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Reaction to Information and Consultation document Transmission System Operator Gas in the Netherlands

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Reaction to Information and Consultation document

Transmission System Operator Gas in the Netherlands

Question 1

First of all the complete frame work as put down by the regulator has to be taken into account. What decisions have been made in an earlier state regarding this subject? Care has to be taken in not going through the complete process of designing and assigning all new rules when there are good examples to look at; Transco, the TSO for gas in the UK and TenneT, the TSO for electricity in the Netherlands.

In our view a TSO has to be assigned in a bidding procedure. Various candidates can bid in to acquire the task of being the TSO for a period of 5 years. The fact that a bidding party is not necessarily the owner of the network can simplify the process . In the longer term when other European markets catch up with liberalisation, it can also provide significant efficiencies of scope and scale. The DTe will have to investigate whether the candidates are able to fulfil the tasks of a TSO. The candidates also should not have a conflict of interest with the direct customers of the TSO (for example shippers).

Regulation should only be a method to get from a monopoly market situation to a liberalised market. Once the market is liberalised regulation can be reduced. There will however always be parts of the market that require some form of regulation.

Question 2

No comment.

Question 3

Similar to the method applied by TenneT for the electricity system the TSO gas should be obliged to make a long term capacity plan on a detailed level. This capacity plan should be the basis for an investment scheme to maintain security of supply and eliminate bottlenecks in the system. The DTe can control this process by stating guidelines for the level of security of supply. Once this procedure is completed the system owner will have a firm idea of the assets that will fall inside the regulatory cost base.

For the distribution network there should be a possibility to oblige a distribution company to make changes to its network. The minister of Economic Affairs should have the ability to allow a transmission company to increase its rate of return on pipeline sections that required investments for a certain period.

In the end the system should work like a gasometer (the gas equivalent of the copper plate for electricity). The shippers and end-users should not have to worry about capacity constraints within the system. If somebody requests a connection then the distribution companies and the transmission company and the regulator should make sure that the constraint is resolved or avoided.

Question 4

The TSO should base its decision on the instrument to use for balancing the system on market mechanisms. There should be a number of possible instruments to choose from:

• OCM (on-the-day gas commodity market) • Interruption of supply

• Use of LNG and storage facilities

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Question 5

As stated at 4. The process of balancing the system shouldn’t not be conducted by the TSO on a cost plus basis. The TSO should be incentivised partly based on the

efficiencies it has brought to the expenses of balancing the system. There should also be a penalty in case the TSO underperforms.

Question 6

The TSO should publish:

• Contracted and available capacities at non-consumer points • Information on interruptions at non-consumer points

If there is any doubt whether information should be published or not then the rule should be that the information should be published. As soon as the market has developed into a mature market then the market forces will determine what information needs to be published. During the infant stage of opening the market the TSO should and could help to decrease the advantage that the incumbents have in having access to vast amounts of information over new entrants to the market.

Question 7

The TSO should publish:

• Available entry and exit points with all relevant (technical) characteristics including the applicable tariffs.

• Tariffs of additional services (and a justification of the applied tariff if there is no other provider of that specific additional service).

• Contracted and available capacities (both firm and interruptible) both historical and future data.

• Historical information on interruptions (number and duration of interruptions). As soon as a gasometer like system is working properly only information on

interconnected systems has to be published.

Question 8

The common (legal) rules for disclosure of information should be applied. The TSO should not be allowed to give any information regarding their customers to any third party without permission. This is already common practice and should be maintained.

Question 9

It is up to the marketparties to determine where and how gas is traded. The TSO should act as a service provider at those location to stimulate the development of the

marketplaces. Basic principle should also at those places be that Regulation should only be a method to get from a monopoly market situation to a liberalised market. Once the market is fully liberalised no more regulation is necessary. At the market places the TSO should offer a tolerance service and be a claims validation agent. These “exclusive tasks” of the TSO are not necessarily tasks the TSO has to perform using its own organization. The TSO might have the possibility to subcontract these tasks to other competent parties. According to us there are three separate market places.

• The physical system with entry and exit points. These should only be to enter gas into or exit gas from the system and maybe transfer title of the gas at the border locations.

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into a more flexible location and giving the exit capacity to the consumer to avoid the situation that the consumer is held ransom by his present supplier. • Finally there is the Eurohub a location that is mainly a virtual trading hub. It is

comparable to the balancing point, but is constrained to a smaller area. We find it difficult to see a possibility for the TTF and Eurohub to operate side by side for a prolonged period of time.

