- Ruling Chamber 7 - Federal Network Agency for Electricity, Gas, Telecommunications, Post and Railway. Fax Bonn (02 28)

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1 - Ruling Chamber 7 - File reference: BK Determination proceedings for gas balancing (implementation of Network Code on Gas Balancing) Here: Notification of proceedings and first consultation A. Principles of the proceedings and further procedure Under file reference BK , Ruling Chamber 7 has introduced determination proceedings for redesigning the basic model for the balancing regime in the gas sector (GABi Gas). The proceedings are addressed to all transmission system operators, distribution system operators and both market area managers. The legal basis for the proceedings are derived from the Network Code on Gas Balancing (Commission Regulation (EU) No 312/2014 of 26 March 2014 establishing a Network Code on Gas Balancing of Transmission Networks, OJ EU No L 91/15 of ) and the Gas Network Access Ordinance (in particular Article 29 EnWG in conjunction with Article 50 (1) nos. 7 and 9 GasNZV). The Network Code on Gas Balancing establishes both material and formal requirements for the new system of imbalance and balancing services. Compliance with these requirements shall be ensured through these proceedings. In so far as individual approvals are required within this framework, it is intended that these should be granted in the framework of the general determination proceedings, provided the prerequisites of the approvals are satisfied. The Ruling Chamber currently does not intend to hold standard offer proceedings in addition to the determination proceedings, which are meant to result in a general ruling. The intention is rather to determine only the key points of the new balancing system. The implementation of these key points in standard contracts and the elaboration of details shall be left to the new version of the cooperation agreement and its annexes (standard contracts, best practice guidelines). The consequence of this is that some marginal aspects of a coherent new entire system shall be described only in general outline in this document, but for the time being shall not be fixed nor by way of the general ruling. In this regard the Ruling Chamber assumes that the participants will pick up the pointers so that, in accordance with the proven practice of intertwining regulatory stipulations with self-regulation by way of the cooperation agreement, formal regulations are not essential. Moreover it is not intended that the entire content from the Network Code on Gas Balancing shall be regulated again within the framework of a national determination. The Network Code on Gas Balancing is directly applicable European law and therefore binding for the transmission system operators and market area managers even without national implementation. National implementation by the Federal Network Agency is required only in cases in which the Network Code on Gas Balancing envisages official approvals being granted. Furthermore, this national Federal Network Agency for Electricity, Gas, Telecommunications, Post and Railway Headquarters: Bonn Tulpenfeld 4 D Bonn (02 28) 14-0 Fax Bonn (02 28) poststelle@bnetza.de Internet Bank account Bundeskasse Trier BBk Saarbrücken BIC: MARKDEF1590 IBAN: DE

2 Determination Proceedings for Gas Balancing: First Consultation determination shall extend to include necessary further specifications and supplements in order to give all market participants legal certainty promptly in a transparent procedure. With the notification of proceedings the Ruling Chamber presents specific proposals for the redesign of the balancing regime ( GABi Gas 2.0 ) for consultation ( First consultation ). These proposals are based in part on applications and recommendations from the transmission system operators and market area managers that were submitted to the Ruling Chamber on 3 March 2014 (referred to as the recommendation document ). This recommendation document is attached as Annex 1. In addition, the notification of proceedings picks up proposals from other market participants and includes the Federal Network Agency's own deliberations. A second consultation is to take place in the course of the determination proceedings and will contain the specific components of the legally binding decision. Consideration is also being given to issuing a provisional order pertaining to individual aspects, because depending on the implementation period that is still to be determined certain elements of the former balancing regime (such as previous within day obligations) may have to continue to apply in modified form until the new regime is finally implemented. Comments on the contents and on the intended proceedings can be submitted up until 5 May Comments should be sent to the address Bilanzierung.Gas@bnetza.de in a file format suitable for electronic processing. All comments shall be published on the Federal Network Agency's website. 2

3 Determination Proceedings for Gas Balancing: First Consultation Table of contents 1. Basic principles: daily balancing regime and allocation Description of the new regulation Intended determination and justification 4 2. Prices for imbalance gas Description of the new regulation Intended determination and justification 6 3. Within day obligations Description of the new regulation Intended determination and justification 9 4. Within day information provision Description of the new regulation Intended determination and justification Shortening of the nomination period at the virtual trading point (VTP) Description of the new regulation Intended determination and justification Balancing gas Description of the new regulation Intended determination and justification Neutrality charge(s) for balancing Description of the new regulation Intended determination and justification SLP incentive scheme: settlement of network accounts Description of the new regulation Intended determination and justification Reporting obligations and transparency Description of the new regulation Intended determination and justification Other information 17 3

4 Determination Proceedings for Gas Balancing: First Consultation B. Proposals for the redesign of the balancing regime in the gas sector 1. Basic principles: daily balancing regime and allocation 1.1. Description of the new regulation The principle of daily balancing is confirmed in the Network Code on Gas Balancing and shall therefore continue to apply. With regard to the gas quantities relevant for balancing, the principles of the existing GABi Gas determination shall continue to apply: Provided that points are controlled by the network operators on the basis of nominations from network users (cross-border interconnection points, market area interconnection points, storage points, production points, VTP nominations), the principle allocated as nominated shall apply. For all RLM exit points, only measured quantities of the actual off-takes are included in the balance as a flat daily profile. The applicable data is always the data provided by the network operator on the day following the delivery (D+1). The data must be taken into account with replacement value and calorific value adjustments. If any correction must be made to the data, this must be done immediately after the submission of the replacement values and the calorific values relevant for balancing within five working days. The quantities calculated in this way must likewise be used for determining the imbalance quantities. Variant 2 from the Network Code on Gas Balancing (Article 33 (4) in conjunction with Article 37 (1) (b)) applies to SLP exit points. The arrangements of variant 2 conform to the basic systematics of the current balancing system for off-takes according to the standard load profile procedure. The quantities resulting from the standard load profiles must also continue to be included in the balance for all exit points for which the distribution system operators, as the forecasting party according to the previous arrangements, are obliged to develop and apply standard load profiles ( SLP exit points ). This means that the quantities of the balancing period that were forecast on day D-1, i.e. of gas day D, must be given due consideration relevant for balancing for the SLP exit points, in accordance with the standard load profile procedure being used. The previous distinctions between the procedures shall be retained for the application of standard load profiles. This means that for the synthetic standard load profile procedure the daily quantity that is to be considered relevant for balancing is that which is obtained on the basis of the forecast temperature of the day ahead, whereas for the analytical load profile procedure a time lag of 48 hours must be taken into account when determining the quantity relevant for balancing. For day D, therefore, the off-take quantity of the day before the previous day (D-2) is relevant for balancing, using the actual temperature of the day before the previous day (D-2) Intended determination and justification The principle of daily balancing shall be established. In addition the individual allocation procedures shall be established. In particular it is intended to establish variant 2 according to the Network Code on Gas Balancing for the standard load profile procedure. The distribution system operators shall be designated as the forecasting party. [..] The justification is contained in the German version of the consultation document. 4

5 Determination Proceedings for Gas Balancing: First Consultation 2. Prices for imbalance gas 2.1. Description of the new regulation The Network Code on Gas Balancing contains a series of stipulations for the calculation of imbalance prices. These necessitate adjustments to the currently applied imbalance price. As in the previous model, the differential quantity between inputs and off-takes (imbalance quantity) shall be multiplied by a negative or positive imbalance price. The data relevant for balancing shall be used for this (see section 1). The daily imbalance quantity shall be established for each (master) balancing group on the basis of the net balance between daily inputs and off-takes. If differences arise in this regard, these shall be settled using the positive imbalance price (for short supply) and the negative imbalance price (for surplus supply). Two price elements must be taken into account in the new system for both prices. Pursuant to Article 22 (2) of the Network Code on Gas Balancing the daily positive imbalance price is the higher of the following two prices: (1) the highest price of all balancing gas purchases by the market area manager or (2) the weighted average price of gas in respect of that gas day, plus a small adjustment. The daily negative imbalance price is obtained from the lower of the following two prices: (1) the lowest price of all balancing gas sales by the market area manager or (2) the weighted average price of gas in respect of that gas day, minus a small adjustment. Consequently, in contrast with the previous system there will be different (market area specific) imbalance prices in the two market areas NCG and GASPOOL. This is because it is foreseeable that often both the prices for procuring the balancing gas (first price element) and the prices on the gas trading markets (second price element) in the market areas will vary. For the first price element, pursuant to Articles 22 (3) and 5 of the Network Code on Gas Balancing the following balancing products must be taken into account in respect of the gas day in question: MOL 1 (exchange, global), MOL 2 (exchange, quality-specific and local, and exchange in other market area, quality-specific and local) and MOL 3 (platform, local). Both day ahead and within day products shall be taken into account here. Contrary to the proposal from the market area managers (recommendation document, p. 14), the prices for local products shall be included. For the second price element, the weighted average price of gas on the gas trading exchange with delivery at the virtual trading point shall be used for determining the price. Day ahead and within day products shall always be taken into account. At present only the EEX at the NCG and GASPOOL virtual trading points is operating. The EEX currently lists a daily reference price ( Daily Reference Price Natural Gas ) which does not meet these requirements because within day trades are not reflected. In this respect the EEX is called upon to create a new index. If more than one exchange operates within one market area, this information should also be taken into account. Furthermore contrary to the proposal from the market area managers (recommendation document, p. 9) an adjustment of 10% shall be applied to the weighted average price of gas. This means that the weighted average price of gas is to be multiplied by 1.1 for the price for positive imbalance gas. Conversely, the weighted average price of gas is to be multiplied by 0.9 for the price for negative imbalance gas. This results in the following price formulae: Positive imbalance price in /MWh = marginal buy price: Max{highest balancing gas purchase market area manager (global, quality-specific, local), average price of gas * 1.1} 5

