r ules and m echanism s for capacit y allocat ion and m anagem ent are appropriat e, w hich it is hoped w ill allow all r elev ant aut hor it ies t o r each a posit iv e decision on t his applicat ion.
Non -discr im inat or y access based on open season
3 . 7 . This exem pt ion request is based on a proposed access regim e t hat offerd init ial capacit y t o t he m ar k et t hr ough an open season. GTS believ es t hat t he open season pr ocess is best suit ed t o ensur e non-discrim inat ory init ial capacit y allocat ion and t herefore is m ost appropriat e w it h regard t o t he com pet it ive posit ion of t he ( pot ent ial) users of t he BBL. A num ber of ot her issues relat e t o t he com pet it ive posit ion of ( pot ent ial) users of t he BBL. These ar e not ably t he use-it -o r-lose -it ( UI OLI ) ar r angem ent s and infor m at ion pr ovision. The pr oposed UI OLI – as w ell as ot her capacit y m anagem ent ar r angem ent s such as t he seconda r y m ar k et - and t he pr ov ision of infor m at ion for t he BBL ar e discussed elsew her e in t his chapt er .
3 . 8 . The st ar t of t he open season w as pr esent ed at t he I nt er nat ional Nat ur al Gas confer ence ( Flam e) in Am st er dam on 19 Mar ch 2003. Over 450 copies of t he br ochur e accom panying t he open season w er e handed out t o visit or s of t his confer ence. I n par allel br ochur es w er e sent t o all GTS shipper s, pr ess r elat ions and t he Dut ch, UK and Eur opean aut hor it ies. Fur t her m or e t he open season w as published on t he Eur opean Tender w ebsit e and w as suppor t ed by lar ge adv er t isem ent s in t he “ w or ld” edit ion of t he Financial Tim es and in t he Net her lands in “ Het Financieele Dagblad” . I n t hese publicat ions GTS asked pot ent ial shipper s t o ex pr ess t heir non -binding int er est befor e 16 May 2003.
3 . 9 . A dr aft BBL t r ansm ission cont r act w as sent t o all r espondent s befor e t he st ar t of t he fir st r ound of discussions in June 2003. GTS v isit ed 17 int er est ed shipper s in June and July . I n t hese discussions t he pr oj ect pr ogr ess, t r ansm ission agr eem ent s and requir ed capacit ies w ere discussed, as w ell as a t im et able for furt her discussions. The t erm s and condit ions for t he BBL cont r act hav e been fur t her dev eloped since t hese m eet ings. These w ill be present ed t o shippers in t he second round of discussions in Sep t em ber . Accor ding t o t he cur r ent schedule GTS w ill hav e a t hir d and final r ound of discussions in Oct ober and w ill want t o receive a binding com m it m ent from pot ent ial shippers before t he end of Novem ber 2 0 0 3 .
Con dit ion ( a )
The inv est m ent m ust enhance com pet it ion in gas supply and enhance securit y of supply
Com pet it ion
3 . 1 1 . I n Ofgem ’s init ial views docum ent as well as in addit ional quest ions put t o GTS by DTe and Ofgem , em phasis has been giv en t o com pet it ion issues. Whilst GTS believ es t hat t he BBL pr oj ect w ill hav e a fav our able effect on t he oper at ion of t he m ar ket , bot h at t he Eur opean level as w ell as in t he UK m arket , GTS opines t hat t he effect of t he BBL pipeline is not a m at t er for t he operat or of t hat pipeline. Cert ainly w it h respect t o t he com pet it ion analysis, as set out for ex am ple in t he Annex t o t he init ial views docum ent , it is bot h im possible and inappr opr iat e for t he pipeline oper at or t o k now t o w hom shipper s using t he BBL sell t heir gas. As indicat ed abov e, t he BBL w ill be a separ at e com pany , and it s shar eholder ( s) w ill u lt im at ely be t r ansm ission com panies t hat act independent ly. The BBL oper at or cannot r ight fully ask it s cont r act ual count er par t s t o w hom t hey ar e selling t heir gas. We not e t hat an im por t ant fact or in t he pr oposed qualit at iv e analy sis of com pet it ion is t he effect iv e separ at ion of t he int er est s of t r ansm ission and t r ading.