Question 10

Trading of imbalances after the day is difficult and can only be done with the active involvement of the TSO. We find it unjust that in the current system two shippers are penalized for being long and short even in a situation where the system is in balance. Therefore it is desirable to get a system in place like the one used by Transco in the UK. In this system you get money from the TSO if you are long in the system and you pay money to the TSO if you are short in the system. The amount you pay or receive is determined by the overall state of the system (long or short). In this way every party pays his share of the cost the TSO has to make to balance the system.

Question 11

The TSO should offer:

• Claims validation for trading at the TTF/Dutch Balancing Point. The TSO has all the data available to do matching and clearing services. If trading is done at other locations the TSO should be offering the claims validation service also at those locations. Fees for this service should reflect the administrative nature of the service

• Capacity Trading. The TSO is the most suited party to offer capacity trading services. If capacity is traded this has to be registered with the TSO anyway. Fees for this service should reflect the administrative nature of the service • Wheeling. Because of the nature of the current entry/exit system with the applied

tariffs going from one flange at a location to another flange is exorbitantly high. The TSO should offer a service which is a true cost reflective solution because at present the service offered does not reflect the actual costs.

• Balancing. Balancing is used to provide security of supply. The TSO is the only party able to control the flows within the system and should be incentivised to ensure that the most efficient actions are taken to balance the system. The above mentioned services to be offered by the TSO are not necessarily tasks the TSO has to perform within its own organization. The TSO might have the possibility to subcontract these tasks to other parties. When these tasks are outsourced the TSO remains the party responsible for the task.

Question 12

The costs for coupling the four systems with their different Wobbe labels should be socialised. This implies that there is no difference in the gas quality from a transportation point of view. The TSO has to make sure that it runs the system in such a way that the users of the system have nothing to do with the quality of gas they enter in or exit from the system. The costs the TSO has to make to convert gas have to be spread over all exit points. When constraints in the quality conversion capacity are discovered the TSO has to make sure that investments in new conversion capacity are made.

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Dutch gas market. Gasunie Trade & Supply are practically the only party which does not incur the costs of quality conversion. For any party other than Gasunie Trade & Supply it is practically impossible to acquire G-gas in the market and consequently all sales into the G-cal market have to be made at the cost of conversion of H-cal to G-cal gas.

This cost discrimination can be solved and a level playing field established by considering the “socializing” the costs of quality conversion; i.e. the costs for quality conversion should be paid by all gas shippers. This could, for example, be done by including the overall conversion costs of the system as a standard surcharge to exit capacity charges. It could be argued that such an arrangement would unfairly increase costs to G-cal use, however, these are the users who see the least competition. The result for the market would be more competition, increased price transparency (e.g. market prices quoted on the NBP, Zeebrugge Hub and Oude Statenzijl Hub would become reference prices for the overall market and not only for the limited number of consumers that are connected the high calorific network) so that all final customers would quickly benefit from such a system.

Question 13 See 12. Question 14 See 12. Question 15 See 12. Question 16

The boundaries of the transmission network should be defined as the current model. The transmission network consists of the high pressure grid, the split between the system of the TSO and the regional grid company is at the low pressure side of a GOS. For the marketparties the location of the actual split should not be an obstacle for doing their business.

Question 17

The biggest disadvantage is that appointing one TSO in the Netherlands leads to a pseudo monopoly. The TSO will operate as a monopoly during the period of its franchise. It therefore will have to work within a regulatory framework. The biggest advantage is that the same rules issued by the TSO apply to every market party. Given the fact there will be only one high pressure system also in future, with the exception of certain pipelines not connected to the system of the TSO, and by appointing one TSO for the whole system the Regulator can control the monopolist in a manner that will benefit the liberalisation process.

Question 18

The TSO should be assigned by the regulator/minister based on several criteria. The TSO should get the franchise to operate the system for a period of five years. The parties who are interested to become the TSO for that period to participate in a bidding process The criteria for the company bidding to become the TSO should be:

• Financially robust • Experience

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Question 19

The TSO should be supervised via regulatory guidelines. It should be a system in which the TSO has no (or only a relatively small) guaranteed profit. The tariffs should be adjusted each year to accommodate this profit. The TSO should be able to earn additional revenue through efficiency incentives. Additional profit generated should be used for maintenance and expansion of the network or through the mechanism of regulatory review, be returned to shippers through reduced tariffs.

Question 20

The regulator should publish codes to regulate the standard service. There should however be the possibility to negotiate not standard services.

Question 21

Exclusive tasks of TSO:

• Maintenance and Control yes • Construction of new pipelines no • High pressure system balancing yes • Efficient buying mechanism yes • Information to TSO’s yes • Information to shippers yes • Allow and register trading yes

Question 22

Not-exclusive tasks of TSO:

• Imbalance settlements yes • Tolerance service yes • Bulletin Board yes • Quality conversion yes

Question 23

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