ACER ON THE CONGESTION INCOME DISTRIBUTION METHODOLOGY. of 14 December 2017 THE AGENCY FOR THE COOPERATION OF ENERGY REGULATORS,

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1 ON THE CONGESTION INCOME DISTRIBUTION METHODOLOGY of 14 December 2017 DECISION OF THE AGENCY FOR THE COOPERATION OF ENERGY REGULATORS No 07/2017 Page 1 b10 and submit it to all regulatory authorities for approval. Then, according to Article 9(10) of jointly to develop a proposal for a congestion income distribution methodology ( CIDM ) (2) Pursuant to Articles 9(1), 9(6)(m) and 73(1) ofthe CACM Regulation, all TSOs are required capacity allocation and congestion management (the CACM Regulation ) laid down a range congestion income, i.e. the revenues received from the capacity allocation within the single of requirements for cross-zonal capacity allocation and congestion management in the dayahead and intraday markets in electricity. These requirements also include the development day-ahead and intraday coupling in accordance with Article 73 of the CACM Regulation. of a methodology for distributing among the transmission system operators ( TSOs ) the (1) Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a guideline on WHEREAS: HAViNG REGARD to the favourable opinion of the Board of Regulators of 1 3 December 2017, delivered pursuant to Article 1 5( 1 ) of Regulation (EC) No 713/2009, and transmission system operators, HAVING REGARD to the outcome of the consultation with the concerned regulatory authorities guideline on capacity allocation and congestion management2, and, in particular, Article 9(12) HAViNG REGARD to Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a in particular, Article 8( 1 ) thereof, Council of 13 July 2009 establishing an Agency for the Cooperation, and, HAViNG REGARD to Regulation (EC) No 7 1 3/2009 of the European Parliament and of the HAVING REGARD to the Treaty on the Functioning of the European Union, THE AGENCY FOR THE COOPERATION OF ENERGY REGULATORS, Agency for the Cooperation thereof, 1. INTRODUCTION I OJL211, ,p L 197, , p. 24.

2 Agency for the Cooperation the CACM Regulation, the regulatory authorities receiving the proposal for the CIDM should reach an agreement and take a decision on that proposal, in principle, within six months after the receipt of the proposal by the last regulatory authority. If the competent regulatory authorities fail to reach an agreement within the six-month period, or upon their joint request, the Agency is called upon to adopt a decision concerning the T$Os proposal, pursuant to Article 9(1 1) of the CACM Regulation. However, if, pursuant to Article 9(12) of the CACM Regulation, the regulatory authorities request an amendment to approve the proposal, the relevant TSOs shall submit an amended proposal for approval within two months following the regulatory authorities request. Subsequently, the regulatory authorities shall reach an agreement and take a decision on that proposal, in principle, within two months after the receipt of the amended proposal by the last regulatory authority. When the competent regulatory authorities fail to reach an agreement within the two-month period, or upon their joint request, the Agency is called upon to adopt a decision concerning the TSOs proposal. (3) The present Decision of the Agency follows from the regulatory authorities request that the Agency adopts a decision on the proposal for the CIDM (which the TSOs submitted to the regulatory authorities for approval). Annex I to this Decision sets out the CIDM, as decided by the Agency, pursuant to Article 73 of the CACM Regulation. 2. PROCEDURE 2.1 Proceedings before regulatory authorities (4) On 12 August 2016, ENTSO-E, on behalf of all TSOs, submitted to the Agency an All TSOs a Congestion Income Distribution (CID) methodology in accordance with Article 73 ojthe Commission Regulation (EU) 2015/1222 of24 July 2015 establishing a Guideline on Capacity Allocation and Congestion Management dated 29 June 2016 ( Original proposal ), together with an explanatory document. In parallel, all TSOs submitted the Original proposal to the regulatory authorities and it was received by the last of the concerned regulatory authorities on 1 8 August The Original proposal was published on ENTSO-E web page on 8 December Froposalfor (5) On 1 7 February 2017, all regulatory authorities submitted to all TSOs a request to amend the Original proposal. It was received by the last of the concerned TSOs on 21 February In their request, all regulatory authorities requested: a) to remove the process established in Article 5 of the Original proposal: General Frovisionsfor specific sharing keys and additional rules ; b) to remove the specific sharing keys in Article 6 of the Original proposal: SpecfIc sharing keys ; c) to amend the default arrangements in Article 4 of the Original proposal: Sharing keys, in order to allow the sharing of congestion income according to the investment costs of the interconnector where an ownership arrangement exists on any particular bidding zone border in line with Point 6.3 of Annex I to Regulation (EC) No 714/2009, and has Page 2\O