3 . 1 2 . How ev er , GTS has com m issioned an independent st udy t o consider t he effect s of t he BBL on com pet it ion in t he UK gas m arket , whilst t aking int o account t he wider effect s on com pet it ion in t he Eur opean gas m ar k et and t he enhancem ent of secur it y of supply . A r epor t has been pr epar ed by ADL Lt d. and is at t ached t o t his applicat ion. [ ANNEX 5] .
3 . 1 3 . As par t of t he Tr ans Eur opean Ener gy Net w or k s ( TEN) , t he Eur opean Com m ission has ident ified an int er connect or bet w een t he Unit ed Kingdom and t he Net her lands as a pr ior it y . Priorit isat ion under t he TEN is based part ly on t he posit ive effect of t he various proj ect s on t he oper at ion of t he int er nal gas m ar k et .
3 . 1 4 . GTS fur t her expect s t he pr oposed pipeline t o im pr ove t he oper at ion of t he m ar k et in t he Net her lands. The fact t hat t he ex pect ed phy sical gas flow w ill be fr om east t o w est is not so im port ant , because t he syst em of cont ract ual count er flow s w ill inevit ably creat e addit ional scope for ar bit r age at bot h ends of t he pipeline.
Com pet it ion in t he t ransport m arket
BBL and a possible alt er nat iv e for shipper s w ishing t o br ing gas fr om t he Cont inent t o t he UK.
I m proved securit y of supply3
3 . 1 6 . GTS believ es t hat on a Eur opean scale it is im por t ant for a second phy sical link t o be est ablished bet w een t he lar ge m ar k et s of t he UK and Cont inent al Eur ope, t hus incr easing t he scope for ar bit r age and t he sour cing of gas fr om a gr eat er div er sit y of sour ces. The BBL pr oj ect st r engt hens bot h deliv er y capacit y and secur it y of supply in t he Eur opean single m arket , especially for t he Unit e d Kingdom , w hich w ill gain a new supply r out e along w hich t he ex pect ed supply -side deficit s in t he UK can be allev iat ed. The Unit ed Kingdom m ay also benefit from t he increased possibilit ies for new ent rant s t o t he UK gas m arket t hat t he BBL offer s. For Con t inent al Eur ope, hav ing t he abilit y t o car r y gas t o t he m ost liquid m ar k et w ill also hav e a beneficial effect on t he oper at ion of t he int er nal m ar k et .
3 . 1 7 . Mor eov er , t he BBL for m s a pot ent ial par t of t he Balt ic pipeline, enabling a connect ion w it h t he enor m ous Russian gas r eser v es. Building t he BBL could in fact hav e a posit iv e effect on t he est ablishm ent of a link t o t he Balt ic pipeline in t he Net her lands, t hus incr easing secur it y of supply for bot h t he UK and t he Net her lands. GTS is conv inced t hat t he BBL pipeline w ill play an im por t ant r ole in br inging Russian gas t o t he UK in t he fut ur e.
3 . 1 8 . GTS believes t hat t he operat ion of t he Dut ch gas m arket m ay be im proved as a result of t he BBL int er connect or , by r eason of incr eased ar bit r age possibilit ies. Fur t her m or e, GTS is conv inced t hat t he BBL w ill not lead t o any cr ow ding out of ex ist ing gas flow s in t he Net her lands, par t icular ly t o dom est ic gas cust om er s. Elsew her e in t his applicat ion it is indicat ed t hat inv est m ent s in t he GTS net w or k t o accom m odat e gas flow s to t he BBL m ay under cer t ain condit ions be necessar y. GTS believes t hat t hese invest m ent s w ould act ually lead t o an incr eased r esilience of t he net w or k .
Qualit at ive fact ors
3 . 1 9 . Ofgem have indicat ed a num ber of qualit at ive fact ors t hat t hey int end t o use in a com pet it ion analy sis. Abov e GTS has indicat ed t hat t he BBL w ill be subj ect t o appr opr iat e and effect iv e separ at ion pr ov isions fr om t r ading int er est s. I n t he init ial v iew s docum ent ,
3
r efer ence is m ade t o t he Com m ission’s benchm ar king sur veys and t he existence of Hubs. I n t he lat est ( 2nd) Com m ission sur vey, t he net w or k access condit ions in t he Net her lands ar e consider ed t o be posit iv e. Com m it m ent s by GTS r elat ing t o t he Guidelines for Good Pr act ice as est ablished in t he Madr id For um w ill fur t her cont r ibut e t o efficient net w or k access in t he Net her lands. Fur t her m or e, GTS has developed t he Eur oHub in t he Em den/ Bunde ar ea. Her e, pipelines of leading Eur opean gas com panies com e t oget her opening possibilit ies for gas flow s fr om / t o Nor w ay, Ger m any and The Net her lands t o m eet t he dem and in t he Eur opean m ar k et . Eur oHub int ends t o facilit at e a fully int egr at ed t r ading place but w ill not engage it self in any com m odit y t r ading.
