Capacity Allocation Mechanisms CAM Business Rules Workshop Ashling

Capacity Allocation Mechanisms (CAM) Business Rules Workshop Ashling Hotel, Dublin 2 July 2014

Agenda 1 Introduction & Background 2 CAM Business Rules: Scope 3 CAM Business Rules: Key Features 4 CAM Business Rules: Auction Process 4

Code Modification A 062: Capacity Allocation Mechanisms at Interconnection Points Timeline § 5 August 2011 ACER published Framework Guidelines March 2012 ENTSOG Submits CAM Network Code September 2012 ENTSOG resubmits NC based on EC Reasoned Opinion Jan & Apr 2013 Comitology Meetings October 2013 CAM Network Code published in EU Journal in the form of Regulation EU 984/2013 November 2013 Gaslink / Shipper Impact Assessment Workshop 23 June 2014 Gaslink circulates Code Mod Proposal A 062 27 June 2014 CAM Business Rules consultation (3 weeks - responses due by 18 July) 2 July 2014 CAM Business Rules Workshop 1 November 2015 Implementation Date: Regulation 984/2013 §CAM

CAM Business Rules: Consultation Period § 6 §CAM

Agenda 1 Introduction & Background 2 CAM Business Rules: Scope 3 CAM Business Rules: Key Features 4 CAM Business Rules: Auction Process 7

CAM Business Rules: What’s included? Generic capacity allocation rules and processes to apply at Irish IPs; Shipper Registration Process on PRISMA; Definition of the functions which will be performed by PRISMA as distinct from GTMS; Definition of Capacity products which will be available at Interconnection Points; Process by which Shippers may request such Capacity (submission of auction bids); Description of the capacity allocation methodology (auctions) applied to each product; Communication of auction results via PRISMA and consequent update to GTMS; Secondary Capacity market rules at Interconnection Points.

Subsequent Business Rules Consultations: CAM related items The following are not included in detail in the CAM Business Rules, but will be dealt with by means of separate consultations: Congestion Management Procedures (CMP); Tariffs: minimal references to Tariffs in CAM BRs; CER Tariff Consultation Paper to follow; Transitional Arrangements: Phasing out of existing capacity booking arrangements Financial Security requirements; Virtual Reverse Flow (VRF): Full product business rules to be included in later consultation

Agenda 1 Introduction & Background 2 CAM Business Rules: Scope 3 CAM Business Rules: Key Features 4 CAM Business Rules: Auction Process 10

CAM Business Rules: Supporting Information Date Reference October 2013 European Union Regulation EU 984/2013, Capacity Allocation Mechanisms (CAM) Network Code 2009 (updated in 2012) European Commission Regulation (EC) No 715/2009 updated with the Commission Decision 2012/490/EU of 24 August 2012 April 2013 Gaslink Consolidated Gaslink Code of Operations v 4. 0 as of 1 April 2013 23 rd June 2014 Gaslink Code Modification Proposal A 062 ‘Capacity Allocation Mechanisms at Interconnection Points’ Proposal Form January 2014 1 May 2014 § 11 Source PRISMA ENTSOG Joint Office Transporters of PRISMA capacity platform website ENTSOG Pilot Auction Calendar Gas UNC Modification No. 0500: ‘EU Capacity Regulations – Capacity Allocation Mechanisms with Congestion Management Procedures’ §CAM

RECAP: Standard Capacity Products Capacity Auctions (Joint Booking Platform) § 12 CAM Key Features • Annual (up to 15 years), Quarterly, Monthly, Daily, Within-Day • Capacity sold via auction – level of demand determines clearing price • Standardised EU-wide auction calendar Bundling of Capacity • Entry and Exit Capacity at both sides of an IP is ‘bundled’ together and sold as a single product Change to Gas Day • Gas day 05: 00 - 04: 59 UTC (currently 06: 00 – 05: 59) §CAM