3 d) to remove the additional rules set out in Article 7 of the Original proposal: Additional been previously agreed with the respective regulatory authorities. The regulatory authorities requested that the above-mentioned provision for sharing on the basis of an ownership arrangement be used only if the ownership agreement is different from the default 50%-50% split or 100% sharing key as set out in the Original proposal; PageO on NEMO s and TSOs proposals. of additional provisions that were only introduced after the regulatory authorities request All regulatory authorities also agreed that the proposed CIDM should not include a number (8) According to the letter, all regulatory authorities considered that the T$Os had not (b) to remove the specific sharing keys in Article 6 of the Original proposal. Provisionsfor specc sharing keys and additional rules ); and (a) to remove the process established in Article 5 of the Original proposal ( General sufficiently and properly taken into account the regulatory authorities request for amendment. In particular, TSOs did not address the request for amendment: Energy Regulators Fomm3, on behalfofall regulatory authorities, informed the Agency that authorities were able to agree on the key elements of the Proposal to be addressed by the Agency s decision. pursuant to Article 9(12) of the CACM Regulation, and indicated that the regulatory (7) In a letter dated 14 June 2017 and received by the Agency on the same day, the Chair of the all regulatory authorities agreed to request the Agency to adopt a decision on the Proposal, 2.2 Proceedings before the Agency Management dated 7 April 2017 ( Proposal ), together with the amended explanatory of 24 July 2015 establishing a Guideline on Capacity Allocation and Congestion methodology in accordance with Article 73 ofthe Commission Regulation (EU) 2015/1222 document. The Proposal was received by the last of the concerned regulatory authorities on Agency the amended All TSOs Proposal for a Congestion Income Distribïition (ID,) (6) On 21 April 2017, ENTSO-E published and, on behalf of all T$Os, submitted to the 27 April flows be included only in default sharing arrangements if fullyjustified. The regulatory. rules for Congestion Income In the case of flow-based market coupling regions, the regulatory authorities requested that the rules for flows or non-intuitive commercial authorities also requested that rule relating to non-negative net border income be removed from the proposed methodology; 2016/1719 establishing a guideline on Forward Capacity Allocation ( FCA Regulation ). Agency for the Cooperation e) to remove the definitions that are repeated from Commission Regulation (EU) 3 The regulatory authorities platform to consult and cooperate for reaching a unanimous agreement

4 request for amendment. These provisions include: methodologies required under the FCA Regulation; for amendment, and, therefore, were not addressed in the all regulatory authorities initial conditions that may be taken into account during the calculation of congestion (a) Article 3(3) of the Proposal, which contains elements that should be included in (b) Article 3(4) of the Proposal, which sets out the rule for application of relevant Page4 f20 income in relation to allocation constraints. This position was supported by one regulatory (14) All TSOs proposed that the CIDM should contain specific rules for the sharing of congestion authority. This aspect is addressed in Section below. regulatory authorities supported the solution given by the Proposal to convert negative congestion income into a positive one, whereas one regulatory authority noted that such a solution is counter-intuitive. These concerns are addressed in Section below. from the costs of remuneration of LTTRs. A few regulatory authorities expressed support for the inclusion ofthese additional rules. These points are addressed in Section below. Transmission Rights ( LTTRs ), as well as rules for netting the day-ahead congestion income (12) All TSOs proposed general rules for the sharing of the costs of remuneration of Long Term treatment of external flows and proposed to define the rules for the allocation of the congestion income generated by external flows at a later stage. One regulatory authority explicitly supported the 50%-50% sharing rule for the external flows. These concerns are addressed in Section below. This period of informal consultation continued with the formal consultation involving all TSOs and regulatory authorities lasting from 6 October until 20 October In the consultation document, the Agency proposed amendments to the Proposal. The summary main issues addressed in the responses are outlined in the Recitals (1 1) to (1 5) below. (10) From July to September 2017, the Agency organised several web-conferences with all TSOs to discuss the issues raised by all regulatory authorities and subsequently by the Agency. and the evaluation of the responses received are presented in Annex II to this Decision. The to amend also the Proposal. In fact, there was no such request. (9) The letter of 14 June 2017 did not indicate that the regulatory authorities requested the TSOs of a sub-methodology that requires subsequent regulatory approvals. (c) Articles 4(1) and 5(3) of the Proposal, which establish a process for the development income; and Agency for the Cooperation (1 1) All TSOs and a minority of regulatory authorities expressed concerns with regard to the ( 13) A few regulatory authorities raised concerns with regard to non-intuitive flows. Two

