Two Years of TPA in Italy: Snam Rete Gas experience Deux années de accés tiers au réseau de transport en Italie: l expérience de Snam Rete Gas Carlo Malacarne Managing Director Operations - Snam Rete Gas - Italy 1) Introduction Over the past few years the European Union has been enacting legislation to introduce competition into the gas supply market, with the objectives of increasing efficiency, reducing gas prices and providing choice to customers in Italy, the key piece of government legislation has been the Decreto Legislativo n 164/00 (hereafter referred to as Gas Decree ), published in June 2000. This followed the original European Gas Directive of June 1998, applying to all EU countries. The Gas Decree establishes the framework for the introduction of competition in gas supply in Italy, specifying the objectives of liberalisation, the scope of the framework in terms of types of gas supplies, the roles of the Ministry (Ministero delle Attività Produttive) and the Authority (Autorità per l energia elettrica e il gas), the definition of customers to whom supplier choice is available (eligible customers), the access rules (Network Code) and tariffs to be applied by transporters. The Gas Decree establishes the principle of separation of the transportation and supply activities of formerly integrated gas companies. It also requires that network access, and the associated tariffs, should be regulated, and offered to all parties on non-discriminatory terms. As a result, ENI decided to separate its transportation activities into the separate company SRG, formally created on 1 July 2001, and floated on the Milan bourse in December 2001. The requirement to separate transportation from gas purchasing and sales activities extends across the entire gas industry in Italy. This industry restructuring results in the creation of a number of gas transporters, for transmission and distribution services, and a number of users of transportation service (hereafter referred to as Shippers ) who will transport gas through the pipeline and sell gas to end customers. The other key pieces of Italian gas legislation derive from the Gas Decree and are the Delibera 120/01 and the recently published Delibera 137/02. The former includes the criteria for the determination of transportation tariffs and balancing charges. The latter defines the regime for accessing gas transportation services and sets out the key elements of the Codice di Rete. 2) From Snam to Snam Rete Gas Up to June 30th, 2001, Snam was an integrated gas company, buying gas (abroad and in Italy), transporting it (abroad and in Italy), and selling it on to Italian customers in a de facto monopoly situation. Pursuant to the provisions of the Gas Decree, Snam S.p.A. proceeded to a corporate separation of the gas marketing activity from the gas transmission activity. This took place on July 1 st, 2001 with the transfer of all transmission and regasification assets from Snam S.p.A. to Snam Rete Gas S.p.A.. The marketing arm of Snam S.p.A. was subsequently incorporated into Eni and assumed the name of Eni Divisione Gas and Power. In December 2001 Snam Rete Gas was listed on the Italian Stock Exchange, for a quota of approximately 40% of the total shareholding. Trading of SRG shares started on Dec. 6 th, 2001. As a result, nowadays Snam Rete Gas has completed a transition from vertically integrated gas company to a regulated public utility, and is now a separate and independent company, providing gas transmission services on its Italian network to approximately 25 shippers under non discriminatory conditions.
3) Players in the Italian gas market The following is a brief description of the main categories of players and their respective roles - in the restructured Italian gas market. Authority this is the industry regulator, who plays a key role in managing the development of, and consultation on, the access rules for the new competitive regime in the Italian electricity and gas sectors. The Authority also has general obligations to promote competition and protect the interests of consumers. Ministero delle Attività Produttive (MAP) this is the government department that oversees the development of the energy industry in Italy. The Ministry s primary duties relate to the efficient development and exploitation of the natural energy resources in Italy, together with the associated requirement for the maintenance of supply security. Transmission Companies these are the companies, including SRG, that transport gas on behalf of Shippers through high pressure transmission pipelines. They require Shippers to contract with them to ship gas through their pipelines. Transmission companies are responsible for managing the physical balance on their network. Shippers they buy gas from upstream gas producers, sell it to customers and employ transporters to get the gas between the two, finalising a transportation contract that includes a deed of adherence to the Codice di Rete. They may also store gas with a Storage Operator to manage the balance between their supplies and their customers demand. Storage Operators they own storage facilities, typically depleted gas fields, and sell their services to Shippers to allow them to balance their supply and demand. Transporters also use storage services to help manage the physical balancing of the network. Producers they own title to gas at gas production fields and sell their gas to Shippers; in some cases producers will be Shippers themselves. Customers they actually consume gas, either to fuel an industrial or commercial process, or, in the case of domestic customers, for heating and cooking. They typically buy their gas from a Shipper; in some cases, however, they may also act as their own Shipper and arrange their transportation themselves. Distribution Companies these are the companies that transport gas on behalf of Shippers through low pressure distribution pipelines, which will be linked to a transmission network. 4) The fundamentals of the new TPA system There are a number of basic concepts, which are central to understanding several of the business processes. They are described below. First and foremost, Snam Rete Gas is a pure transmission company, providing generalised TPA under a regulated access regime. Terms and conditions for access to the gas transportation services including transmission and balancing charges - have been developed according to specific provisions of the Italian Authority for Gas and Electricity. These provisions include inter alia - transparency obligations towards the Regulator and the shippers. One of the most important is the obligation to publish on Snam Rete Gas website (and update on a monthly basis) values of total capacity, assigned capacity and available capacity at all National Network Entry Points. A key concept in the Italian gas system is the Entry/Exit structure of capacity booking & tariffs. SRG, in compliance with the Deliberazione n 120/01, issued by Italian Authority, has adopted an entry/exit model, both for capacity booking and for the application of transmission tariffs, and where flow nominations at entry and exit points are not directly linked, i.e. nominations do not imply a notional path through the network.