Cont inued applicat ion of com pet it ion law
3 . 2 0 . The cont inued applicat ion of EU, UK and Dut ch compet it ion law in respect of any exem pt ions gr ant ed has been st r essed by Ofgem and DTe. The cont r act s w it h user s of t he BBL will be based on t he st andard GTS t erm s and condit ions, t aking int o account specific charact erist ics of t he single pipeline BBL. The aspect s of t he BBL t r anspor t cont r act s t hat are not covered by t he exem pt ion w ill be equally com pliant w it h t he requirem ent s of com pet it ion law .
Condit ion ( b)
The lev el of r isk at t ached t o t he pipeline is such t hat t he inv est m ent w ould not t ak e place unle ss an ex em pt ion is gr ant ed.
BBL is a legally and financially independent com pany
3 . 2 1 . Wit h regard t o t he risks involved4 it is im port ant t o point out t hat t he BBL will be a fully independent com pany. I t has been indicat ed in chapt er 2 of t his applicat ion t hat t he BBL facilit ies will be owned and m anaged by a separat e legal ent it y specifically incorporat ed for t his pur pose ( t he " BBL-Com pany " ) . The BBL Com pany in t ur n w ill be ow ned by GTS and - pr obably - one or t w o ot her pipeline com panies but GTS w ill be t he m aj orit y owner of t his com pany . Ow ner ship of t he BBL com pany is ex pect ed t o be in t he hands of pipeline com panies only. I f an alliance w it h anot her pipeline com pany can be form ed, t he com pany t o be set up w ill be a j oint v ent ur e. I n t hat case, t he separ ation crit eria for t he BBL com pany w ill hold equally for par t ner s in t he JV. Hav ing such a separ at e ent it y also sat isfies condit ion ( c) for an exem pt ion, w hich r equir es t he new infr ast r uct ur e t o be placed under a separ at e com pany.
4 Wit h respect t o t he risks involved in t he BBL proj ect it has been indicat ed t o all shippers t hat GTS is seeking
3 . 2 2 . Wit h respect t o t he opera t ion and governance of t he BBL com pany GTS foresees t he follow ing pr inciples:
• The ( j oint v ent ur e) BBL Com pany w ill build t he BBL at it ’s ow n ex pense and r isk . • GTS w ill be a m aj or it y shar eholder The BBL Com pany w ill com m ission GTS t o oper at e
t he BBL
• GTS w ill be t he operat or for t he BBL on t he basis of a m arket based service agreem ent on an ar m s lengt h -basis.
3 . 2 3 . All agr eem ent s for t r ansm ission t hr ough t he BBL-facilit ies and all agreem ent s for relat ed ser vices, if any, w ill be concluded bet w een t he BBL Com pany and cust om er s and t he r ev enues t her eof w ill be for t he BBL Com pany . This w ill also pr eclude any cr oss-subsidisat ion bet w een user s of t he GTS sy st em and BBL user s.
3 . 2 4 . For t he decision t o const r uct t he BBL, it is essent ial t o have cer t aint y r egar d ing t he cont r act ed capacit y and t he applicable t ar iff. For t he BBL, t he invest m ent w ill be based on init ial long -t er m cont r act s w it h shipper s ( 10-20 y ear s) under w hich capacit y and t ar iff (-for m ulae) ar e fix ed (-for t he cont r act dur at ion. The dur at ion of individual t ransm ission cont r act s m ay v ar y accor ding t o shipper s needs. Also, it is im por t ant t o not e her e t hat GTS is seek ing an ex em pt ion for t he init ial cont r act s w hich m ay hav e differ ent dur at ions. Any uncer t aint ies in t his r egar d, as m ight be int r oduced , for exam ple, by t he possibilit y of per iodical dow nw ar d r ev ision of t he t ar iff lev el by r egulat or y bodies or by addit ional r ules gov er ning capacit y m anagem ent or shor t ening cont r act dur at ion, w ould incr ease t he inv est m ent r isk appr eciably and w ould m ean that t he inv est m ent w ill not t ak e place.