6 Determination Proceedings for Gas Balancing: First Consultation Negative imbalance price in /MWh = marginal sell price: Min{lowest balancing gas purchase market area manager (global, quality-specific, local), average price of gas * 0.9} If the imbalance prices cannot be derived on the basis of the principles described above, the positive and negative imbalance price from the previous day shall be used to determine the imbalance prices Intended determination and justification It is intended to determine the methodology for calculating the imbalance price to be applied in the market areas and grant the necessary approval. [..] The justification is contained in the German version of the consultation document. 3. Within day obligations 3.1. Description of the new regulation As well as the daily balancing regime there shall be a within day incentive mechanism in which all physical and virtual inputs and off-takes shall be considered on an hourly basis. For SLP and RLM exit points, a flat daily profile shall be allocated as the daily off-take quantity in the balance. This mechanism is intended to give targeted incentives for inputs delivered at a constant rate. The payments within the framework of the within day incentive mechanism do not affect settlement in daily balancing. Under the within day incentive mechanism, every hour the market area manager calculates the net balance of all allocated inputs and off-takes for each master balancing group. Any balances outside the permitted tolerances are considered cumulatively over the next hours, irrespective of the direction. The balancing group manager must pay a flexibility charge for the cumulative excess quantity, after deduction of the tolerance, in euros per MWh. The quantity for which the flexibility charge must be paid is referred to as the within day flexibility quantity. The hourly imbalance shall not be settled. The following allocation groups shall be distinguished for the purposes of the within day incentive mechanism: (1) For entry and exit points at market area and cross-border interconnection points, entry points from domestic production facilities, entry and exit points to/from storage facilities and purely trading nominations (VTP nominations), the principle is allocated as nominated. There is no provision for tolerances under the within day mechanism. (2) At RLM exit points (also at points with alternative nomination procedures, RLMNEV) the hourly share of the daily actual offtake quantity distributed evenly over the gas day is allocated (as the flat daily profile ). The balancing group manager receives a daily tolerance of +/- 7.5% with respect to this quantity. This means that respective deviations in the hourly calculations are cumulated across the remaining hours of the gas day (see Figure 1 for an example). 6

7 Determination Proceedings for Gas Balancing: First Consultation Figure 1: Supply to an RLM exit point (3) For SLP exit points the quantity allocated is the hourly share of the daily quantity of the applicable standard load profile distributed evenly over the entire gas day (as the flat daily profile ). There is no provision for tolerances under the within day mechanism. However, the flexibility charge is collected only on those days on which the market area manager has used balancing gas in opposite directions (purchase and sale), i.e. for within day structuring, and costs have arisen for the market area manager from that. Opposite balancing actions that were necessary as a commercial conversion for the conversion system shall not be taken into account. The balancing gas quantity for within day structuring is calculated from the smaller of the two opposite balancing gas quantities plus an equal balancing gas quantity in the opposite direction ( flexibility balancing gas ). Initially the quantity of flexibility balancing gas is used to determine the market area manager's costs for this within day structuring service. The market area manager's costs are obtained by multiplying the respective weighted average price for purchasing and selling balancing gas by the quantity of flexibility balancing gas. The example below illustrates the methodology: 7

8 Determination Proceedings for Gas Balancing: First Consultation Day D Price Balancing gas quantity Costs/revenues Purchase MWh - 6,000 Purchase MWh - 13,200 Sub-total Purchase 480 MWh - 19,200 Sale MWh 1,250 Sale MWh 600 Sub-total Sale Total 570 tive) - 90 MWh 1,850 MWh (cumula- - 17,350 Table 1: Example of costs and revenues for within day balancing gas procurement In this case the quantity of flexibility balancing gas is 180 MWh (90 MWh x 2). The remaining balancing gas quantity amounting to 390 MWh is not considered to have been caused by within day structuring. The cost of flexibility balancing gas is calculated from the quantity-weighted revenues for the sale of the flexibility balancing gas and the quantity-weighted costs of the purchase of the flexibility balancing gas (each 90 MWh). The following costs thus arise: Revenues from flexibility Cost of flexibility balancing gas Net balance: cost of balancing gas flexibility balancing gas ( 1,850 / 90 MWh) x 90 MWh (- 19,200 / 480 MWh) x 90 MWh 1,850-3,600 = 1,850-3,600 = - 1,750 Table 2: Example of costs and revenues with the use of flexibility balancing gas In this case the market area manager's costs for within day structuring are therefore 1,750. The flexibility charge to be paid by the balancing group manager is derived from the costs of flexibility balancing gas that have arisen for the gas day in question. In the Ruling Chamber's view, two different variants can be considered for the precise determination of the flexibility charge: Alternative 1: The flexibility charge corresponds to the quantity-weighted costs for the flexibility balancing gas in per MWh, i.e. the balancing gas costs for within day structuring are divided by the flexibility balancing gas. In the above example, the flexibility charge for the balancing group manager is 9.72/MWh ( 1,750 / 180 MWh). Alternative 2: The costs for flexibility balancing gas are distributed directly to all balancing group managers' within day flexibility quantity. The flexibility charge to be paid is therefore obtained by dividing the costs for flexibility balancing gas by the within day flexibility quantity for all balancing group managers in the market area. 8

9 Determination Proceedings for Gas Balancing: First Consultation Assuming that cumulatively the within day flexibility quantity on day D is 130 MWh across all balancing group managers, the flexibility charge for the above example is 13.46/MWh ( 1,750 / 130 MWh) Intended determination and justification It is intended to determine the specific form of the within day obligations. [..] The justification is contained in the German version of the consultation document. 4. Within day information provision 4.1. Description of the new regulation Article 34 (2) of the Network Code on Gas Balancing provides that at least two updates of the measured gas flows shall be made available to the network user on gas day D if the allocations do not correspond to the nominations. This regulation is applicable to exit points with demand metering (RLM). Up to now the Cooperation Agreement on Gas (version from 28 June 2013) merely provides for one within day report of the aggregated hourly metered quantities per RLM time series for the recording period from 06:00 to 12:00. This regulation shall be retained. It is intended to introduce provision for a second update for RLM off-takes. In addition to the existing submission obligation, these shall record the metered off-takes at the RLM exit points during the period from 12:00 to 15:00 (see Figure 2). Figure 2: Within day information provision 9

10 Determination Proceedings for Gas Balancing: First Consultation In contrast with the previous arrangement in the Cooperation Agreement, the distribution system operator shall send the first report to the market area manager by no later than 3 p.m., whereas the market area manager must submit the data to the balancing group manager by no later than 4 p.m.. The submission period is thus reduced to a total of four hours. This shortened submission period shall also apply to the second update. Consequently, these data recorded by the distribution system operator must be submitted to the market area manager by no later than 6 p.m.. The report from the market area manager to the balancing group manager must be made by no later than 7 p.m.. The scope of the data and the aggregation of the first and second updates must match the content stipulated in the Cooperation Agreement to date. The second data report also contains the renewed submission of the gas flows from the beginning of gas day D, i.e. the data from the recording period from 6 a.m. to 12 p.m. of gas day D (if applicable in updated form) must also be included in the second within day data report. Data submission on day D+1 shall in principle remain unchanged, except that in this case the submission period shall also be shortened. The balancing group manager receives the data earlier, at 10 a.m., not 1 p.m Intended determination and justification It is intended to determine the specific content of the obligations to update the submission of RLM information twice on day D. The submission of data on day D+1 shall continue to be governed by the Cooperation Agreement. [..] The justification is contained in the German version of the consultation document. 5. Shortening of the nomination period at the virtual trading point (VTP) 5.1. Description of the new regulation Article 5 of the Network Code on Gas Balancing provides for a shortening of the nomination period at the virtual trading point (VTP). The market area manager shall reduce the processing time for confirmation of a trade notification, i.e. for the VTP nomination, to a maximum of thirty minutes. Currently a lead time of two hours from the start of the next hour applies to renominations at the VTP (Cooperation Agreement in the version from 28 June 2013, Annex 4, Article 19 (5)). With regard to the timing of the submission, withdrawal and amendment of trade notifications, Article 5 (2) of the Network Code on Gas Balancing provides that this shall be determined between market area managers and network users in the transport contract or another legally binding agreement Intended determination and justification It is not intended to specify any regulations in the determination. The stipulations from the Network Code on Gas Balancing should be implemented in the Cooperation Agreement and the standard contracts already governed by the Cooperation Agreement. [..] The justification is contained in the German version of the consultation document. 10

11 Determination Proceedings for Gas Balancing: First Consultation 6. Balancing gas 6.1. Description of the new regulation Articles 6 ff. of the Network Code on Gas Balancing contain various stipulations on the procurement and use of external balancing gas, which in certain points render it necessary to make adjustments to the target model for the standardised procurement of balancing gas currently applied by the market area managers. In this regard external balancing gas shall primarily be procured through the exchange through short term standardised products. The costs of the individual measures shall only be taken into account within the respective rank of the merit order list (MOL). Within the MOL levels, preference shall be given to using within day products over day ahead products. The priority for internal balancing gas shall remain unchanged. The MOL shall be divided into four ranks (see Figure 3): Figure 3: Merit order list MOL 1: The respective market area manager shall initially meet an existing demand for external balancing gas through the use of balancing gas procured on the exchange in its own market area without fulfilment restrictions ( title products ) (MOL rank 1). MOL 2: If MOL rank 1 is not suitable on account of a quality-specific or local requirement, the market area manager can procure and use quality-specific products (or local products, where available) on the exchange in its own market area or balancing gas on the exchange in an adjacent market area (MOL rank 2). The same applies if the liquidity of the exchange in the market area manager's own market area is inadequate. In this case the market area manager can likewise make use of exchange-traded products from an adjacent market area. To this extent the quality-specific (or local) exchange-traded products from the market area manager's own market area and the exchange-traded products from the adjacent market area are equivalent. Within MOL rank 2 the sole determining criterion for the decision on the use of available and suitable products is the price, although in the case of procurement in an adjacent market area appropriate account must be taken of additional capacity costs arising for transport when establishing the order 11