RECAP: Capacity Auctions General Information § All standard capacity products must be sold by means of Capacity Auctions • • § § 13 EU-wide auction calendar will be published by ENTSOG each year • Default dates/times in Regulation 984/2013 may be superseded by ENTSOG Calendar • Pilot Auction Calendar published by ENTSOG in January 2014 HARMONISED! Same products sold at the same time at all IPs across EU 2 auction designs: • Multiple round ascending clock auction algorithm (yearly, quarterly, monthly) • Single round uniform price auction algorithm (daily and within-day) §CAM

Implementation Timelines: §CAM § § § - Auctions - PRISMA - Bundling §Gas Day • When? 1 November 2015 (staggered) • Where? Interconnection Points • When? 1 October 2015 • Where? Across entire network

Capacity Product Matrix at IPs: Product Annual Bundled Unbundled Allocation Method Ascending Clock Auction Frequency Auction Start (Default) Annual 1 st Monday in March Product Start Time Impact of CAM 1 October LONGER BOOKING LEAD TIMES (up to 15 years ahead) 1 October Quarterly Ascending Clock Auction Annual 1 st Monday in June 1 January 1 April NEW PRODUCT 1 July Monthly Day. Ahead Within. Day Ascending Clock Auction Uniform Price Auction Monthly 3 rd Monday in month 1 st of each month Minimal impact Daily 15: 30 D - 1 05: 00 D Minimal impact [18: 00 D – 1] Hour bar + 4 from start of Bid Window Minimal impact Hourly

Schedule of First CAM Auctions: Product First Auction Date First Capacity Effective Date Within-Day 31 st October 2015 1 st Nov 2015 Day-Ahead 31 st October 2015 1 st Nov 2015 Monthly November 2015 1 st December 2015 Annual March 2016 1 st October 2016 Quarterly June 2016 1 st October 2016, 1 st January 2017, 1 st April 2017, 1 st July 2017

Bundled vs. Unbundled Capacity: BUNDLED CAPACITY EXAMPLE: at Moffat, a bundled product is a single capacity product comprising: Gaslink Entry Capacity; and NTS Exit Capacity Shipper must be registered at both sides of IP to take part in bundled auctions on PRISMA: When Shipper obtains bundled capacity by means of an auction: Auction result means that the Shipper enters into 2 separate capacity contracts with each TSO Shipper will be invoiced separately by each TSO UNBUNDLED CAPACITY EXAMPLE: at Moffat, an unbundled product is a capacity product comprising: Gaslink Entry Capacity only. Shipper does not need to be registered at both sides of IP to take part in unbundled auctions: Unbundled auctions (on PRISMA) to be held simultaneously with bundled auctions

Bundling of Capacity: Reg 984/2013 Art. 20 Regulation 984: - Capacity should be bundled as soon as possible - Existing unbundled contracts should be phased out over time TSOs • TSOs shall bundle capacity ‘insofar as there’s sufficient capacity available. • Where TSO 1 has more capacity available than TSO 2, TSO 1 may offer balance as unbundled. • Unbundled may not be offered for duration of more than one year, unless……………. . • Unbundled is contracted for longer than one year at other side of IP; then unbundled can be offered to match that period Shippers • Where a Shipper holds existing unbundled capacity, a Shipper should aim to bundled the capacity (Art. 20 (1)) • Shippers may avail of ‘voluntary bundling process’. • Single Shipper (EIC) to submit ‘bundling request’ to Transporter • Transporter and Adjacent Transporter Approval required • If approved, capacity is registered as bundled

Capacity Booking Platform at IPs: PRISMA shall fulfil the function of the ‘joint web-based booking platform’ on which capacity at IPs can be booked and traded Gaslink has entered into a service agreement with the PRISMA Capacity Platform In order for a Shipper to access capacity at an IP, it must register with PRISMA In order for a Shipper to access capacity at an IP, it must be approved by both TSOs at the IP GB – Ro. I Capacity Bookings: Now vs. Post-CAM Now NTS Exit Capacity Gemini IP Capacity Domestic Entry Point Capacity (Inch & Corrib) Exit Capacity GTMS Post-CAM PRISMA GTMS