I nv est m ent r isk
3 . 2 6 . I n order t o put t he invest m ent risk of t he BBL in perspect ive, inform at ion is given from t he GTS annual r epor t as an indicat ion of t he m agnit ude of t he inv est m ent . How ev er , t hese figures are not suit able for a financial appraisal. I t is em phasised again t hat t he BBL w ill be placed under a separ at e legal ent it y and t hat t his legal ent it y w ill, as such, oper at e as an independent business and be financially independent . Addit ionally, consider ing t he possibilit y of anot her ( pr esum ably int er nat ional) gas t r anspor t com pany hav ing a st ak e in t he BBL, a financial appr aisal based on GTS figur es is not appr opr iat e.
3 . 2 7 . Subj ect t o t he caveat s in t he previous paragraph GTS provides a num ber of figures from t he annual report of N.V. Nederlandse Gasunie. From t hese figures, it can be seen t hat t he av er age capit al ex pendit ur e for GTS is cur r ent ly r unning at ar ound €70 m illion per annum ( av er age for 2001-2003) . Giv en a t ot al inv est m ent in t he BBL est im at ed at €375-550 m illion ( depending on t he pipeline diam et er finally decided upon) , t he annual capit al ex pendit ur e incr eases in t he y ear s up t o 2006 by €150 -250 m illion, in ot her w or ds, som ew here bet w een a t w ofold and a fourfold increase. As invest or in t he BBL and, if ot her inv est or s j oin, as a par t ner in t he com pany ow ning t he p ipeline, GTS w ill expect t o obt ain a nor m al m ar k et r et ur n on t he capit al m ade av ailable.
3 . 2 8 . The size of t he invest m ent in t he BBL in r elat ion t o t he t ot al pur chase value of t he GTS net w or k (€4,982 billion in 2003, accor ding t o t he Annual Repor t ) am ount s t o bet ween 7% and 11% . Mor e financial infor m at ion r egar ding t he t im et able for act ual expendit ur es in r elat ion t o t his pr oj ect is cont ained in a confident ial annex t o t his applicat ion ( ANNEX 6) .
Condit ion ( c)
The infr ast r uct ur e m ust be ow ned by a nat ur al or legal per son w hich is separ at e at least in t er m s of it s legal for m fr om t he sy st em oper at or s in w hose sy st em s t hat infr ast r uct ur e w ill be built .
3 . 2 9 . As st at ed previously t he BBL w ill be a separat e legal ent it y, w it h GTS act ing as operat or. This legal ent it y w ill be bot h financially independent and r un as an independent business. The possibilit y of hav ing one or t w o ot her gas t r anspor t com panies t ak ing a par t icipat ing int er est in t he BBL pr oj ect is also cur r ent ly being ex plor ed. I f an alliance w it h anot her pipeline com pany can be for m ed, t he com pany t o be set up w ill be a j oint v ent ur e.
Condit ion ( d)
Char ges ar e le v ied on user s of t hat infr ast r uct ur e.
Access Tariffs
3 . 3 1 . At t his st age it is not possible t o com m ent on final cont r act ing of capacit y in t he BBL because at t he t im e of w rit ing t he discussions w it h pot ent ial shippers have yet t o be concluded. However, t he m inim um size of t he BBL w ill be a 30’’ pipeline. As a result of t he int er est ex pr essed in t he open season t he m ax im um for eseen capacit y - should t he pipeline go ahead - is likely t o be based on a 36’’ pipeline. Mor e infor m at ion on shipper s and t he capacit ies / ent r y -point s t hey w ish t o book has been included in confident ial ANNEX 4.
3 . 3 2 . Clear ly , as an independent t r ansm ission com pany t he BBL com pany w ill char ge t he user s of t he infr ast r uct ur e for t he capacit y book ed. Par t of t he access r egim e for t he BBL is t he open season t hat has been held t o let int er est ed par t ies ex pr ess t heir int er est s for capacit y . Negot iat ions ar e now ongoing w it h t hese shipper s.
3 . 3 3 . I nit ially an indicat ive t ariff of 65 EUR / m ³ / hr/ yr has been given t o pot ent ial shippers in t he cour se of t he open season. This t ar iff is based on a 30’’ pipeline for a 15 y ear cont r act and includes t he fuel cost s for t he pipeline. I n t he open season invit at ion t o shippers t o express t heir int er est as w ell as in t he ensuing t alk s/ negot iat ions it has been point ed out t o shippers t hat t his t ariff m ay be alt ered as a consequence of econom ies of scale ( size) as w ell as cont r act dur at ion ( y ear s) . The indicat ions of shipper int er est hav e t hus far been pr om ising. On t he basis of t his int er est a t ar iff schedule w ill be dissem inat ed t o all shipper s shor t ly set t ing out t he econom ies of scale.