12 Determination Proceedings for Gas Balancing: First Consultation within MOL 2. The booking and use of capacities at cross-border and market area interconnection points required for the procurement of balancing gas in an adjacent market area shall be performed in a way that does not restrict other network users' opportunities to book and/or use capacities at the relevant cross-border and market area interconnection points. The market area managers should therefore aim to book short term or interruptible capacities at the relevant cross-border and market area interconnection points whenever possible. MOL 3: The Ruling Chamber further intends to approve the continued use of the existing bilateral balancing platforms in the NCG and GASPOOL market areas as an interim measure within the meaning of Article 45 ff. of the Network Code on Gas Balancing, initially for a period of five years. However, contrary to the market area managers' target model as currently used, the balancing platforms may be used to procure only those balancing products that are not offered on the exchange, i.e. use of the balancing platforms is restricted to the procurement of local or point-specific products. Furthermore, the use of balancing products that are procured via the balancing platforms must be subordinate to the use of any exchange-traded products (global and quality-specific from the market area manager's own or an adjacent market area) (MOL rank 3). MOL 4: The standardised long-term products and flexibility services included under MOL 3 and MOL 4 in the market area managers' target model as currently applied shall be grouped together under MOL rank 4. These products shall be procured in a market-based manner through a transparent and non-discriminatory public tender procedure. The products are only permitted to be used if short-term standardised products (MOL rank 1 3) are not available in sufficient quantity or are not suitable for maintaining the network within its operational limits. The decision on the use of the various products within MOL rank 4 depends on the actual needs and on the costs Intended determination and justification It is intended to determine the essential principles of the procurement and use of external balancing gas and to grant the necessary approvals. The specific nature of various aspects of the procurement and use of external balancing gas shall be regulated in the Cooperation Agreement and its annexes. [..] The justification is contained in the German version of the consultation document. 7. Neutrality charge(s) for balancing 7.1. Description of the new regulation In accordance with Article 30 (2) and (5) of the Network Code on Gas Balancing, provision shall be made for separate neutrality charges for balancing in respect of non-daily metered (SLP) and intraday metered off-takes (RLM). It is necessary to determine a methodology for calculation that serves as the basis for the forecasted costs and revenues of the gas balancing regime, observing neutrality of costs and revenues vis-à-vis the market area managers. The neutrality charges for balancing for the SLP and RLM off-takes shall be borne by the balancing group managers who supply SLP exit points, RLM exit points or RLM exit points with alternative nomination procedures (RLMNEV). No charge shall be imposed for other off-takes (storage facilities, cross-border interconnection points etc.). The respective neutrality charge for balancing shall be imposed on the basis of the off-take quantity relevant for balancing at the exit 12

13 Determination Proceedings for Gas Balancing: First Consultation point in euros per MWh. The market area manager in each market area shall set up a separate neutrality charge account for both neutrality charges for balancing; the costs and revenues for the off-take-specific balancing gas and imbalance gas shall be posted to these accounts. The costs and revenues for balancing gas and imbalance gas shall be posted to the respective neutrality charge accounts: The costs and revenues from negative and positive imbalance gas and the costs and revenues from the within day obligations shall be allocated to the RLM neutrality charge account. The costs and revenues from the settlement of network accounts and therefore from SLP reconciliation shall be allocated to the SLP neutrality charge account. The costs and revenues from the procurement or sale of external balancing gas shall be divided between the RLM and SLP neutrality charge accounts according to the following distribution formula: Calculation and allocation shall be performed daily. If both costs and revenues arise from the use of positive and negative external balancing gas (commodity), the net balance of these shall be calculated at the end of the gas day. If standardised products or flexibility services are used over the long term for the procurement or sale of balancing gas, the demand chargeused for this shall be apportioned pro rata to the individual days of the period of the contract. On gas days on which external balancing gas is used, these costs shall be allocated to the RLM and SLP neutrality charge accounts according to the distribution formula set for that gas day. For the SLP exit points the distribution system operators' network account balances 1, to be calculated according to the system set out in the Cooperation Agreement on Gas (version from 28 June 2013), shall be used and aggregated across the market area. For the RLM exit points the net balances of all balancing groups shall be determined by comparing the relevant input and off-take quantities and likewise aggregated across the market area. If the two net balances are in the same direction, the ratio of the two net balances to the total shortfall (in the same direction) determines the allocation of the costs or revenues for the procurement of external balancing gas established for that gas day by the market area manager. Allocation to the respective neutrality charge account depends on the respective share in each case. If the calculated daily balances of inputs and off-takes for the RLM exit points and the SLP exit points are not in the same direction, i.e. the two net balances do not both indicate either a surplus or short supply, the costs or revenues for the procurement of external balancing gas calculated for that gas day shall be allocated to the neutrality charge account of the exit group whose net balance indicates the same direction as the use of external balancing gas. No allowance shall be made for (putatively) avoided balancing gas. If no use of external balancing gas takes place on a gas day, in the Ruling Chamber's view, two different variants can be considered for the allocation of the demand charge: costs of holding quantities available can be apportioned half each to the RLM and SLP neutrality charge account respectively; alternatively the ex post calculated average of all distribution formula in the contribution period can be used. The previously envisaged forecasting and distribution mechanism shall essentially be retained. The balance of the neutrality charge accounts shall be forecasted separately for the settlement period, the contribution period. In contrast with previous practice, the contribution period shall always be 12 months, beginning on 1 October of each calendar year. If the market area managers anticipate lower revenues for a neutrality charge account than the eligible costs, a neutrality charge for balancing shall be imposed. The neutrality charges for balancing shall be published by the market area managers four weeks before they are imposed and shall remain unchanged for the duration of the contribution period. Any deficits or surpluses in the individual neutrality charge accounts shall be taken into consideration in the next contribution period. Surpluses shall first be used to reduce the neutrality charge for balancing and to meet the forecasted deficit for the next contribution period. Remaining liquidity shall be distributed in two stages: first to the balancing group managers who have paid a neutrality charge for balancing in 13

14 Determination Proceedings for Gas Balancing: First Consultation the contribution period, and subsequently to all balancing group managers depending on the offtaken SLP and RLM transport quantity relevant for balancing in the contribution period. The two neutrality charge accounts for SLP and RLM shall each be considered separately. Furthermore, distribution shall take place directly at the start of the contribution period following the contribution period the surplus was achieved in (p 0 ), i.e. in p 1, immediately after all data required for calculation of the distribution have been submitted (amount of neutrality charge for balancing finally paid, transport quantities finally off-taken) Intended determination and justification It is intended to determine a separate neutrality charge for balancing for non-daily metered (SLP) and daily metered off-takes (RLM). The market area manager shall set up separate neutrality charge accounts for each of these neutrality charges for balancing. The costs from the procurement and sale of external balancing gas shall be allocated to the individual neutrality charge accounts according to the specified methodology. [..] The justification is contained in the German version of the consultation document. 8. SLP incentive scheme: settlement of network accounts 8.1. Description of the new regulation According to Article 39 (4) of the Network Code on Gas Balancing, an incentive mechanism can be provided that supports the provision of more precise SLP forecasting. It is intended to further develop the previously introduced and essentially tried and tested incentive system for the settlement of network accounts. Up to now the Cooperation Agreement on Gas (version from 28 June 2013) provides for an incentive mechanism on a monthly basis within the framework of the network account system. In this mechanism, monthly balances of the submitted SLP forecasts are compared with the arithmetically calculated SLP off-takes in the respective network accounts of the distribution system operators in the course of calculating a ratio (monthly network account balance 0 divided by monthly sum of SLP allocations). If a network account is found to be in short supply by more than 10%, currently the entire monthly network account balance 0 shall be deducted from the future reconciliation payments. This system of establishing deviations from off-takes in the case of standard load profile customers shall be continued, but the period under consideration shall be shortened. The monthly view shall be replaced by a daily view. Furthermore, the reconciliation quantities of the RLM off-takes shall no longer form part of the account balancing. For this purpose, in the new regulation the daily network account balance 1 (in kwh) shall be divided by a distribution system operator's daily SLP allocations (in kwh). If in the event of short supply the ratio exceeds a certain threshold value, to be defined, the daily network account balance 1 shall be deducted from the outstanding SLP reconciliation payments. This settlement shall continue to be performed on a monthly basis and contains the total of all short supply quantities that have occurred on the individual days of the respective month as a result of the threshold value being exceeded. A suitable threshold value shall be determined by the market area managers in agreement with the Federal Network Agency. To this end, experience with the present incentive mechanism shall be taken into account. This may take the form of statistical evaluations of the network accounts of past gas years, for example. A national threshold value shall be formed from the calculations for both market areas. According to its own initial estimates, the Ruling Chamber would consider a threshold value of approximately 15% as appropriate. The market area managers shall conduct a review and assessment of the incentive mechanism (Article 11 (4) of the Network Code on Gas Balancing) and the set threshold values every two years. 14