Capacity Booking Platform at IPs: PRISMA Registration Process

Capacity Booking Platform at IPs: Bundled Capacity Auction Process

Tariffs: Tariff for Bundled Auction Design Tariff Input: TSO 1 Reserve Price TSO 1 Large Price Step TSO 1 Small Price Step + + Tariff Input: TSO 2 Reserve Price TSO 2 Large Price Step TSO 2 Small Price Step = = Auction Tariff Auction Reserve Price Auction Large Price Step Auction Small Price Step §Clearing Price §(TSO 1 share) §Run Auction §Clearing Price Billing §TSO 1 Invoice §Shipper §Clearing Price §(TSO 2 share) §TSO 2 Invoice

Capacity Offered in an Auction: ‘Available Capacity’ Technical Capacity of the Interconnection Point Contracted Capacity which has already been sold in respect of the given period Set-Aside Capacity • 20% of unsold Technical Capacity withheld from the Annual IP Capacity Auctions applying to Gas Years Y + 5 to Y + 15 inclusive. • 10% of unsold Technical Capacity shall be withheld from the Annual IP Capacity Auctions applying to Gas Years Y + 1 to Y + 4 inclusive. + CMP Capacity Any Capacity which becomes available for reallocation as a result of congestion management procedures = Available Capacity which is published as available and offered in a given auction

Financial Security: Status Summary Product Currently Proposed Comments Daily FS put in place after capacity booking approval TBD Review needed given changing environment for short term bookings Monthly 100% FS required prior to capacity booking approval As per current rule Quarterly N/A TBD Annual FS equivalent to 72 days worth of capacity required in advance of capacity booking approval TBD Review needed: Disconnect between time of booking and time of utilisation

Secondary Capacity Key Concepts §Transfer of Use §Over the Counter (OTC) • Capacity rights transfer to the Transferee (NOT assignment) • Obligation to pay the Transporter for the capacity remains with holder of Primary Capacity • Shippers enter into a bilateral agreement to trade (price and conditions agreed) prior to initiating Trade Proposal • Submitted by Transferor (proposal to sell) or Transferee (proposal to buy) on PRISMA Trade Proposal • Requires approval by counterparty, Transporter and Adjacent Transporter

Secondary Capacity Process Chart

Secondary Capacity: Back-Up Entry Capacity Back-up Entry Capacity: 1 Original Rationale Current Status a) will not be facilitated at IPs; and b) will not be facilitated at domestic Entry Points • Back-up Entry Capacity was introduced to provided a form of security to Shippers holding Capacity at production connected Entry Points. • Where a risk to the supply from the production connected Entry Point existed, Shippers had a facility to book capacity at an alternative Entry Point at a reasonable cost. • Short term products did not exist in the Code when the Back-up Entry Capacity product was introduced • Incompatible with CAM: Cannot use a bundled product as back-up for an unbundled product • Superseded by newer products: Availability of short term products means that a Shipper holding Capacity at production connected Entry Points can gain access to capacity to cover the period of interruption. The product has not been bought since 2007.

Secondary Capacity: Entry Point Capacity Entry Point Transfers: 2 a) will not be facilitated at IPs; and b) will be retained in relation to non-IPs Original Rationale • To enhance the viability of new entry points by allowing a Shipper with an annual booking at an existing entry point the option to move the capacity to a new entry point (which comes on stream mid-year). Current Status • Incompatible with CAM at IPs: Cannot transfer bundled capacity at one point with unbundled capacity at another • Is there a demand for retention of this product at non-Ips?