3 . 3 4 . As a result of represent at ions from pot ent ial shippers t he BBL t ariff will furt her be split int o a fixed and var iable par t . This is in par t due t o t he fact t hat t he single pipeline sys t em will be suscept ible t o var iat ions in t he load fact or of t he gas t hat is shipped t hr ough it . As a consequence ener gy input s for com pr ession m ay v ar y gr eat ly w it h t he act ual usage. Ther efor e, t he v ar iable par t of t he t ar iff w ill m ost lik ely be coupled t o an ener gy pr ice index .
Capacit y m anagem ent and allocat ion
3 . 3 6 . The capacit y and t echnical specificat ions of t he pipeline w ill be based on cont r act ed long t erm capacit y right s w it h appropriat e rules and m echanism s for t he m anagem ent and allocat ion of capacit y in t he BBL.
3 . 3 7 . GTS w ill pr ov ide for an adequat e sy st em of use -it -o r-lose it t o ensure t hat capacit y t hat is ( t em por ar ily ) unused ( in t he pr im ar y or secondar y m ar k et ) is m ade av ailable on an int er r upt ible basis by t he BBL com pany on t he pr im ar y m ar k et .
3 . 3 8 . As regards t he m anagem ent and allocat ion of capacit y, GTS point s out t hat t he m ost im por t ant m echanism in t he init ial allocat ion pr ocedur e is pr ovided by t he 'open season' appr oach t hat has been t ak enand w hich has r eceiv ed ex t ensiv e publicit y. Pot ent ial shipper s accor dingly hav e had an oppor t unit y t o book t r anspor t capacit y on t he BBL, r egar dless of t he m agnit ude of t he v olum es or capacit ies t hey w ish t o hav e car r ied.
3 . 3 9 . I f shipper s do not w ish t o use t heir cont r act ed capacit y for a cert ain period, it w ill be possible t o m ake all or par t of t hat capacit y available on t he secondar y m ar ket by sublet t ing it t o anot her shipper . I f t he lat t er shipper is going t o do it s ow n nom inat ion t his will be subj ect t o reasonable t erm s and condit ions, covering such t hings as reliabilit y and cr edit w or t hiness.
3 . 4 0 . I f a shipper w ant s t o t r ansfer it s capacit y per m anent ly t o anot her shipper , t his w ill also be possible on appr opr iat e t er m s and condit ions, i.e. in line w it h pr ev ailing t er m s and condit ions. A cre dit cont r ol pr ot ocol w ill be par t of t he ex hibit s t hat ar e par t of t he Transm ission cont ract , and will be based on t he prot ocol used in t he GTS st andard t erm s and condit ions for t r ansm ission ser vices. A dr aft of t he pr ot ocol is at t ached t o t his applicat ion ( ANNEX 7) .
3 . 4 1 . GTS is considering m aking available a bullet in board for t he BBL t o facilit at e t he secondary t rading of capacit y. The bullet in board w ould t hen be available for ( pot ent ial) shippers t o let it be k now n t hat t hey ar e sear ching for ot her ( pot ent ial) shippers t o obt ain t ransport ( t hrough assignm ent ) or t o t rade t ransport capacit y. This bullet in board w ould only serve t he pur pose of br inging ( pot ent ial) shipper s int o cont act w it h ot her ( pot ent ial) shipper s. The Bullet in Boar d w ill be sim ilar t o t he boar d t hat GTS has opened for it s ow n net w or k. A br ief descr ipt ion of t he GTS bullet in boar d is giv en in ANNEX 8.
3 . 4 3 . As an alt er nat iv e, GTS consider ed t he idea of offer ing unused capacit y t o t he m ar k et on a fir m basis r at her t han an int er r upt ible basis. The conclusion w as t hat t his w ould const it ut e an ex cessiv e infr ingem ent of shipper s' cont r act ual r ight s inasm uch as t hey w ould lose t he right t o use t heir cont ract ed capacit y. Since GTS underst ands from t he m arket t hat shipper s m ay also like t o use t he BBL t o supply gas t o m eet seasonal dem and and t o pr ov ide back up, it is considered t hat such a lim it at ion of t heir right s would lead t o reduced int er est in t he BBL.