15 Determination Proceedings for Gas Balancing: First Consultation 8.2. Intended determination and justification Within the framework of the existing network account system in the Cooperation Agreement (version from 28 June 2013), a day-specific incentive mechanism on the basis of the calculated network account balance 1 shall be introduced for the purpose of the future provision of a more precise forecast for a network user's non-daily metered off-takes. Details of the application and design of standard load profile procedures shall continue to be regulated in the Cooperation Agreement. [..] The justification is contained in the German version of the consultation document. 9. Reporting obligations and transparency 9.1. Description of the new regulation Articles 46, 8 (6), 9 (3) 46 and 38 of the Network Code on Gas Balancing provide for the establishment of new reporting obligations. Article 46 of the Network Code on Gas Balancing stipulates that an annual report shall be published on planned and implemented interim measures. The first report shall be published one year after the determination enters into force. The report shall contain at least the information stated in Article 46 (1) of the Network Code on Gas Balancing. Article 8 (6) of the Network Code on Gas Balancing provides for an annual review of the use of flexibility services and Article 9 (3) likewise provides for an annual review of the procurement of balancing gas at adjacent trading points. In addition to the above reporting obligations the market area managers shall also integrate the obligation to furnish evidence as set out in Article 48 of the Network Code on Gas Balancing into this report, and thus by bundling the fulfilment of all obligations to report and furnish evidence produce a comprehensive report on experiences with the procurement of balancing gas. Furthermore, Article 38 of the Network Code on Gas Balancing provides for an assessment of the new regulations on information provision. For this reason, in accordance with Article 38 of the Network Code on Gas Balancing the market area managers shall compile a one-off report in the form of a cost benefit analysis on changed regulations pertaining to information provision and shall consult with the market. In particular the report shall include the scenarios stated in Article 38 (1) (a c) and a breakdown of costs and benefits among the categories of affected parties. On the basis of the consultation results, the Federal Network Agency shall decide on any relevant changes of information provision. This report shall be provided two years after entry into force of the determination so that the experience gained by that time can be incorporated in the report. The results of the incentive scheme and the transparency obligations shall be incorporated in the report on the accuracy of the forecast of SLP exit points to be published every two years according to Article 42 (3) of the Network Code on Gas Balancing. The report shall present the starting point, development and if applicable proposals to improve the forecasting quality of SLP in summary form. Provision shall be made for the market area managers to participate in reporting via the distribution system operators. With regard to the transparency obligations, essentially the previous level shall be maintained, with supplements and further specifications in certain sub-areas: Prices for imbalance gas The market area managers shall publish the methodology for calculating the imbalance price on their website. In addition, the applicable imbalance prices shall also be published retrospectively. In consideration of the stipulations in Article 40 (2) nos. 1 and 2 GasNZV and Article 10 (5) of the Network Code on Gas Balancing, in particular the information for 15

16 Determination Proceedings for Gas Balancing: First Consultation determining the daily positive and negative imbalance prices shall be published by the trading platform operator or by the market area manager. In the interests of the traceability of the calculated imbalance prices in /MWh, the highest balancing gas purchase price and lowest balancing gas purchase price and the weighted average price of gas shall be published daily with an adjustment of +/- 10%. Expected imbalance prices shall be published in updated form on an hourly basis. Whereas the information about the weighted average price is held by the trading platform operator, the market area manager has the information about the procurement of balancing gas. In this case an exchange of data should take place between those involved in order to guarantee publication on one platform. As before, the information shall be published for at least the last twelve months in a format that can be used for further electronic processing by standard software. This will enable the market participants to follow the price trend and to forecast it as it is updated. Within day obligations and within day information The introduction of within day obligations is accompanied by transparency obligations for the market area managers. The market area managers must publish the quantities of flexibility balancing gas and the associated costs on a daily basis. The respective flexibility charge must likewise be published on a daily basis, in /MWh. If alternative 2 is used to determine the flexibility charge, the within day flexibility quantity from all balancing group managers in the market area shall also be published on a daily basis. Balancing gas According to the Network Code on Gas Balancing the market area managers are obliged to publish various information on the use of balancing gas. The market area manager must publish this on a daily basis, retrospectively for at least 12 months and in a format that can be used for further electronic processing by standard software. Taking account of the current publications on the use of balancing gas, in particular the following information shall be published for MOL ranks 1 to 3: day of use, delivery location, number of lots, duration of use, lot size, daily quantity, gas type, commodity price and MOL rank broken down according to purchase and sale by the market area manager. For procurement according to MOL 4, in particular information about the extent, purpose and price of the service to be contracted shall be published in addition. Neutrality charges for balancing The neutrality charges for balancing shall be published by the market area manager four weeks before they are imposed and shall remain unchanged for the duration of the contribution period. The balances of the individual balancing accounts shall be published on a monthly basis. SLP incentive scheme: settlement of network accounts The previously applicable transparency obligations in the event of non-direction-specific exceeding of the network account balance and inadequate data quality and/or data transmission in the case of SLP allocations by the distribution system operator shall be continued. All time series that the distribution system operator must send in order to produce the network account balance shall be included in the review of the data quality. The determination of a daily reference value in the event of non-direction-specific exceeding of network account balance 1 shall likewise be performed by the market area managers, taking account of the methodology to be used for definition of the threshold value of the daily deviation. In light of the period under consideration and in order to achieve the intended incentive effect, it appears expedient to proceed with the publication of a distribution system operator ( transparency list ) not before the reference value has been exceeded on several days within the month. 16

17 Determination Proceedings for Gas Balancing: First Consultation 9.2. Intended determination and justification The corresponding stipulations pertaining to the reporting obligations already result from the Network Code on Gas Balancing. The specific deadlines for submission of the reports shall be defined. In addition, individual transparency obligations shall be defined. [..] The justification is contained in the German version of the consultation document. 10. Other information As a general principle the Ruling Chamber considers a staged entry into force of the new balancing regime on the basis of the timetable proposed by the market area managers (recommendation document, p. 52) to be appropriate. 17

18 Recommendation Document based on the Regulation establishing a Network Code on Gas Balancing of Transmission Networks This is a non-binding translation of the original recommendation document written in the German language which is provided for information purposes only. In the event of any inconsistency or discrepancy between the German version and the English language version of this document, the German language version shall apply and prevail. GASPOOL Balancing Services GmbH NetConnect Germany GmbH & Co. KG In cooperation with: bayernets GmbH Fluxys Deutschland GmbH Fluxys TENP GmbH GASCADE Gastransport GmbH Gastransport Nord GmbH Gasunie Deutschland Transport Services GmbH Gasunie Ostseeanbindungsleitung GmbH GRTGaz Deutschland GmbH jordgastransport GmbH Lubmin-Brandov Gastransport GmbH NEL Gastransport GmbH Nowega GmbH ONTRAS Gastransport GmbH OPAL Gastransport GmbH & Co KG Open Grid Europe GmbH terranets bw GmbH Thyssengas GmbH

19 1 Contents Figures and Tables Introduction Trading of balancing gas within adjacent balancing zones Imbalance charges Proposal Justification of proposal and evaluation of responses received Reconciliation Within day incentive mechanism Target model for a within day incentive mechanism Proposal Justification of proposal and evaluation of responses received Setting of the tolerance limit Proposal Justification of proposal and evaluation of responses received Flexibility fee Proposal Justification of proposal and evaluation of responses received Analysis of the criteria set out in Article 26 (5) NC BAL Criterion (a): Necessity Description of the scenarios analysed Result of the scenario analysis Criterion (b): Information provision Proposal Justification of proposal and evaluation of responses received Criterion (c): Financial impact Criterion (d): Effect on new network users Criterion (e): Cross-border effects Criterion (f): Impact on the wholesale market Criterion (g): Non-discrimination Continuation of the structuring charge Neutrality charge for balancing... 47

20 2 7 Interim measures Proposal Justification of proposal and evaluation of responses received Transitional arrangements... 53

21 3 Figures and Tables Figure 1: Introduction of procurement at TTF... 7 Figure 2: Share of Quality balancing actions in the NCG market area Figure 3: Share of Quality balancing actions in the GASPOOL market area Figure 4: Sample calculation within day incentive mechanism Figure 5: Maximum flexibility utilisation under the present regime Figure 6: Sample calculation small customer portfolio Figure 7: Sample customer with a relatively high load factor Figure 8: Sample customer with a medium load factor Figure 9: Sample customer with a low load factor Figure 10: Sample scenario Figure 11: Sample scenario Figure 12: Sample scenario Table 1: Flexibility charge and flexibility fee formulae Table 2: Sample calculation of balancing gas price spread Table 3: Overview of additional balancing costs for one gas year Table 4: Price spreads on days with opposite balancing actions (NCG) Table 5: EEX price spreads in EUR/MWh in the GASPOOL market area Table 6: EEX price spreads in EUR/MWh in the NCG market area Table 7: Trading participants at EEX (as at 12/2013) Table 8: Planned implementation schedule... 53

22 4 1 Introduction The Regulation establishing a Network Code on Gas Balancing of Transmission Networks (hereinafter NC BAL) 1 is expected to come into force in April The regulation is aimed at harmonising the European gas balancing regimes. To this end, NC BAL outlines Europe-wide standards for gas balancing regimes which must be implemented by 01 October 2015/01 October , and imposes consultation obligations on the transmission system operators (TSOs) and market area managers (MAMs) concerned which apply in certain circumstances. In a letter dated 09/12/2013 the German federal regulator Bundesnetzagentur (Federal Network Agency) instructed the MAMs to submit by 03/03/2014 applications, proposals and recommendation documents based on a consultation in the interest of enabling an efficient and focused NC BAL implementation procedure in Germany in compliance with the time limits set out in NC BAL. The MAMs GASPOOL and NetConnect Germany (NCG), together with the TSOs, have complied with this request, and have prepared proposals for the implementation of NC BAL. The consultation document preceding this recommendation document provided a detailed description of the modified gas balancing regime which is to apply in the German market areas GASPOOL and NCG, and which serves to implement the requirements of the regulation. In the course of the consultation conducted in the period from 17 January 2014 to 31 January 2014 market participants had the opportunity to submit feedback and responses on the intended new gas balancing regime. During the consultation period a total of 20 responses were received, which are evaluated and given consideration below. Five of the 20 responses were received from associations, eleven from traders, some of whom are based outside of Germany, and two from domestic distribution system operators. Responses were also submitted by an Austrian distribution area manager and by the European Energy Exchange (EEX). No feedback was received from regulatory authorities or from network operators based outside of Germany. 1 All references made to NC BAL in this document refer to the German-language version of NC BAL dated 27/11/2013 as agreed in the comitology meeting. 2 Pursuant to Article 52 (1) NC BAL the national regulatory authority may permit the TSO/MAM in response to a justified request to achieve compliance with the provisions of the regulation by the end of a period of 24 months from 01/10/2014.