Secondary Capacity: Entry Capacity Trade Updates & Reductions: 3&4 • • Original Rationale • Entry Capacity Trade Updates and Reductions allow a Shipper to ‘recall’ capacity it has previously sold on the secondary market • principal reason was to allow a Shipper who had transferred NDM Exit Capacity to cancel a Capacity Transfer where the demands of the NDM market so required. Current Status • Principal rationale no longer holds (i. e. NDM Exit transfers no longer permitted) • Example: Current Gaslink rules are substantially different to National Grid rules • At IPs: Significantly divergent rules at an IP could render secondary market ineffective as both TSOs must approve trades as per their own rules - without approval of both TSOs, trades will be rejected. • At domestic Entry Points: operating two different regimes at IPs and domestic Entry Points may not be appropriate • requirement to allow ‘recall’ creates the need to restrict the trade of capacity which has already been traded due to complexity of tracking the capacity • Removing the ‘recall’ facility removes this restriction, thus reducing IT complexity and facilitating the trade of Secondary Capacity • Original capacity holder remains liable for payment (no change proposed) • BRs to propose changes in respect of IPs only - changes at non-IPs to be addressed via Mod A 060 Remove Entry Capacity Trades & Updates IPs ; and Remove restriction whereby Shippers can only Trade Primary Capacity

Agenda 1 Introduction & Background 2 CAM Business Rules: Scope 3 CAM Business Rules: Key Features 4 CAM Business Rules: Auction Process 30

Ascending Clock Auctions: Auction Algorithm To apply for yearly, quarterly and rolling month auctions Several binding bidding rounds with ascending prices (starting at reserve price) Bidders bid capacity amounts against successively announced prices (new bidding round opened if demand > supply) Auctions ends as soon as demand ≤ supply Number of bidding rounds not defined, but quick convergence ensured through different/adjustable price steps Value of capacity can be validated bypublication of aggregated demand between bidding rounds

Ascending Clock Auction: Bid Process: applies to annual, quarterly, monthly • Annual: 15 x independent auctions run simultaneously • Quarterly: 4 x independent auctions run simultaneously • Monthly: Rolling auctions each month for M+1 • Bid Window = 08: 00 – 17: 00 (may be over multiple days) • 1 st bidding round = 3 hrs • Subsequent biding rounds = 1 hr (with 1 hr gap) • Multiple bids accepted • Bids may be amended, withdrawn within bidding round • Mandatory to place bid in first round • Bid in round R+1 must be <= bid in round R NOTE: Where aggregate capacity bids <= capacity offered in auction, auction will end after one bidding round, with capacity allocated at the reserve price i. e. regulated tariff • Automatic Bid Profile may be programmed in advance (‘comfort bid’ function)

Uniform Price Auction: Auction Algorithm • To apply for daily and within day auctions • Single bidding round • Bidders bid capacity amounts and price • Auctions ends at predefined point of time • Bidders are allowed to freely review their bids until last moment • Clearing Price = lowest successful bid price • ALL Shippers pay the clearing price, regardless of what they bid

Uniform Price Auction: Bid Process: applies to day-ahead & within-day • Day-ahead Bid Window = 16: 30 – 17: 00 D - 1 • Results published by 17: 30 D - 1 & capacity effective at 05: 00 D • Within-Day Auction No. 1: 18: 00 - 01: 30 D - 1 • Within-Day Auction No. 2: 02: 00 - 02: 30 D - 1 • Subsequent biding rounds = 1 hr • New auction each hour thereafter • Last auction 00: 00 - 00: 30 D • Results published 30 mins after close of auction and capacity becomes effective 4 hours after start of auction • Multiple bids permitted – each bid treated independently NOTE: Where aggregate capacity bids <= capacity offered in auction, auction will end after one bidding round, with capacity allocated at the reserve price i. e. regulated tariff • Automatic Bid Profile may be programmed in advance (‘comfort bid’ function) • Clearing Price = lowest successful bid