The SRG transmission pipeline network comprises a high pressure National Network (RN) and a lower pressure Regional Network (RR). The transportation service provided by SRG is designed to be integrated from RN entry points to RR redelivery points. There are 16 entry points to the National Network, covering gas imports (3), national productions (10), LNG terminal (1), and storage hubs (2). On the other side there are 17 exit points from the National Network, representing the points of connection to the Regional Network ( Aree di Prelievo ), in addition to the interconnections with export pipelines (3). There are approximately 7,000 redelivery points from the Regional Network covering offtakes to large single customers - e.g. power stations - and local distribution companies. Another key concept underlying the access regime is that of daily energy balancing. It is defined by the following two elements: physical balancing this is the process by which SRG through its Dispatching centre - maintains the safety and security of the network by controlling system pressures within defined limits. SRG achieves this in real time during the day, via remote-controlled pressure valves and compressors, and by calling on other balancing tools, for example storage. A key input to the physical balancing process are the daily flow nominations provided by Shippers. commercial balancing this is the process by which Shippers are incentivised to achieve a balance of inputs to and outputs from the system, thereby assisting in achieving an overall system balance. The commercial balancing arrangements are also designed to target the costs of imbalance to those Shippers that cause the imbalance. Whilst these two forms of balancing are conceptually distinct, they are inextricably linked in practice. This is because the total physical imbalance on the system is determined by Shippers aggregate flows. These Shipper flows are exclusively controlled by the Shippers themselves. In turn, therefore, this will determine the actions that SRG might need to take to maintain the physical balance of the system, and the associated costs of balancing the system. In Italy, daily energy balancing was chosen as the most appropriate solution because it allows most of the major flow fluctuations to be captured and is cost reflective; Gas storage is a key feature of the gas market in Italy, and is strictly linked with transportation. In addition to meeting the requirements of Shippers in balancing their supply and demand, storage is also required by transporters to manage the short term physical balancing of the network.the requirement for storage in the Italian gas network is a feature of the physical design and capacity of the pipeline network. In other words, it is not physically possible to meet the daily and seasonal fluctuations in supply and demand without using gas from storage. Finally, under the newly liberalised gas market, the role of Shipper has been created to ensure a separation (or unbundling) of the gas purchasing and sales activities, which are undertaken by Shippers, from the activities of transportation and storage, which are undertaken by transporters and storage operators. The role of the Shipper is defined by the following activities: knowledge of its customer portfolio, purchase of upstream gas supplies, arranging for transportation and storage services to meet customer requirements, and supply of gas to its customers. 5) The Network Code ( Codice di Rete ) SRG has developed the Codice di Rete as a set of transparent and non-discriminatory rules for access to its gas transportation system. These rules represent a contract between the Transporter and the Shippers that introduces the minimum discipline for the proper use of transportation services, in compliance with the Gas Decree and the criteria issued by the Authority, in particular with the Delibera n 137/02. The access rules described in this document have been developed to allow the transportation system to be operated in a manner that ensures safety, efficiency, quality and neutrality. The main business processes dealt with in the Network Code include:
System access/assignment Contract before a new Shipper can buy transportation services it needs to provide details of its financial status and relevant authorisations, and must establish a contract with SRG by signing up to the Codice di Rete. Capacity booking Shippers must book capacity to ensure they have access to the pipeline. This capacity booking process grants the Shipper the right to flow gas through specific points on the network and up to a maximum flow rate on the day. Capacity trading/transfer having booked capacity in the pipeline, Shippers are able to buy or sell (trade) capacity to other Shippers who require, or who have spare, capacity. Shippers can trade capacity at all points of the network, but can only transfer capacity at Redelivery Points. When Shippers transfer capacity at Redelivery Points as a result of customers switching between Shippers, the incoming Shipper has the right to acquire the capacity of the outgoing Shipper. Transportation programme & flow nominations Shippers are required to submit to SRG a programme giving estimates of daily flows up to one month in advance. Then a Shipper must finalise his estimate of how much gas he intends to flow on the following day: such final notification is known as a gas nomination. This helps the transporter manage the daily operation of the pipeline. Transporter physical balancing this is the set of operations by which the SRG s Dispatching centre performs the real time control and monitoring of the gas pressures in the system, thereby ensuring the safe and efficient daily balancing of the pipeline system. SRG receives Shippers nominations and may have to manage pressure constraints by, for example, calling on stored gas. Relationship with Storage in Italy, the structure of the gas industry and the configuration of the pipeline system means that storage gas is one of the most important sources of balancing gas. Shippers have access to storage services provided by Storage Operators, which allow them to input to the network supplies of gas to meet changes in demand. Transporters