5 Agency for the Cooperation ( 1 5) A few regulatory authorities expressed concerns regarding the rules on the sharing of congestion income on a bidding zone border. They asked for more clarity on the default rule and exceptions on specific borders. These concerns are addressed in Section below. 3. THE AGENCY S COMPETENCE TO DECIDE ON THE PROPOSAL (16) Pursuant to Article 9(12) of the CACM Regulation, where the regulatory authorities have requested the relevant applicants (i.e. NEMOs or TSOs) to amend the proposal and have not been able to reach an agreement on the amended terms and conditions or methodologies within two months after their resubmission, or upon the regulatory authorities joint request, the Agency shall adopt a decision concerning the amended terms and conditions or methodologies within six months, in accordance with Article 8(1) of Regulation (EC) No 713/2009. (1 7) Following the regulatory authorities request to amend the Original proposal, the TSOs submitted the Proposal which included amendments. With regard to that Proposal, according to the letter of the Chair of the Energy Regulators Forum of 14 June 201 7, all regulatory authorities agreed to request the Agency to adopt a decision pursuant to Article 9(12) of the CACM Regulation. (18) Therefore, under the provisions of Article 9(12) of the CACM Regulation, the Agency became responsible to adopt a decision concerning the submitted Proposal by the regulatory authorities joint referral of 1 4 June SUMMARY OF THE PROPOSAL (19) The Proposal includes: (i) recitals describing, inter alia, the expected impact ofthe Proposal on the objectives set out in Article 3 of the CACM Regulation; (ii) general provisions, including on the subject matter and scope (Article 1) as well as on definitions and interpretation (Article 2); (iii) the provisions on collection and distribution of congestion income to the bidding zone borders (Article 3); (iv) the provisions on congestion income distribution on the bidding zone border (Article 4); and (v) final provisions, including on the publication and timeline for implementation (Article 5), as well as on the applicable language (Article 6). (20) The Proposal provides for the following three layers of congestion income distribution. In the first layer, the congestion income is collected from the central counterparties and separated into congestion income generated by electricity exchanges within each capacity calculation region ( CCR ). In the second layer, the congestion income to each bidding zone border of the CCR (or to an external flow where applicable) based on the absolute value of the product of commercial flows and market spread. In this layer, the Proposal also provides for the deduction of the costs of remuneration of LTTRs from the congestion income allocated to a bidding zone border. Third, the congestion income on each bidding zone border is distributed to TSOs on the bidding zone border using the default 50- ofa CCR is allocated Page 5f 20

6 share of the interconnectors. for the congestion income distribution, where relevant, (i) the allocation constraints within a CCR or between CCRs, (ii) the sharing of external flow value, (iii) the redistribution of (21) Article 3 ofthe Proposal proposes a flexible approach by which TSOs may take into account 50 % sharing key or using specific keys in case of different investment costs or ownership Page 6 oo\ efficient long-term operation and development ofthe electricity transmission system and the principles of congestion management provided for in Article 16 of Regulation (EC) efficient operation of the electricity market of the Union; (ii) comply with the general No 714/2009; (iii) allow for reasonable financial planning; (iv) be compatible across time- (25) According to Article 73(2) of the CACM Regulation, the CIDM shall: (i) facilitate the developed by all T$Os, no later than 12 months after the entry into force of the CACM Regulation. (24) According to Article 73(1) of the CACM Regulation, the proposal for CIDM shall be 5.1 Legal framework 5. ASSESSMENT OF THE PROPOSAL applicable national regulatory regime and at the latest within six months after the approval capacity allocation takes place based on the coordinated net transmission capacity approach the Proposal also proposes to postpone the implementation until the capacity calculation and or the flow-based approach in accordance with the CACM Regulation. by all regulatory authorities or after the decision has been taken by the Agency. However, (23) The Proposal provides that all TSOs shall implement the CIDM in accordance with the (a) the 50%-50% sharing key; bidding zone border based on their contribution to the allocated capacity. Then, the congestion income allocated to each interconnector is shared between the two TSOs on both specifies that the congestion income shall be distributed between interconnectors on the allocated 100% to that TSO; reflect specific investment costs or ownership shares of the interconnector. (22) With regard to the sharing of congestion income on a bidding zone border, the Proposal first (b) where an interconnector is owned 100% by one TSO, the relevant congestion income is sides ofthe interconnector using one ofthe following rules: LTTRs. congestion income for flow-based regions such that the sum of congestion income shares allocated to bidding zone borders in a CCR matches the total congestion income generated within a CCR and (iv) the assurance of non-negative congestion to ensure that no TSO s congestion income would become negative after paying out the costs of remuneration of Agency for the Cooperation (c) specific percentage sharing may be applied between the T$Os on the interconnectors to