3 . 4 4 . The BBL oper at or does, how ev er , plan t o m onit or t he ex t ent t o w hich shipper s ar e not using t heir cont r act ed capacit y t o ensur e t r anspor t capacit y is not being deliberat ely t ied up. To count er any such t endency , in t he ev ent of capacit y r em aining unused for a long per iod w hile t her e w as in fact dem and for t hat capacit y5, t he BBL oper at or w ould consider r ecov er y of t he unused capacit y under t he cont r act w it h t he or iginal shipper .
3 . 4 5 . GTS believ es t hat a st r ong em phasis on t he possibilit y of t r ading ( unused) capacit y on t he secondar y m ar k et , com bined w it h selling int er r upt ible capacit y by t he t r anspor t er and a pr ov ision in t he t r anspor t at ion cont r act t hat t he transport er can ret rieve unused capacit y for w hich t her e is a dem and, is an effect iv e m et hodology for t he sat isfact or y m anagem ent of capacit y .
3 . 4 6 . To enable shippers t o m ake considered decisions wit h regard t o bot h t he secondary m arket and t he use of int errup t ible capacit y, t he BBL will be t ransparent in it s publicat ion of t he necessary inform at ion. GTS has in m ind t he publicat ion of hist orical dat a on act ual gas flow s, w it h due observance of t he confident ialit y of inform at ion on t he gas flow s of indiv idual shipper s ( see below ) .
Provision of inform at ion
3 . 4 7 . The pr ovision of infor m at ion on hist or ic capacit y usage, pr ices and r eal t im e infor m at ion flows for t he BBL, is generally support ed by GTS subj ect t o any confident ialit y issues inv olv ed w it h r egar d t o t he publicat ion of inform at ion. This not ably includes inform at ion on real t im e flows and capacit y ut ilisat ion when t here are less t han t hree shippers. This is also subj ect of discussions t ak ing place in t he Madr id For um6 on t he Guidelines for Good
5 More inform at ion on t he condit ions applying t o t he durat ion of not using capacit y is given in confident ial
ANNEX 10.
6
Pr act ice. I n the For um it has been suggest ed by GTE, t he Eur opean Gas Tr anspor t er s Associat ion, t hat w her e t her e ar e less t han 3 shipper s, confident ialit y m ay need t o be r espect ed subj ect t o cer t ain cav eat s: t her e m ust be clear ev idence t hat t he shipper has indicat ed t hat t he r elevant infor m at ion m ay not be published; t his evidence needs t o be r enew ed on a r egular basis; an elem ent of appr ov al by t he r elev ant r egulat or y aut hor it y w ill be necessar y .
3 . 4 8 . I nfor m at ion pr ovision for t he BBL w ill be consist ent w it h cur r ent UK an d Dut ch legislat ion. Gener ally, t he infor m at ion on hist or ical usage cur r ent ly m ade available by GTS w ill also be m ade av ailable by t he BBL oper at or . This infor m at ion w ill at least be av ailable t o t he r egulat or y aut hor it y and - w here no issues w it h confiden t ialit y ar e involved - publicly available. I n t he case of confident ialit y issues, inform at ion t hat is m ade available publicly m ay be aggr egat ed. The infor m at ion w ill include :
• Pr ices char ged for t hir d par t y access
• Pr ices char ged for int er r upt ible access on t he basis of t he applicat ion of UI OLI r ules ( The t er m s and condit ions for int er r upt ible cont r act s ar e cur r ent ly under consider at ion) . • Real t im e flow s w ill be m ade av ailable t o shipper s using t he BBL on an on-line basis. I t is ex pect ed t hat t his w ill be la r gely sim ilar t o such infor m at ion pr ov ision in t he GTS net w or k . This is ex plained on t he GTS w ebsit e. The r elev ant t ex t has also been included in ANNEX 9.
• Hist or ical dat a on t he act ual usage so as t o infor m shipper s consider ing a book ing r equest for ( fut ure) int er r upt ible capacit y. This infor m at ion is especially m eant for t hose shipper s w ho ar e consider ing a book ing-request for ( fut ure) int errupt ible capacit y. The provision of t his inform at ion w ill be largely sim ilar t o t he inform at ion provision in t he GTS net w or k on im por t and ex por t capacit ies.
• I nfor m at ion on planned m aint enance t hat m ay affect shipper s.