23 5 The MAMs and TSOs wish to express their thanks for the broad and constructive stakeholder participation in the consultation. The recommendation document prepared by the MAMs and TSOs contains the following applications and proposals regarding a modified gas balancing regime: I. Application for approval to trade gas quantities within adjacent balancing zones in accordance with Article 9 (3) NC BAL (chapter 2). II. Proposal for an imbalance charge calculation model in accordance with Article 20 (1) NC BAL (chapter 3). III. Application for approval to take into account the prices of qualityspecific products and of exchange-traded products traded within adjacent balancing zones in accordance with Article 22 (5) NC BAL (chapter 3). IV. Proposal for a reconciliation model under the new gas balancing regime (see chapter 4). V. Proposal for a within day obligation model in accordance with Article 26 NC BAL (chapter 5). VI. Application for approval to continue to apply the current structuring charge as prescribed under the GABi Gas ruling (chapter 5.5). VII. Calculation of the neutrality charge for balancing in accordance with Article 30 NC BAL (chapter 6). VIII. Application for approval of an interim measure involving the continuation of the existing balancing platforms in accordance with Article 47 NC BAL (chapter 7). IX. Application for an extension of the implementation deadline in accordance with Article 52 NC BAL (chapter 8).

24 6 2 Trading of balancing gas within adjacent balancing zones The MAMs hereby apply to the Federal Network Agency under Article 9 (3) NC BAL to approve the MAMs trading of gas quantities within adjacent balancing zones and their arranging for transportation of such gas to and from such balancing zones. The trading of gas quantities within adjacent balancing zones is intended to serve as an alternative to the trading of title products with delivery at the Virtual Trading Point (VTP) and/or locational products within the MAMs own balancing zones. The MAMs consider the procurement of balancing gas quantities within adjacent balancing zones to be an appropriate balancing action, as it provides them with an opportunity to achieve a local and/or quality-specific effect while taking advantage of the high liquidity of products traded on the VTP. Moreover, it can help reduce the risk of oligopolistic prices within individual sub-markets, as liquid trading hubs are used instead to procure the gas required for balancing actions. An example is the Dutch trading hub Title Transfer Facility (TTF), which has been used by NCG as an alternative place of procurement since 2011 in order to procure low-calorific value gas ( L gas ) for balancing purposes at optimised costs and to ensure the safe operation of the L gas networks within the NCG market area in this way. The positive effect that NCG s use of the TTF has had on the development of balancing gas prices is illustrated in Figure 1. Since the introduction of procurement through the TTF in the NCG market area on 01/06/2011 the prices of balancing gas have largely been moving within a price range that reflects the spread between the positive and negative imbalance prices.

25 7 Figure 1: Introduction of procurement at TTF The necessity to trade balancing gas within adjacent balancing zones can also be attributed to the current regulatory framework: shippers increasingly book short-term capacity (primarily day-ahead capacity) based on a forecast of the quantities they expect to supply on the following day in order to optimise costs. According to statements made by shippers, when calculating the required capacity they generally do not factor in any gas they might provide for system balancing purposes, as the MAM s balancing actions cannot be predicted by them. When calculating the required capacity and subsequently booking the capacity in the calculated quantity, shippers only take into account quantities that can be planned by them (transit transportation, end user consumption etc.). As a consequence, they cannot submits bids and offers for balancing gas on the following day, as they do not have the capacity available required to transport the respective quantities at the relevant point in time. Where the MAM, however, is in a position to calculate the required capacity level itself and then book the corresponding capacity, then it is ensured that the capacity required for balancing actions is available. Article 9 (3) NC BAL provides that shippers access to or use of the capacity offered at the cross-border or market area interconnection points concerned shall not be

26 8 restricted. In order to comply with this requirement, the MAMs aim to primarily book interruptible capacity at the cross-border and market area interconnection points concerned.

27 9 3 Imbalance charges 3.1 Proposal Article 19 (1) NC BAL provides for imbalance charges to be related to the day (gas day). Under this model balancing group managers (BGMs) pay or receive imbalance charges in respect of their daily imbalance quantities, with the charges being based on the prices of system balancing actions. The MAMs hereby submit to the Federal Network Agency a proposal for an imbalance charge calculation model in accordance with Article 20 (1) NC BAL which outlines the calculation of the daily imbalance quantity referred to in Article 21 NC BAL, the derivation of the applicable price referred to in Article 22 NC BAL, and any other necessary parameter. Although under NC BAL consultation is not required, the MAMs believe that including the relevant explanations in the consultation is in the interests of market participants. This has been confirmed in the course of the consultation by the responses received. Calculation of the daily imbalance quantity: Pursuant to Article 21 (1) NC BAL the daily imbalance quantity in relation to a BGM s balancing group corresponds to the net balance between daily inputs and daily offtakes. Where a BGM s daily inputs do not equal the daily offtakes, its balancing group is deemed imbalanced, and daily imbalance charges are applied in accordance with Article 23 NC BAL. These charges will not be applied to balancing groups which are in balance. There will be no adaptation of the logic underlying the calculation of the imbalance quantity as allowed for under Article 21 (2) NC BAL, as none of the exceptions listed therein are given under the German balancing regime. According to Article 21 (2) NC BAL the logic underlying the calculation of the daily imbalance quantity may be adapted where a linepack flexibility service is offered and/or any arrangement is in place whereby BGMs provide gas (e.g. gas in kind): to cover any gas unaccounted for as offtaken from the system (e.g. network losses or metering errors), and/or

28 10 to cover any gas used by the TSO for the operation of the system (e.g. fuel gas). Under the German gas balancing regime no linepack flexibility service is planned to be offered, as the linepack is utilised as an internal balancing tool. Neither is an adjustment of the imbalance quantity deemed necessary to take account of the two other points mentioned, for one because network losses and metering inaccuracies are included in the balancing gas quantities procured from shippers by the MAMs, and secondly, because the TSOs own gas use is allocated as an offtake. According to Article 21 (6) NC BAL the daily imbalance charge is to be based on the so-called final daily imbalance quantity, which shall be determined based on the data reported on the day D+1CD (calendar day). Any differences between the data provided on the day D+1CD and the final data as determined after the end of the delivery month are to be cleared through a separate settlement procedure. The current gas balancing regime generally also relies on the D+1CD data for invoicing, but at present the data can still be adjusted by the date M+12BD (business days) to reflect the application of substitute values in the case of missing or erroneous meter reads. Under the future gas balancing regime the imbalance clearing prices will be based on marginal prices, which are more difficult for BGMs to determine, given that they are derived directly from the balancing transactions entered into by the MAMs. The new pricing rule thus involves a tightening of today s regime. In view of this background, it appears justified that BGMs should not bear the price risk in respect of differences that arise as a result of data updates coming in after the end of the delivery month (data provided on the day M+12BD) because on the day M+12BD BGMs are no longer in a position to take any counterbalancing measures to prevent imbalances in their balancing groups. Any differences arising between M+12BD and D+1CD will primarily be due to the application of substitute values and of the final calorific value used for billing purposes, which can hardly be projected by BGMs during the delivery month. It is rather the data reported intraday and on D+1CD that provide BGMs with information on which to base their renominations for the current gas day as well as for the following gas day.

29 11 As mandated by this logic, in the future operators of networks to which system exit points are connected ( exit network operators ) will be required after the end of the delivery month to submit to the MAMs by M+12BD values that have been updated to take account of substitute values and of calorific value changes. As a consequence of such calorific value corrections, under the new gas balancing regime the reconciliation invoicing process for end users equipped with metering equipment recording hourly consumption (so-called RLM exit points) as currently practised between shippers and network operators would no longer be necessary. Under the future gas balancing regime the differences between D+1CD and M+12BD are to be determined for each gas day and cleared at the relevant hub price prevalent within the respective market area. BGMs would thus no longer be billed at imbalance clearing prices for retroactive adjustments of allocation data. In conformity with the current rules, the imbalance quantity relevant for billing will be the imbalance quantity determined in relation to the master balancing group where linking arrangements are in place between different balancing groups. As under today s system, imbalances arising in subordinate balancing groups or balancing subgroups will be transferred to the balancing account of the respective master balancing group and aggregated there. This approach allows for a BGM s entire balancing group to be considered, so that any imbalances arising within interlinked balancing groups and the associated balancing subgroups can be offset against each other. Portfolio effects can therefore lead to a reduced imbalance quantity in relation to the overall balancing group. Derivation of the applicable price: Pursuant to Article 22 NC BAL the applicable price for the calculation of the daily imbalance charge as provided in Article 23 NC BAL is determined using the marginal sell price or the marginal buy price of balancing gas. Under NC BAL the price must at least be based on the prices of title products with delivery at the VTP. In addition, the MAMs hereby apply under Article 22 (5) NC BAL to be allowed to also take into account quality-specific exchange-traded products, and exchange-traded products traded within adjacent balancing zones which in terms of their impact can be deemed to be quality-specific products.