also rely on storage as one of their principal tools to maintain the physical balance on the network. Measurement in order to establish how much gas has been input and offtaken each day gas flow volumes are measured by meters at entry points and at exit points from the network. Most of these meter readings measure the flow over a period of a day, some provide meter readings once a month (in this case the monthly quantities are profiled to produce estimates of the daily gas quantities). The measurement activity also covers the measurement and monitoring of calorific value (CV) and quality parameters. Allocation having established the physical measurement at the meters, it may be necessary to allocate quantities between Shippers, where more than one Shipper has an interest at a meter point. This requires the application of allocation rules, selected from a set made available by SRG. PSV Trading SRG provides Shippers with the facility to trade gas on its transportation system at a virtual trading point (the Punto di Scambio Virtuale or PSV ). This allows Shippers to minimise their imbalances, and thereby minimise their exposure to imbalance charges. SRG facilitates this exchange of gas quantities by providing information systems support, but has no involvement in the underlying trade, which is a bilateral arrangement entered into by the Shippers. Balancing having established each Shipper s inputs and offtakes from the system, energy balances are derived to determine the extent of Shippers imbalances. For Shippers without storage contracts, charges are applied to daily imbalances to incentivise the Shippers to minimise their imbalances, thereby assisting in maintaining an overall system balance. Maintenance in order to ensure the safety and operational efficiency of its network, SRG needs to undertake periodic maintenance activities. Where such maintenance impacts the capacity available to Shippers, SRG informs Shippers in advance of such work. SRG relies on Shippers to put in place the necessary logistical arrangements with its customers, and any affected Local Distribution Companies. Invoicing each month SRG will invoice its customers, the Shippers, for their use of transportation services. The invoices will cover charges for capacity, commodity (i.e. throughput) and penalties.
Emergencies SRG has the responsibility for maintaining the safety and security of its network, and has defined procedures for dealing with emergency situations on its network. SRG, and other gas transporters, are overseen in this area by a committee established by MAP that monitors gas transportation activities during the winter season. Codice di Rete modification rules SRG and Shippers can propose modifications to the Codice di Rete. SRG will publish proposed modifications on its website and will evaluate them on the basis of a set of defined criteria. If SRG accepts the proposed modification on this basis, it will pass the proposal to the Authority for approval. 6) Operational experience The go live date of the new gas system in Italy occurred on October 1 st, 2001, only 15 months after the relevant Gas Act was passed. During the first year and a half of generalised TPA, Snam Rete Gas gained a significant experience on the management of network and shipper operations. A few remarkable facts are listed below. Since Oct. 1 st, 2001, there have been on average 25 shippers flowing gas on the system; the cumulated number of companies who performed the role of shipper exceeds 40. Snam Rete Gas is managing daily energy balancing on a system with approx. 70 meters on entry and 7.000 on exit, notwithstanding the fact that Snam Rete Gas does not own the meters and not all of them can be remotely read on a daily basis. Every day, every shipper provides Snam Rete Gas with its daily flow nominations for the following gas day; in turn, Snam Rete Gas provides each shipper with its respective energy balance for the previous gas day. The number of capacity transactions (in less than 2 years) has been significant, with more than 3.000 requests for capacity increases and more than 2.000 capacity trades & transfers. There has been an explosion of the number of shared meters, i.e meters where gas of more than one shipper flows and is measured. Approximately 600 city-gates (out of 3.500) are shared meters, with approx. 1.500 prevailing gas allocation rules, that shippers are allowed to choose on a monthly basis from a menu of 6 rules automatically managed by Snam Rete Gas information system. In addition to this, all meters at Entry Points are shared meters, and Snam Rete Gas performs the role of Allocation Agent at these points. at month end, 4 tariff elements plus 2 penalties/imbalance charges are calculated and invoiced to each shipper; this gives rise taking account of reconciliations due to metering errors to more than 2.000 transportation invoices per year. The nature and business criticality of the daily processes described hereinabove require the support of efficient and technically updated information systems. Commercially critical data such as daily nominations, daily Shipper offtakes, provisional Shipper energy balances and monthly Shipper invoices all require accurate and timely electronic transmission between the relevant parties. Without such supporting systems, implementation of a complete TPA regime would be unmanageable. Finally, the role of Snam Rete Gas as a Transporter has also been subject to a transformation. On one side, Snam Rete Gas continued to perform the traditional role of system operator, in charge of gas flow management, co-ordination of storage injection/withdrawal campaigns, monitoring of emergency situations, metering data acquisition & elaboration. On the other side, a new role has emerged for Snam Rete Gas as market facilitator. Snam Rete Gas fulfilled this role by providing its shippers, on a non discriminatory basis, with: training, access and use of a free-of-charge information system, historical data on temperatures & 1 in 20 risk level and customers offtake patterns, automatic customer switching procedures, co-ordination of shippers sharing meters, a web portal for capacity trade and another for gas allocation at city-gates.