3 . 4 9 . I nfor m at ion on ex pect ed flow s – insofar as t his inform at ion is known t o t he BBL operat or - w ill not be published as t his infor m at ion m ay hav e a dir ect influence on pr ices in t he UK m ar k et .
Con dit ion ( e )
The ex em pt ion is not det r im ent al t o t he effect iv e funct ioning of t he int er nal gas m ar k et , or t he efficient funct ioning of t he r egulat ed sy st em t o w hich t he infr ast r uct ur e is connect ed.
3 . 5 0 . Refer ence is m ade her e t o t he r em ar k s r egar ding condit ion ( a) abov e. GTS is confident t hat t he cont ract ual and t echnical specificat ions of t ransm ission t hrough t he BBL pipeline w ill be com pat ible w it h t he r equir em ent s of t he Dut ch and UK gas net w or k s. To t his end, GTS is cur r ent ly discussing t echnical and gas specificat ions w it h Nat ionalGr idTr ansco. I t w ill be t he r esponsibilit y of shipper s using t he BBL t o ensur e sufficient capacit y booking in t he UK NTS.
3 . 5 1 . Fur t her t o t he com pat ibilit y of cont r act ual and t echnical r equirem ent s of t he BBL, it is ex pect ed t hat shipper s using t he BBL m ay need connect ing t r anspor t t hr ough t he GTS net w or k. As par t of t he 'open season', shipper s have been invit ed t o indicat e t heir int er est in such a possibilit y. I n view of t he very lim it ed scope for carrying gas from t he m ost obvious locat ion ( Oude St at enzij l) t o Balgzand, it will be necessary t o invest in increased capacit y on t his sect ion, based on adequat e r ev enues t o w ar r ant such inv est m ent . Assum ing t hat is possible, no im pact on exist ing t ransit volum es or dom est ic gas t ransport flow s is ex pect ed.
3 . 5 2 . The t ar iff for connect ing t r anspor t t hr ough t he GTS net w or k w ill be based on t he nor m al ent r y / ex it t ar iff sy st em for t he GTS net w or k . A t ar iff based on a dedicat ed pipeline does not fit int o GTS’s t ar iff philosophy w hich is based on an equal t r eat m ent of t r ansm ission services, w het her for dom est ic or t ransit purposes. Furt herm ore, GTS believes t hat t here m ay be an addit ional benefit for dom est ic user s because t he necessar y inv est m ent s w ill “ aut o m at ically” increase t he possibilit ies for furt her t echnical / operat ional opt im isat ion by GTS and w ill subsequent ly incr ease t he r esilience of t he Dut ch t r ansm ission net w or k .
4 . D u r a t ion of t h e e x e m pt ion
4 . 1 . The proposed BBL is a m aj or infrast ruct ure proj ect w it h cons iderable associat ed risk. GTS, as t he m ain sponsor of t he pr oj ect w ill only giv e appr ov al pr ov ided t he r egulat or y and com m er cial r isks ar e m inim ised. To r educe r isk, long t er m cont r act s ar e being negot iat ed. These cont r act s w ill hav e a m inim um dur at ion of 10 y ear s and a m ax im um dur at ion of 20 years. The durat ion of individual t ransm ission cont ract s m ay vary according t o shippers needs. An ex em pt ion is being sought t o cor r espond t o t he dur at ion of t he init ial long t er m cont ract s, i.e. cont ract s t hat m ay have differ ent lengt hs.
4 . 2 . Whilst fir st gas is expect ed t o com e on st r eam in t he sum m er of 2006, t his dat e w ill not necessar ily be t he st ar t ing dat e for all shipper s t hat GTS is hopeful w ill sign on. Som e pot ent ial shipper s hav e indicat ed t heir int er est in a later st ar t ing dat e. Mor eov er , it is ex pect ed t hat shipper s using t he BBL and sour cing t heir gas fr om t he Oude St at enzij l ent r y -point int o t he GTS net work, will not be able t o ship unt il t he connect ion bet ween Oude St at enzij l and Balgzand has been com plet ed. The com plet ion of t his connect ion – subj ect t o a posit iv e inv est m ent decision being m ade – is not ex pect ed befor e 2007.