30 12 The MAMs thus consider all quantities of balancing gas procured through the exchange to be relevant for price determination. This comprises day-ahead transactions as well as within-day transactions. Small adjustment: At present the MAMs do not see a necessity to apply a small adjustment within the meaning of Article 22 (7) NC BAL, and therefore recommend to set the small adjustment to zero at the start of the new gas balancing regime. Other necessary parameters: Based on the information currently available, the MAMs do not consider any other parameters within the meaning of Article 20 (3) (c) NC BAL to be required. Resulting price determination: Based on the assumptions described above, from the start of the new gas balancing regime the price would be determined as follows: The marginal sell price for each market area is the lowest price of any sales of exchange-traded title products with delivery at the VTP, exchange-traded qualityspecific H and L gas products, and exchange-traded products traded within an adjacent balancing zone, in which the respective MAM is involved in respect of the gas day in question. Where the weighted average price of gas is lower, then the marginal sell price corresponds to the weighted average price of gas. As provided in Article 22 (1) (a) NC BAL, the marginal sell price is applied where the daily imbalance quantity is positive, i.e. the BGM s inputs for the gas day in question exceed its offtakes for that gas day. The marginal buy price for each market area is the highest price of any purchases of exchange-traded title products with delivery at the VTP, exchange-traded qualityspecific H and L gas products, and exchange-traded products traded within an adjacent balancing zone, in which the respective MAM is involved in respect of the gas day in question. Where the weighted average price of gas is higher, then the marginal buy price corresponds to the weighted average price of gas. As provided in Article 22 (1) (b) NC BAL, this price is applied where the daily imbalance quantity is negative, i.e. the BGM s offtakes for the gas day in question exceed its inputs for that gas day.

31 Justification of proposal and evaluation of responses received Calculation of the daily imbalance quantity: The market participants consulted agree with the logic underlying the calculation of the daily imbalance quantity and the decision not to take into account the exceptions listed in Article 21 (2) NC BAL. The majority of respondents considered an appropriate clearing procedure (in addition to the settlement procedure between the M+12BD and D+1CD) and improved data quality to be essential prerequisites for a model where the final daily imbalance quantity is to be calculated based on the data as reported on D+1CD. In view of the large number of comments received on the clearing procedure, the MAMs and TSOs recommend to describe this in the Cooperation Agreement or in the respective best practice guidelines. Derivation of the applicable price: Article 19 (3) NC BAL provides that the imbalance charges take account of the prices of system balancing actions. The fact that the networks for low-calorific value gas ( L gas ) and high-calorific value gas ( H gas ) within the German market areas are separate physical systems makes the use of quality-specific products necessary, which is why it is deemed justified to take such products into account for the purpose of determining the imbalance clearing prices. Due to the physical separation of the L gas and H gas networks and depending on the level of the conversion fee it is not always possible to use global, non-qualityspecific gas quantities delivered at the VTP, as with such gas the physical effect it will have cannot always be predicted. This is explained below: On the EEX title products with delivery at the VTP can at present only be traded through H gas balancing groups. If and for as long as the conversion fee is set at a corresponding level, then the quantities required to counterbalance the gas traded on the VTP will also be provided through the H gas system, as using L gas quantities to do so is not economically reasonable if the conversion fee is taken into account. If and when the conversion fee is reduced (at the latest when the conversion fee is set to zero ) it can become economically reasonable to balance the H gas balancing group using quantities allocated to an L gas balancing group linked with the H gas balancing group in question.

32 14 Whether the physical impact will affect the H gas or the L gas system can therefore not be predicted. From a system control perspective such a situation can only be tolerated if and for as long as there are sufficient possibilities to convert gas between network areas. Given that within the market areas there are only very limited physical conversion possibilities available and for the reasons described above, the future conversion fee of zero is expected to lead to a situation where using non-quality-specific quantities delivered at the VTP may no longer be an option in many cases. Neither can the purely theoretical option to first buy non-quality-specific balancing gas, then wait for the physical impact to occur, and then, where necessary, to take further network-specific balancing actions, be adopted in practice. This is because concrete imbalances requiring the MAM to buy or sell gas for balancing purposes often involve very short lead times. Even this theoretical possibility is no longer an option where within a multi-quality market area different network areas require opposite balancing actions, as system stability could then be affected by non-quality-specific balancing actions. The MAMs therefore consider it likely that the need for quality-specific products will even increase in the future. The frequency at which quality-specific products are currently used (shown in Figure 2 and Figure 3 below) already illustrates the necessity to take them into account when determining the price; in the future, however, with the conversion fee eventually going down to zero, the MAMs consider this to be of vital importance, as qualityspecific products have a significant impact on the costs incurred for balancing actions given the frequency at which they are used.

33 15 Figure 2: Share of Quality balancing actions in the 3 NCG market area 3 A diversified procurement of balancing gas (separate reporting for Quality and Global balancing actions) was made possible by the formation of the multi-quality market area as of 01/04/2011 and by the availability of technical mixing plants.

34 16 Figure 3: Share of Quality balancing actions in the GASPOOL market area 4 Moreover, analyses performed by the MAMs have shown that in the period between 01/10/2013 and 16/02/2014 the MAMs were not able to use non-quality-specific balancing products on 50 days in the market area GASPOOL and on 13 days in the market area NCG due to quality-specific balancing requirements. On these days, disregarding the prices of quality-specific products would have meant that the imbalance clearing price as determined according to the pricing rules provided in NC BAL would have equalled the weighted average price of gas. The days on which this might occur cannot currently be predicted by BGMs, which is why there is little risk of the mechanism being misused, but on such days the MAM will not be able to recover the costs it incurred through balancing actions by applying the weighted average price of gas. The resulting shortfall in revenues would inevitably have to be recovered via the neutrality mechanism and would thus have to be borne jointly by all market participants. Also, with a future conversion fee of zero it might be that non-quality-specific balancing actions become so rare that BGMs are able to anticipate this. BGMs could 4 From 01/10/2013 onwards the data relating to quality-specific products only include quantities traded on the exchange, as only exchange-traded quantities are to be taken into account in the price calculation. The data before that date relate to quantities procured through the balancing portal.

35 17 then assume that they will be able to procure quantities through the imbalance mechanism at hub prices, without being exposed to any markups or markdowns. In such case assuming that the quality-specific products are not taken into account for the purpose of determining the applicable price for imbalance charges there would be no incentive for BGMs to keep their balancing groups in balance. The responses received in the course of the consultation have shown that most respondents are in favour of including quality-specific exchange-traded products in the determination of the imbalance clearing prices subject to the condition that these products have a significant impact on the costs for balancing actions. Relying on the explanations provided above, the MAMs and TSOs consider this condition to be satisfied. In addition to commenting on the inclusion of quality-specific products some market participants also called for locational products to be taken into account so as to ensure that costs are allocated according to causation to the largest extent possible. Judging from today, however, the MAMs are of the view that it will not be necessary to take locational products into account at the start of the modified gas balancing regime. If this should become necessary, then the MAMs can apply to the Federal Network Agency under Article 22 (5) NC BAL to be allowed to include other types of transactions. One industry association suggested to resubmit the methodology used to derive the applicable price to consultation after expiry of one year. The MAMs, however, do not believe that NC BAL provides a basis for this. Moreover, a period of one year appears too short for an in-depth evaluation to be possible. In addition, the MAMs would like to point out that if the implemented system were to be changed annually, this would have an enormous impact on IT costs. Small adjustment: The majority of consultees supported the proposal to set the small adjustment to zero at the start of the new gas balancing regime. In so doing, they accept the arguments put forward by the MAMs that the intended methodology used to determine the imbalance clearing prices provides sufficient incentives for BGMs to balance their balancing groups. Sufficient incentive is provided by the planning uncertainty regarding the imbalance clearing prices, proceeding from the fact that the MAMs purchases or sales of

36 18 balancing gas could at any time lead to a less favourable imbalance clearing price. Also, BGMs always have the option of purchasing required quantities on the exchange at the current price, so obtaining required quantities through the imbalance mechanism with its associated risks should not be expected to be an appropriate alternative. Other necessary parameters: The respondents agreed with the assessment that no other necessary parameters within the meaning of Article 20 (3) (c) NC BAL will be required.