7 Regulation. frames; and (v) establish altangements to share congestion income deriving from (26) Moreover, the CIDM must be in line with the objectives of Article 3 of the CACM transmission assets owned by parties other than TSOs. Page 72O these latter methodologies are not yet developed. Nevertheless, the Agency does not see (33) The Proposal establishes the congestion income distribution methodology for the day-ahead specific concerns, which would call into question the compatibility of the Proposal with the future methodologies. With regard to the compatibility of the Proposal between the dayahead and intraday timeframe, the Agency decides to limit the scope of the Proposal to the methodologies for the forward and balancing timeframes cannot be evaluated at this stage as and intraday timeframes. Its compatibility with the congestion income distribution are presented in Sections to below. distribution and therefore does not enable a reasonable financial planning for TSOs and national regulatory authorities as required by the third objective of Article 73(2). This is because the Proposal suggests a discretionary application of specific rules by TSOs. The Proposal thus needs to be amended in several ways to replace this proposed discretion of TSOs by clear and directly applicable rules. The specific amendments related to this concern (32) The Proposal does not provide a stable and predictable framework for congestion income No 714/2009. general principles of congestion management provided for in Article 16 of Regulation (EC) in the Agency s view, the Proposal alone is not deemed to have any negative impact on the (3 1) The Proposal only addresses the distribution ofcongestion income but not its use. Therefore, in Recital 6. is in essence very similar to objective (g) ofarticle 3, against which the Proposal is assessed (30) The Agency notes however that the requirement ofarticle 73(2)(a) ofthe CACM Regulation contains the assessment against the requirements established in Article 73(2) of the CACM Regulation. (29) Neither the Proposal, nor the amended explanatory note accompanying the Proposal, Assessment against the requirements of Article 73(2) of the CACM Regulation obj ectives of Article 3 of the CACM Regulation. implementation and a description of their expected impact on the above-mentioned (28) As a general requirement, Article 9(9) ofthe CACM Regulation requires that every proposal for terms and conditions or methodologies includes a proposed timescale for their (27) The CACM Regulation does not require any public consultation of the proposal. In fact, no such consultation has been made by all TSOs. Agency tot the Cooperation

8 day-ahead timeframe only and to define the CIDM for the intraday timeframe at a later stage. interconnectors may be owned by other parties and establishes that, in such cases, those This amendment is presented in Section 5.3 below. assets owned by parties other than TSOs, the Proposal clearly identifies the cases where (34) With regard to the arrangements to share congestion income deriving from transmission Page 8 O date, but clarifies it. (40) As regards the substance of the implementation timescale, the Agency understands that the CIDM can only be applied once the capacity calculation methodologies pursuant to the postponement pursuant to Article 5(4) of the Proposal would prevail in all cases as it is expected that the capacity calculation methodologies pursuant to the CACM Regulation will be implemented much later than the adoption of the CIDM by the Agency. As the proposed CACM Regulation are implemented, the Agency amends the Proposal such that it clarifies that the CIDM shall be implemented once the relevant capacity calculation methodologies, developed and approved pursuant to the CACM Regulation, are implemented in a CCR. Actually, the changes introduced by the Agency do not change the effective implementation Regulation. (39) Formally, the Proposal complies with the requirement in Article 9(9) of the CACM approval by all regulatory authorities or after the decision has been taken by the Agency. However, Article 5(4) of the Proposal also proposes to postpone the implementation until Regulation. with the applicable national regulatory regime and at the latest within six months after the transmission capacity approach or the flow-based approach in accordance with the CACM (38) Article 5(2) ofthe Proposal specifies that all TSOs will implement the CIDM in accordance the capacity calculation and capacity allocation take place based on the coordinated net Proposed timescale for implementation Regulation. assessment of the expected impact on the objectives listed in Article 3 of the CACM (37) As regards the substance of the described impact, the Agency generally agrees with the Regulation. (36) Therefore, the Proposal complies with the requirement in Article 9(9) of the CACM the objectives listed in Article 3 ofthe CACM Regulation. (35) Recitals (4) to (9) of the Proposal describes the expected impact of the proposed CIDM on Expected impact on the objectives of the CACM Regulation. parties shall be entitled to receive all or a part of the congestion income. The Proposal is therefore in line with this requirement. m Agency for the Cooperation