4 . 3 . Whilst t he capacit y and t echnical specificat ions of t he BBL w ill be det er m ined by t he cont r act ed long t er m capacit y r ight s, som e capa cit y m ay be av ailable bet w een fir st gas and t he st ar t of ot her init ial cont r act s. Subj ect t o t he t echnical aspect s of t he r ealisat ion of t he BBL, a lim it ed am ount of capacit y m ay be av ailable ov er and abov e t he cont r act ed long t er m capacit ies. GTS is lik ely t o m ak e t his capacit y av ailable7. The t er m s and condit ions for selling any such “ spar e” capacit y w ill need t o r eflect t he t er m s and condit ions of t he init ial cont r act s. GTS believes t hat t hese t er m s w ould ot her w ise be t o t he det r im ent of t he init ial shipper s. GTS w ould t her efor e also ex pect t he ex em pt ion t o apply t o t he cont r act s for t he sale of any such “ spar e” t r anspor t capacit y .
7 We not e however t hat t he scope for t he use of t his capacit y m ay be lim it ed due t o capacit y const raint s in t he
5 . Conclusions
5 . 1 . Access t o t he BBL has been offer ed on t he basis of a w idely publicised open season. GTS con sider s t h at t h e open season and t he w ay it has been conduct ed by GTS m eet s t he r equir em ent s for non-discr im inat ion.
5 . 2 . The BBL w ill be ow ned and m anaged by a separ at e legal ent it y w hich w ill oper at e as an independent business and be financially independent .
5 . 3 . Char ges w ill be lev ied on t he user s of t he pipeline, and t he indicat iv e char ges w ill be published, as w ill ot her infor m at ion, especially in r elat ion t o enabling ot her shipper s t o m ak e consider ed decisions w it h r egar d t o t he secondar y m ar k et and t he use of int er r upt ible capacit y.
5 . 4 . A w ell consider ed syst em of capacit y m anagem ent m easur es is pr oposed in t his applicat ion. GTS is convinced t hat t he proposed m et hodology will be effect ive for t he sat isfact ory m anagem ent of capacit y .
5 . 5 . The BBL w ill connect t w o gas sy st em s. GTS consider s t hat t he cont r act ual and t echnical specificat ions of t he BBL w ill be fully com pat ible w it h bot h syst em s. I ndeed, GTS considers t hat t he invest m ent decision for reinforcem ent of t he Dut ch net work ( Oude St at enzij l – Balgzand) should be t ak en at t he sam e t im e as t he invest m ent decision for t he BBL. Such reinforcem ent will however, rem ain part of t he GTS net work, and be operat ed and priced separ at ely fr om t he BBL.
5 . 6 . Ev en w hen com par ed t o t he figur es fr om t he N.V. Neder landse Gasunie annual r epor t t he capit al expendit ur e for t he BBL is vast . The r isks involved can be m it igat ed t o a degr ee by t he long t erm agreem ent s on t ariffs and capacit ies t hat ult im at ely w ill underpin t he inv est m ent . Ther efor e GTS is seek ing an ex em pt ion for t he dur at ion of t hose init ial cont ract s.
5 . 7 . The 5 condit ions as set out in t he EU Gas Dir ect iv e hav e been addr essed in t his applicat ion. GTS consider s t hat t he pr oposals subm it t ed for t he BBL fulfil t hese condit ions.
5 . 8 . The init ial discussions GTS has had w it h bot h t he UK and Dut ch aut hor it ies hav e been posit ive and helpful. GTS firm ly believes t hat t he BBL proj ect provides an im port ant link in t he developm ent of t he UK and Cont inent al gas m arket s. GTS believes t hat t he proj ect w ould m ak e a significant cont r ibut ion t o t he secur it y of supply for t he Unit ed Kingdom and t he Net her lands, par t icular ly as t he for m er m oves t ow ar ds im por t dependency.
t he BBL m eet s all t he r egulat or y r equir em ent s for ex em pt ion out lined in de EU gas dir ect iv e and t he v iew s put for w ar d by DTe and Ofgem in t he discussions as w ell as Ofgem ’s init ial view s docum ent .
6 . List of a nne x e s.
AN N EX Con t e n t Confide nt ia l
1 Br ochur e r egar ding t he open season
2 Abst r act fr om t he N.V. Neder landse Gasunie Fir ew alls handbook 3 Abst r act fr om t he second EU Gas Dir ect iv e
4 Com pet it ion st udy by ADL Lt d.
5 List of shipper s and capacit ies Confident ial
6 Financial inform at ion Confident ial
7 Cr edit cont r ol Pr ot o col
8 Descr ipt ion of t he GTS Bullet in Boar d
9 Applicat ions for shipper s: On-line Tr anspor t I nfor m at ion Service