37 19 4 Reconciliation According to Article 2 (3) NC BAL the rules governing a reconciliation between allocated offtakes and actual consumption are not within the scope of NC BAL. The MAMs, however, believe that it is necessary to modify the reconciliation processes, as these will have to be adapted due to other changes to the model (described below). Reconciliation for SLP exit points The imbalance clearing prices are currently based on an average price derived from a defined set of reference prices, which is identical for both market areas. As a result, identical imbalance clearing prices, and hence also identical SLP reconciliation prices, apply in both market areas. Under the new balancing regime, however, the imbalance clearing prices will be derived from the system balancing transactions entered into by the respective MAM ( balancing transactions ; see chapter 3). If the logic currently applied to calculate SLP reconciliation prices application of the average imbalance clearing price were to remain unchanged, this would lead to different prices for the settlement of SLP reconciliation quantities in the two market areas. Particularly for network operators whose systems are connected to both market areas different SLP reconciliation prices would disproportionately increase the administrative complexity of the process, which does not appear appropriate in this context. In their responses to the consultation market participants also clearly raised a call for uniform SLP reconciliation prices. Respondents also cited the increased complexity of the invoicing process in the case of differing reconciliation prices. The MAMs and TSOs join in the request raised by market participants, and hereby wish to express their support for a uniform reconciliation price applying in both market areas, which should correspond to the average of the two hub prices on the gas day in question ( EEX NCG Daily Reference Price Natural Gas and EEX GASPOOL Daily Reference Price Natural Gas, respectively). An application of the daily hub prices is deemed reasonable and appropriate in terms of causation, as it comes as close as possible to the pricing mechanism applied under the current

38 20 balancing regime and to the aim of an SLP reconciliation price which includes as small a markup as possible. Reconciliation for RLM exit points As a result of the proposed invoicing mechanism for imbalance quantities, the current reconciliation process as practised for RLM exit points will no longer be necessary, as, in contrast to today s model, the M+12BD data report submitted to the MAMs would contain updated values which already reflect substitute value and calorific value adjustments. This renders a subsequent and separate reconciliation quantity reporting and invoicing process for RLM exit points obsolete. The majority of market participants expressed their support for an abolition of the reconciliation process for RLM exit points as currently practised between shippers and network operators, under the provison that the clearing price applied to the differences between the M+12BD and D+1CD data be based on market prices. If this condition is met, then they would consider it acceptable that the risk involved with calorific value fluctuations be transferred from shippers to BGMs. Given that the price proposed for the clearing of the differences between D+1CD data and M+12BD data is the hub price of the respective market area, the MAMs and TSOs deem this condition to be satisfied.

39 21 5 Within day incentive mechanism Pursuant to Article 24 (1) NC BAL within day obligations (incentives for BGMs to keep their balancing groups balanced during the day) may be established with a view to ensuring the system integrity of a transmission network and minimising the need for balancing actions. The MAMs and TSOs are of the view that the hourly incentive mechanism currently in place (structuring charge) cannot be maintained in its present form, as they consider several of the NC BAL criteria the courses of action available to BGMs to manage their within day imbalance position and the cost-reflective nature of the charges not to be satisfied. The TSOs, MAMs and other market participants have therefore jointly developed a model for a within day incentive mechanism as part of a BDEW work programme. The approach underlying this model can be categorised as a balancing portfolio within day obligation within the meaning of Article 25 (2) NC BAL. The aim was to meet NC BAL requirements and enhance flexibility for BGMs while retaining the advantages of the present within day incentive mechanism. The model and the reasoning supporting the necessity of a within day incentive mechanism were submitted to market participants for consultation. Having evaluated the responses received, the MAMs and TSOs propose the within day incentive mechanism described below. 5.1 Target model for a within day incentive mechanism Proposal Under the within day incentive mechanism, the net balance between the sum of all physical and virtual inputs recorded for a balancing group and the sum of all physical and virtual offtakes recorded for the same balancing group is calculated for each hour of the gas day. Any hourly imbalances remaining after netting are added to a cumulative balance carried forward over the course of the gas day. Where the cumulative hourly imbalance exceeds a defined tolerance limit, the quantity exceeding the tolerance limit is treated as the quantity relevant for billing purposes (billable quantity). In respect of this quantity a flexibility fee is applied, which is discussed in greater detail further below in this document. The billable quantity is determined for each hour of the gas day.

40 22 The following case groups are distinguished for the purposes of the within day incentive mechanism: Group 1 Entry and exit points on borders with other countries Entry and exit points on borders with other market areas Entry and exit points to/from storage facilities Entry points from domestic production facilities Virtual entry and exit points (VTP) Exit points to end users where gas flows are controlled using any procedure other than the usual nomination procedure In relation to these points the hourly calculations are based on the quantities as allocated for each hour. No tolerances are applied in respect of these quantities under the hourly mechanism. Group 2 Exit points to RLM end users For all RLM exit points the measured quantities are allocated ( allocated as measured ) and taken into account under the hourly mechanism. Accordingly, the present distinction between RLM exit points according to whether a flat hourly profile (RLMmT) or a variable hourly profile (RLMoT) is allocated will no longer be necessary. In respect of exit points falling into group 2 an ex-post tolerance of +/-7.5% is applied on the allocated daily quantity. Group 3 Exit points to SLP end users For SLP exit points the quantity relevant for the within day incentive mechanism is the hourly share of the daily quantity as obtained using the applicable standard load profile and distributed evenly over the gas day. No tolerances are applied in respect of these quantities under the hourly mechanism. The proposed system is illustrated by the example given below and Figure 4.

41 Figure 4: Sample calculation within day incentive mechanism 23

42 24 Example: A balancing group comprises entry points falling into group 1 and RLM exit points (group 2). The allocated inputs are constant over the entire gas day, at 10 quantity units (QU) per hour, and the allocated offtakes fluctuate between 0 QUs and 25 QUs. Assuming an RLM daily quantity of 240 QUs, the tolerance is +/-18 QUs, or +/-7.5%. Inputs and offtakes are netted for each hour, with the hourly imbalance being added to a cumulative balance. The cumulative balance is compared hourly against the tolerance granted. The balancing group is 10 QUs long in hour 1, and 8 QUs long in hour 2. The tolerance of 18 QUs was thus used up completely by the end of the second hour. When the balancing group is long again in hour 3, the cumulative balance is a total of 23 QUs, and thus exceeds the tolerance granted by 5 QUs. From hour 4 onwards utilisation of the tolerance goes down as a result of a short position within the balancing group. The continuous increase in the allocated offtakes while the allocated inputs remain constant means that in hour 6 the (negative) tolerance is exceeded by 4 QUs. Assuming the tolerance is not exceeded again in any of the remaining hours of the gas day, the billable quantity in respect of that day under the within day incentive mechanism is 9 QUs in absolute terms Justification of proposal and evaluation of responses received The majority of respondents commented positively on a within day incentive mechanism under which a tolerance is granted on the daily quantity, and emphasised this as being a significant improvement upon the hourly incentive mechanism currently in place. Two traders pointed out that the cumulative approach would have the effect of repeatedly penalising BGMs where imbalances exceeding the tolerance limit are not subsequently counterbalanced. Other respondents, in contrast, stated that applying the flexibility as proposed would provide an incentive to quickly re-balance the balancing group while not also penalising these actions (as opposed to the functioning of a purely hour-based tolerance). This would contribute to system stability and hence to a minimisation of balancing actions. Two traders criticised that the tolerance is to be determined based on allocated metered quantities, and not based on the arithmetic mean, as is the case today for the case group RLMmT. The MAMs and TSOs would like to point out that the full

43 25 flexibility resulting from a tolerance that is applied on the daily offtake quantity is provided for each hour of the day. It must further be positively emphasised that an abolition of the different categories of RLM customers reduces process costs and thus eliminates the probability of mistakes. This was also recognised in two responses. A foreign distribution area manager pointed out that some cross-border interconnection points serve in part or even entirely to supply gas to end user markets in neighbouring countries, and should consequently also receive a tolerance. From the MAMs and TSOs perspective this would run counter to the logic that tolerances are only to be granted in respect of points that are subject to a forecast risk under the allocation rules applying to them. At all cross-border interconnection points gas flows are allocated as nominated. The allocation rules for system points located in neighbouring countries are defined by the respective neighbouring country. One association suggested to only apply an hourly incentive mechanism to RLM end users with a consumption in excess of 300 MWh/h. This must be rejected, for one because the 300 MWh/h limit would be arbitrarily defined. Secondly, the impact that the end user may have on balancing requirements does not only depend on the level of consumption but may also be determined by its topological position within the system and its consumption profile. Having evaluated the pros and cons, the MAMs and TSOs are of the view that the positive aspects working in favour of introducing a tolerance-based within day incentive mechanism outweigh the disadvantages. 5.2 Setting of the tolerance limit Proposal Under the model described in chapter 5.1 a tolerance of +/-7.5% is applied on all offtakes to RLM end users on the respective gas day. This limit was derived on the basis of the GABi Gas regime, which has been in force since Figure 5 shows the tolerance range currently applying to the case group RLMmT, i.e. RLM exit points in respect of which a flat hourly profile is allocated. For this case group BGMs receive an hourly tolerance of +/-15% based on their allocated offtakes. With an assumed daily quantity of 2,400 QUs and an hourly allocation quantity of 100 QUs (arithmetic mean) the hourly tolerance is +/-15 QUs. Assuming that the

44 26 balancing group is balanced at the end of the gas day the BGM can make use of the granted tolerance in one direction for a maximum of 12 hours without having to pay the structuring charge currently applied. The BGM would thus use an overall flexibility of 180 QUs. This corresponds to 7.5% of the daily quantity or an average of 1.8 times the hourly quantity. Figure 5: Maximum flexibility utilisation under the present regime In contrast to today's GABi Gas regime, under the proposed model 180 QUs, or +/-7.5% of the daily quantity, can be used as flexibility within any given hour of the day. This benefit granted to BGMs is a risk that is still considered to be acceptable by the TSOs under the assumption that all BGMs do not behave identically at the same time. Sample calculations provided by market participants have shown that even for small portfolios (eleven customers) a daily flexibility of +/-7.5% does not trigger flexibility fee payments, even if inputs are delivered at a constant rate. The sample calculations are provided in Figures 6-9 below. Figure 6: Sample calculation small customer portfolio

45 27 Figure 7: Sample customer with a relatively high load factor Figure 8: Sample customer with a medium load factor Only in respect of portfolios comprising a single customer having a very variable load profile is the tolerance limit exceeded, which could result in a flexibility fee being charged (where balancing actions have been taken in opposite directions, see chapter 5.3). This is appropriate, as in such case corresponding structuring services are provided for the BGM by the TSO/MAM. BGMs can reduce or avoid this by structuring their inputs accordingly.