9 requested the Agency to evaluate and improve different elements of the Proposal. The Agency understands from the regulatory authorities explanation that their recommendations reflected the following principles with which the proposed CIDM fails to comply: (41) Based on the letter from the Chair ofthe Energy Regulators Forum, all regulatory authorities 5.2 Recommendations from all regulatory authorities Page 9 èo (44) Nevertheless, the Agency finds it important to clarify the interdependence of congestion also amends the CIDM to clarify that the final congestion income that a TSO receives in the income distribution in the day-ahead timeframe and the remuneration of the costs of LTTRs. For this reason, a new recital is included in the CIDM to clarify that, in a situation where TSOs of a CCR have issued LTTRs, the costs for the remuneration of those LTTRs should be borne by the same TSOs which receive the congestion income in the day-ahead timeframe that is generated by the capacity corresponding to the non-nominated LTTRs. The Agency notes that the sharing of costs of remuneration of non-nominated LTTRs cannot be decided accordance with Article 61(3) of the FCA Regulation (which will have to be submitted 12 months after the date of entry into force of this Decision). incurred to ensure firmness and remuneration of long-term transmission rights in (43) While the Agency understands and acknowledges the rationale behind these provisions, it in the framework of the CIDM s approval, because sharing of these costs is not within the scope of the CIDM, but instead within the scope of the methodology for sharing costs nominated either because they are Financial Transmission Rights or because they are the problem of sharing the costs related to the remuneration ofnon-nominated LTTRs (non Physical Transmission Rights that their holders decide not to nominate). (42) The Proposal includes two provisions (Article 3(3) and Article 3(4)(d)) that aim to address The remuneration of non-nominated LTTRs effect to the requirement of approval by regulatory authorities under Article 9(6)(m) of b) Principle 2: the CIDM should not establish new approval procedures of submethodologies, by which some TSOs could develop some details of the methodology or not certain rules. Instead, in view of the requirement for legal certainty, the CIDM they apply. in the CIDM to ensure proper regulatory scrutiny of these specificities and give full the CACM Regulation. Indeed, Article 9(6)(m) and Article 73(1) of the CACM Regulation require the CIDM are dulyjustified. In such a case, these specific arrangements should be defined directly at a later stage and submit it for approval to their competent regulatory authorities. at the discretion oftsos and which would provide TSOs with the flexibility of applying to be developed by all TSOs and to be approved by all regulatory authorities. and its rules should be established in a manner that it is clear when, where and to whom a) Principle 1 : the CIDM should generally not allow for specific arrangements, unless they c) Principle 3 : the CIDM should not establish rules and procedures which could be applied Agency for the Cooperation

10 5.2.2 The impact of allocation constraints on the congestion income distribution oflttrs have been paid. day-ahead timeframe is actually the net congestion income after the costs of remuneration Page would have the effect that the single day-ahead market coupling (SDAC) clearing price in Poland becomes disconnected from the commercial flows on the 5E4-PL and LT-PL For such direct transit, the relevant market spread would then have to be calculated as the borders. In case the import/export limits of Poland were to be set to zero, the commercial difference between the LT and SE4 clearing prices and the related congestion income should be distributed equally between the two borders. All TSOs therefore propose a solution by which the conmiercial flows on these two borders are split into direct commercial flows with Poland and a direct transit flow. For the former, the standard congestion income distribution flows on these two borders would actually represent a direct transit between 5E4 and LT. rules would apply, whereas for the latter, the congestion income would be calculated for both income would be split equally between the two borders. borders together using the market spread between 5E4 and LT and the resulting congestion (48) The Agency understands that the application of import/export limits in such specific case specific references to allocation constraints actually aim at addressing a specific type of on the Sweden 4 contribution to the Agency s consultation on CIDM, the Agency understands that these allocation constraints that correspond to a simultaneous import or export limit across several bidding zone borders. Such an allocation constraint is currently applied by the Polish TSO (47) Based on the additional explanations provided in the explanatory note and in the all TSOs zero. account allocation constraints. In the Agency s view, this is not in line with Principle 3 described in Recital (41). (46) Article 3(4)(a) of the Proposal provides TSOs with the discretion of taking or not into interdependencies of capacity allocation across different bidding zone borders, and which accotint in calculating the Congestion Income by allocating the relative impact of this capacity allocation constraint among the affected TSOs. the allocation constraints in the congestion income distribution. More specifically, Article 3(4)(a) of the Proposal specifies that:...an allocation constraint which covers the (45) Article 3(4)(a) of the Proposal specifies that TSOs may, where relevant, take into account Agency for the Cooperation is taken into accoitnt in the capacity allocation ofcross zonal capacity shall be taken into Poland (5E4 PL) and Lithuania Poland (LT borders. This allocation constraint complements the individual cross-zonal capacities offered Sweden and Lithuania even in the case where the total import or export to Poland is set to on the two bidding zone borders and actually allows for a transit of electricity between PL) bidding zone

