Incentive Regulation for business development GTE Conference, Copenhagen 24th September 2004

Incentive Regulation Incentive Regulation for business developmentfor business development

GTE Conference, Copenhagen 24th September 2004GTE Conference, Copenhagen 24th September 2004

Paolo Caropreso, Paolo Caropreso, COO Business DevelopmentCOO Business Development

2

Players and forces at work in the newPlayers and forces at work in the newunbundled/regulated frameworkunbundled/regulated framework

TSOs

Liberalisation•Policy Makers

• Free Market• Security of Supply

Regulation• Authority• Antitrust

• Fair competition• Market efficiency

Financing• Shareholders

• Financial Institutions

• Attractive return• Min regulatory risk

Competitiveness•Producers

•Network Users•Consumers

• Market dynamics• Network access

3

The key Success Factor:The key Success Factor:Convergence of Interests between TSOs and StakeholdersConvergence of Interests between TSOs and Stakeholders

Incentives on Volume

transported

Gas flowsmaximisatio

n

Incentives on Cost Reduction

Managementoptimisation

Incentives on Develop. CAPEX

Network expansion

plans

Incentives on Quality

BPR and ICTinvestments

Productivity Growth Efficiency Quality

Market opening Market development Tariff reduction Market liquidity

Shareholders’ Value

Policy Targets

4

Allowed Revenues Calculation

Incentives

Volumes

6 years incentives

CAPEX

Quality

OPEX

Claw-Back

AllowedRevenues +

1st Year

2nd- 4th Year

1st Year Revenues+ Inflation- Efficiency Targets

RAB * WACC + Opex+ DDA

Following Periods

Rules definedex-ante

The Italian case: convergence thanks to aThe Italian case: convergence thanks to aClear, Attractive and Stable RegulationClear, Attractive and Stable Regulation

Premium on incrementalgas transported (commodity)

Profitability Incentives onnew Development Capex

YQW Factors lower X-cap

Efficiency Incentives

5



transported


n




Network expansion

plans






Policy Targets

6

Fully satisfied Stakeholders’ wealthFully satisfied Stakeholders’ wealth

• Capacity expansion

• Entry-Exit Tariff System

• Interruptible contracts

• Use-It-Or-Lose-It

• No network congestion

• Easy users’ access

• Flexible capacity mgmt

• No capacity hoarding

(MScm/d) 1st TY 2001-02 4th TY 2004-05

Continuous 215.900 237.900

Interruptible 10.200 10.500

TOTAL 226.100 248.400

7

Higher Volumes TransportedHigher Volumes Transported

60

65

70

75

80

2001 2002 200330

35

40

45

1st H 2003 1st H 2004

+3,6%

+5,7%

+2,7%

41,442,9

70,4

74,476,4

8



Network expansion

plans


transported


n








Policy Targets

9

Projects for network development:Projects for network development:in progress and under designin progress and under design

Algeria

Libya

LNG

NorthernEurope Russia

LNG Rovigo

LNG Brindisi

PIPELINE IN ENGINEERING PHASE

PIPELINE IN OPERATION ORUNDER CONSTRUCTION

STUDY FOR ADRIATIC STREAM

10

Capacity expansion at the Entry PointsCapacity expansion at the Entry Points

050

100150200250300350400

2002/ 03 2003/ 04 2010 2015

Evolution of transport capacityEvolution of transport capacity

Transport capacity needed in Italy

(million scm/d)

Existing capacity

Capacity under

construction

Needed capacity

11





Network expansion

plans


transported


n






Policy Targets

12

Potential for additional efficiencyPotential for additional efficiency

Base :Year 2002 = 100%

100%

0%

OPE

RA

TIO

NA

L FI

XED

CO

STS

NET

WO

RK

OPE

RA

TIO

NS

Maintenance decision model risk-based

CO

MPR

ESSI

ON

STA

TIO

NS

BRPTelediagnosticSystems

SUPP

LY &

LOG

ISTI

CS

New procurement &logistic contracts

13

Opex efficiencyOpex efficiency

-14,5% cagr

300

350

400

450

500

550

2001 2002 2003(*)

(*) Net of Sicily Tax

14







Network expansion

plans


transported


n




Policy Targets

15

On line services offered onOn line services offered onthe Snam rete Gas websitethe Snam rete Gas website

Gas transportation services•capacity booking•nominations management•scheduling

M-Gas Measurement Gas Allocation System• allocations on shared city gates• gas flows

Measure Services• Profiling• REMI technical infos• Other data management• SIT Center services

Portal for Gas exchange

Portal for Capacity Transportation exchange

National Balancing Point

Interactive Tool for tariff calculation

Call Center

16

Market liquidity and transparency Market liquidity and transparency improvedimproved

• 30 network users• 7.000 nomination/g• 7.000 meters owned by the final customers

•4.500 telemetered • 3.500 CityGates

• 760 shared• 250 DSOs

00,20,40,60,81.01.21.41.61.82.02.22.42.62.83.03.23.43.63.8

VOLU

MES

(Scm

) *

NBP Transaction

Secondary Capacity Market•1.800 transaction/year

National Balancing Point•1.800 transactions•23 shipper•300 Mm3 of gas

Regulated Market

• Distribution Codes • Metering Efficiency

• Balancing Regimes Evolution

17




transported


n




Network expansion

plans





Policy Targets

18

Regulated Revenues evolution duringRegulated Revenues evolution duringthe 1st Regulatory Periodthe 1st Regulatory Period

New developmentinvestments

From initial RAB

Regulated revenues (1)

Capacity

Commodity

€m Gas yearGas year01-0201-02

1,6511,651

1,164

487

Gas yearGas year04-0504-05

1,7821,782

1,188

511

1,651 1,699

- 83

(*)

(*) Net of RA adjustment due to storage tariff

(*)

VARVAR

131131

24

24

48

83

19

Regulated Revenues vs. Tariffs evolutionRegulated Revenues vs. Tariffs evolutionduring the 1st Regulatory Periodduring the 1st Regulatory Period

Thermal year2001-02

Thermal year2004-05

AllowedRevenues

Tariffs

+8 %

100

- 13 %

Incentive Regulation Incentive Regulation for business developmentfor business development

GTE Conference, Copenaghen 24th September 2004GTE Conference, Copenaghen 24th September 2004

Paolo Caropreso, Paolo Caropreso, COO Business DevelopmentCOO Business Development

Documents

Incentive Regulation for business development GTE Conference, Copenhagen 24th September 2004