46 28 Figure 9: Sample customer with a low load factor Justification of proposal and evaluation of responses received The majority of network users consider a tolerance limit of +/-7.5% to be too low. The primary reason stated for this view is the time lag between the time when meter readings are obtained and the intraday information provision. One association was of the opinion that this would disadvantage traders primarily supplying SLP customers and only few RLM customers. Consequently, several traders called for the tolerance limit to be increased to +/-20% of the daily quantity. On the contrary, other traders argued that the tolerance should not exceed a limit of +/-7.5%. They pointed out that if the tolerance limit were to be set at a higher value, then there would no longer be an incentive to also keep the balancing group balanced during the day. The MAMs and TSOs are of the view that these responses disregard the fact that the flexibility granted by the tolerance of +/-7.5% is provided for each hour of the day, and that a flexibility charge only has to be paid in respect of the quantity exceeding the tolerance if and where there have been opposite balancing actions (see chapter 5.3). As a result, BGMs receive a significantly higher degree of flexibility at no additional cost if compared to the current GABi Gas regime. From the MAMs and TSOs perspective the application of a higher tolerance limit would entail an incalculable risk for the security of supply. Several respondents called for the tolerance limit to be reviewed on a regular basis. Some of them demanded a compulsory and automatic adjustment of the tolerance

47 29 limit according to specified criteria which would still have to be defined (e.g. the development of the costs incurred through balancing actions). The MAMs and TSOs are in favour of analysing the tolerance limit following the implementation of the proposed model, but at the present time refrain from submitting a proposal as regards an automatic mechanism defining the time pattern and criteria to be applied. 5.3 Flexibility fee Proposal To ensure system stability and limit the system balancing costs associated with guaranteeing a flexibility range the MAMs and TSOs have proposed in their description of the future model to limit the tolerance applied on the daily quantity allocated to RLM end users to +/- 7.5%. This flexibility is granted to BGMs. Any flexibility in excess of this limit used by BGMs is priced by the MAM, where applicable, and billed to BGMs, if and where there have been opposite balancing actions within the market area on the day in question. Opposite balancing actions are given where balancing gas was both purchased and sold within the market area over the course of the gas day. On such days the billable quantity is multiplied by the flexibility fee. The resulting product gives the flexibility charge. The flexibility fee is derived from the price spread between the marginal prices of opposite balancing transactions, which might be multiplied by a factor X still to be determined. Flexibility charge = flexibility fee * billable quantity Flexibility fee = marginal price spread of opposite balancing transactions * factor (if any) Table 1: Flexibility charge and flexibility fee formulae The above is illustrated by the following example: Balancing gas purchased Balancing gas sold Marginal price spread 2 MWh at 35 EUR/MWh 7 MWh at 25 EUR/MWh 10 EUR/MWh 10 MWh at 30 EUR/MWh Table 2: Sample calculation of balancing gas price spread Based on the values given above the flexibility fee would be 10 EUR/MWh, which might be multiplied by a factor X (if any).

48 30 The billable quantities are invoiced ex-post based on the opposite balancing actions actually taken. This ex-post approach ensures that the potential charge serves as an incentive for BGMs to manage their balancing groups within the tolerance limits. The ex-post approach also allows for the actual costs incurred to be taken into account. The fact that not every instance of exceeding the tolerance limit is billed to BGMs represents a major difference compared to the within day incentive mechanism presently in place. Where no opposite balancing actions have to be taken, meaning that the TSOs and/or MAMs are not required to buy flexible gas to structure gas flows during the day, BGMs can exceed the tolerance limit without incurring additional cost. The corresponding revenues will be booked to the summary balancing account. This ensures compliance with the neutrality principle Justification of proposal and evaluation of responses received The majority of market participants were in favour of determining the flexibility fee based on the costs incurred through opposite balancing actions. Several traders demanded in their responses that in determining the flexibility fee only the so-called peak quantity exceeding the tolerance limit be taken into account, i.e. the highest quantity exceeding the respective positive or negative tolerance limit. They argued that in such a case the MAM would only have to buy balancing gas once. An argument against this view, and in favour of charging BGMs for every instance where the tolerance limit is exceeded, is that a one-off penalty would not provide an incentive for BGMs to re-balance their balancing groups as quickly as possible. Yet only an immediate re-balancing of the balancing group might help prevent the need for balancing actions, as short-term fluctuations within the network could to a certain extent be balanced using the linepack. Another risk would be that all BGMs might not re-balance their balancing groups until shortly before the end of the day. In order to be able to respond to such circumstances MAMs would be required to ensure availability of a high level of flexibility within the system (as illustrated by the sample calculations provided in chapter below), otherwise system stability might be endangered at neuralgic system points. BGMs could oscillate freely between their two highest peaks without being subjected to any further restrictions.

49 31 Some respondents pointed out that in certain circumstances the price spread might be very high on some days. This would mean that BGMs exceeding the tolerance on these days would have to pay a high flexibility fee. The traders risk of being exposed to potentially very high flexibility fee payments could be mitigated by introducing a factor to reduce the price spread. The MAMs and TSOs consider it essential, though, that the flexibility fee be set at an appropriate level ensuring that the charge continues to provide the intended incentive. 5.4 Analysis of the criteria set out in Article 26 (5) NC BAL Under NC BAL a within day incentive mechanism must meet the criteria listed in Article 26 (2) (a)-(f). These criteria were included in the consultation and are deemed to be satisfied by the MAMs and TSOs. NC BAL further provides that the recommendation document include an analysis of the criteria listed in Article 26 (5) Criterion (a): Necessity Analysis of the necessity of the within day obligation, taking into account the transmission network s characteristics and the flexibility available to the transmission system operator through purchase and sale of short term standardised products or use of balancing services in accordance with Chapter III: 5 In order to analyse the necessity of a within day incentive mechanism the TSOs examined and evaluated in several scenarios the impact of implementing a balancing regime providing no or only limited within day incentives. It can already be stated at the outset that a regime with no within day incentives would require very high quantities of balancing gas and a high degree of flexibility, resulting in very high costs. The availability of balancing products is not expected to be guaranteed at all times. For the reasons stated, within day incentives within the gas balancing regime are considered necessary. 5 Article 26 (5) (a) NC BAL

50 Description of the scenarios analysed The specific scenarios are: Scenario 1: no within day incentive mechanism, i.e. balancing groups only have to be balanced at the end of the gas day. Scenario 2: within day incentive mechanism applying to quantities allocated under the allocation groups Entryso, Exitso, SLP, i.e. BGMs may freely distribute inputs needed to supply RLM end users over the course of the day. Scenario 3: within day incentive mechanism applying to quantities allocated under the allocation groups Entryso, Exitso, SLP. Only 50% of the entry capacity booked to supply RLM end users can be used flexibly; 50% of inputs needed to supply RLM end users are distributed freely over the course of the day. In all scenarios it was assumed that the entire offtake quantity not subject to within day incentive mechanisms is input as late as possible. The balancing groups are only balanced at the end of the gas day. For the resulting maximum period of zero input nominations and the minimum period of maximum input nominations the hourly quantities of flexible gas required for structuring purposes were calculated. These extreme parameters illustrate the maximum possible utilisation of within day flexibility (largest difference between inputs and offtakes). In all scenarios the balancing opportunities provided by the networks and their associated linepack/storage levels (so-called internal balancing tools) are used to level gas flows to compensate for offtakes which are allocated as a flat hourly profile, and to counterbalance the inertia involved with balancing actions. They are therefore not available to reduce the need for structuring actions. The maximum hourly input quantity was assumed to equal the firm capacity technically available at the entry points, as this capacity is guaranteed to be available to the shippers. The hourly offtake quantity was assumed to equal the average daily quantity (sum of all actual offtakes at exit points located in the network controlled by the TSO, including system connection points, network interconnection points, crossborder and market area interconnection points, and storage connection points) divided by 24. The assumption that the offtakes flow at a constant rate disregards that in reality within day fluctuations occur regularly, and thus means that the hourly

51 33 flexible gas quantities determined to be required for structuring purposes would actually be even greater. In their calculations the TSOs relied on data relating to the gas year 2011/2012, with the winter and summer periods being considered separately. The individual scenarios are illustrated in the following graphs (using sample figures): Scenario 1: Figure 10 shows that an average offtake load of 118 GWh/h is assumed. This corresponds to a daily quantity of 2,832 GWh. The entry capacity (technically available capacity) is 197 GWh/h. At full utilisation of the technically available entry capacity it is possible to input the entire offtakes over the last 15 hours of the gas day. This also applies in respect of quantities for which allocations are known in advance (case group SLP) or where gas flows are under the control of BGMs (case group Exitso). Accordingly, no gas is input at all during the first nine hours in the example. From a system perspective the short position of the balancing groups during the first nine hours creates a demand for flexible gas for structuring purposes (purchases of balancing gas), which is further increased during the last 15 hours due to the long position of the balancing groups (sales of balancing gas). Such a behaviour on the part of BGMs cannot be ruled out completely. It must be taken into account that even if BGMs behave like this in a single hour or a few hours only, this may suffice to create an extremely high demand for flexible gas which it may not be possible to deal with in time using the corresponding balancing products available.

52 34 Figure 10: Sample scenario 1 Scenario 2: In scenario 2 full flexibility is only granted in respect of the quantities supplied to RLM end users, i.e. inputs for the case groups SLP (flat allocation profile) and Exitso are matched with the corresponding offtakes in terms of time and quantity. The daily quantity supplied to RLM end users is input as late as possible by fully utilising the available entry capacity, see Figure 11.