11 rules for congestion income distribution only for the specific problem, because: bidding zone borders, this does not yet justify, in the Agency s view, to amend the general designed only for a specific type of allocation constraints (i.e. import and export limits) applied in a specific situation. All T$Os have not demonstrated that the proposed a) this proposal targets all allocation constraints in general, while the proposed solution is (49) Although that proposal may be able to address the specific situation on the two concerned Page 11 of2o % %2Oon%2OCCR.pdf. calculation regions of 17 November See the Agency Decision on the electricity transmission system operators proposal for the determination of capacity constraints applied across bidding zone borders ofdifferent CCRs. This new proposal would allow for additional rules on the treatment of allocation constraints applied across different bidding zone borders, which would be defined regionally by TSOs and regulatory authorities regional TSOs and regulatory authorities to define rules outside the CIDM framework is not would allow for some regulatory scrutiny, it notes however that the flexibility given to (50) After the consultation with all TSOs and regulatory authorities, the Agency received from and published on ENTSO-E web-page. While the Agency recognises that such a proposal all TSOs and two regulatory authorities a new text proposal to address the issue of allocation ofarticle 3 ofthe CACM Regulation, requires that interdependent bidding zone borders the concept and purpose ofccrs under the CACM Regulation, in view ofthe objectives b) the described application of import/export limits on the SE4-PL and LT-PL borders also to the bidding zone border LT-PL. on defining congestion management rules for the bidding zone border outside of their CCR. Similarly, the TSOs and regulatory authorities from the Hansa CCR do not have the competence to propose and approve the allocation constraint that is partly applicable It follows from this that T$Os and regulatory authorities from the Baltic CCR cannot ofthe concerned CCR and approved by all regulatory authorities ofthe concerned CCR. solution can be generalised to any allocation constraint and to any situation. Thus, the amendments once all the information about allocation constraints is known; and makes the capacity allocation on these two borders interdependent. In such a situation, should be coordinated and included within the same CCR. Interdependency of capacity CORE CCR4. For this reason, the Agency is of the opinion that allocation constraints among bidding zone borders belonging to different CCRs. This interpretation is also Agency is concerned of making a generic error in the rules which would require later allocation between bidding zone borders was indeed the main criterion by which the Agency assessed the TSOs proposal on CCRs pursuant to Article 1 5(1) of the CACM Regulation and decided to merge the proposed CWE CCR and CEE CCR into a single apparent from Articles 9(7)(a), 20(2), and 2 ( 1 ) 1 ofthe CACM Regulation, which require that the methodology for determining allocation constraints that may be applied in accordance with Article 23 ofthe CACM Regulation needs to be proposed by all TSOs may be applied only among the bidding zone borders within a single CCR and not propose and approve an allocation constraint that is partly applicable to the bidding zone border SE4-PL because the relevant TSOs and regulatory authorities have no authority Agency for the Cooperation

12 addressed with adequate legal means, namely the inclusion of all interdependent bidding (5 1) Given the above reasons, the Agency deems it appropriate that the specific problem is first in line with Principle 1, as well as Principle 2 described in Recital (4 1 ) and thus cannot be accepted. Page 1>(O paragraph 3 in Article 4 which specifies a general rule for socialisation of negative congestion income. This paragraph generally applies a redistribution of congestion income market spreads in a CCR is not equal to the total congestion income generated in the CCR. While the Agency understands that such a mismatch may occur only in case of non-intuitive commercial flows, other cases cannot be excluded at this point. (55) For the purpose of clarity, the Agency replaces Article 3(4)(c) of the Proposal with a new any time the total sum of absolute value of the products between commercial flows and who receive higher congestion income thanks to these non-intuitive flows. The Agency has congestion income generated on the borders with non-intuitive flows to be paid by the T$Os explored and proposed this concept to all TSOs and all regulatory authorities. However, situation, the Agency finds the proposal from all TSOs, by which the negative congestion income is socialised between TSOs of a CCR, acceptable. Thus, despite the concerns based on their responses, the Agency could not find a generic solution by which the beneficiaries of non-intuitive commercial flows could be clearly identified. In such a expressed by the Agency and some regulatory authorities, the Agency approves the proposed solution for non-intuitive flows. (54) A natural solution for non-intuitive commercial flows would have provided for the negative economic surplus at the CCR level. of non-intuitive flows which also contribute to the optimal solution and maximisation of (53) The Agency understands that the purpose of using an absolute value is to address the issue generated by exchanges within a CCR is distributed among bidding zone borders of a CCR based on the absolute value of the product of the commercial flow and the market spread. (52) The second layer of the Proposal establishes a general rule by which the congestion income Non-intuitive commercial flows allocation constraints. Further, if these allocation constraints are approved by the relevant regulatory authorities in accordance with the applicable legal proceedings pursuant to the zone borders into a single CCR and an overall legal assessment of the justification of these CACM Regulation, all TSOs may propose amendments to the CIDM and specify the relevant exceptions directly in the CIDM. Agency for the Cooperation

13 allocated in SDAC) in case the coordinated net transmission capacity approach applies5. In aggregated flow (AAF) or the external flow. The AAF is calculated for bidding zone borders (56) In the Proposal, the commercial flow is equal to the allocated flow (i.e. cross-zonal capacities Calculation of external flow and sharing of related congestion income case the flow-based approach applies, the commercial flow is either the additional Pagf 20 zones, which are the result of electricity exchanges within a CCR only (the Agency within a CCR and represents the physical flow resulting from the net positions of bidding introduces in Article 3(1) ofthe CIDM the term regional net position for this purpose). For Agency for the Cooperation a bidding zone where the sum ofaafs on its bidding zone borders within a CCR is not equal The 5 Note that the Agency is using the term allocated capacities (instead ofthe term allocated flow ), since the allocated flow means the physical flow resulting from all cross-zonal exchanges. it does not specify how exactly the external flow value will be calculated for each external (61) Third, the Agency finds the proposed definition of external flow value incomplete, because (60) Second, the Proposal does not provide a clearjustification for allocating 50% ofthe external flow value using one rule and 50% using another rule. The amended explanatory note between different bidding zones may bej;tstijiedfor different reasons. II). That response only states that [A]ll TSOs believe the sharing of externalfiow value accompanying the Proposal only explains that with such a rule a fair treatment of all affected TSOs and incentives for investments in Interconnectors will be maintained. No further clarity is provided in the all TSOs response to the Agency s consultation (See Annex (59) First, the Agency agrees with all regulatory authorities (see Principle 3 in Recital (4 1 ) that the Proposal should not impose rules which allow for a discretionary application, such that the TSOs may, where relevant, decide to allocate 50% of external flow value using one rule rule for allocating the congestion income generated by external flows. and 50% using another rule. In the Agency s view, the Proposal fails to clarify the default (58) The Agency considers that the Proposal needs to be amended in three aspects. all bidding zone borders within the CCR, proportionally to the AAFs and external flows may, where relevant, allocate 50% ofthe external flow value to the TSOs ofthe CCR, which congestion income available for the entire CCR and the congestion income allocated to all bidding zone borders of a CCR. Finally, Article 3(4)(b) ofthe Proposal specifies that TSOs income allocated to the external flow and which is equal to the difference between the have external flows. The remaining 50% ofthe external flow value may be allocated among calculated for such CCR. (57) Further, the Proposal also defines the external flow value, which is defined as the congestion latter therefore represents a part of the regional net position of a bidding zone, which is physically realised through the borders of this bidding zone that are not part of a given CCR. to the regional net position of such bidding zone, the difference is called external flow.

14 Germany-Luxembourg-Austria. In such a situation, it is clear that the two external flows are there are only two bidding zones with external flows such as in the current Central West Europe region where external flows are flowing between the bidding zones of France and flow. The proposed definition of external flow value is feasible only in a situation where Page 12O the commercial flows between the pairs of bidding zones having external flows in order to define the related market spread. This solution introduces a virtual hub, which represents a consultation to provide an informal proposal to the Agency on how to generalise the calculation of commercial flow and market spread in case the external flow is used. As part common source and sink of all external flows6. With this concept, the relevant commercial flow for congestion income distribution is equal to the external flow between a bidding zone oftheir consultation response, all TSOs proposed a solution which does not require to specify (63) To address the third concern in Recital (6 1 ), the Agency invited all TSOs during the defines an exact rule for allocating the congestion income generated by external flows. In zones of a CCR which are partly flowing through bidding zones or bidding zone borders that flows is still determined by the volume of these flows and the market spread between the the Agency could not find a proper rationale or justification for TSOs that do not host the that respect, the Agency notes that the AAFs and external flows are both understood as representing the physical flows which appear on the borders of bidding zones as a result of regional net positions. The only difference between AAFs and external flows is therefore that AAFs are commercial flows between two bidding zones in a CCR on their common bidding zone border, whereas external flows are commercial flows between two bidding relevant two bidding zones. For this reason, the Agency finds it reasonable that the two external flows to receive a part of the congestion income generated by those flows. Such a bidding zones share the resulting congestion income using a 50-50% split. On the contrary, solution does not appear to be consistent with the Proposal s general approach to distribute second concern are presented in Recital (65). zones. The amendments that the Agency introduces in the Proposal to address the first and congestion income based on commercial flows and market spread between relevant bidding (62) With regard to the first and second concern, the Agency finds it necessary that the CIDM are not part of the CCR. Despite this difference, the congestion income generated by those flowing between Germany and France and therefore the relevant market spread is the difference between the prices in Germany and France. However, in the CORE CCR, there will be many more bidding zones that will have external flows (i.e. France, Germany, Austria, Slovenia, Croatia, Hungary, Romania and Slovakia). While each of these bidding corresponding market spread to calculate the external flow values (for example, one cannot identify how much ofthe external flow from France is flowing into Germany). The Proposal therefore fails to explain how the external flow value will be calculated for each of these zones will have an external flow, one cannot identify the pairs of bidding zones and the external flows and which market spread is relevant for which external flow. Agency for the Cooperation 6 Note that the sum of all external flows is by definition equal to zero and therefore one can assume that all these external flows are netted in a virtual hub.

15 and the virtual hub and the relevant market spread is equal to the difference between the this virtual hub, all TSOs proposed a solution by which this price is determined through an flows and the relevant market spreads. This optimisation in essence minimises the sum of spread). price of the relevant bidding zone and the price of the virtual hub. To calculate the price of optimisation that minimises the sum of absolute values of the products between the external non-intuitive external flows (i.e. external flows flowing in the direction of negative market Page 1O border is first shared between all interconnectors on the bidding zone border based on their contribution to the allocated capacities. The Proposal provides that rules describing the interconnector s contribution to the allocated capacities shall be agreed by the TSOs on the bidding zone border and approved by the relevant regulatory authorities. Subsequently, the congestion income attributed to each interconnector shared between the two TSOs on both between the relevant TSOs. (c) the sharing key reflecting the investment costs or the ownership share upon agreement (a) the 50%-50% sharing key; or, (b) 100% share to one TSO in case an interconnector is fully owned by one TSO only; or (66) The Proposal establishes a default rule by which the congestion income on the bidding zone sides of the interconnector based on: Specific rules for sharing congestion income distribution on the bidding zone border calculation of congestion income allocated to external flows represents only half of the relevant market spread between a pair of bidding zones having external flows. For this clarification in Article 5(2) ofthe CIDM. is necessary. Nevertheless, it is important to emphasise that market spread used for the of allocating congestion income based on the absolute value of the product of commercial from the CIDM on the grounds that the Agency deems it important that the general principle flows and market spread is applied also to external flows. From this perspective, the external flows should not have a specific treatment and no specific definition of external flow value reason, the calculated congestion income allocated to external flows is already split between TSOs having external flows and therefore 1 00% of congestion income allocated to external flows should be attributed to the TSOs having external flows. The Agency provides this (65) Finally, it is important to note that the Agency removes the definition of external flow value (d) the calculation of market spreads for the purpose of calculating the congestion income (a) the calculation of the regional net position which is used as a basis for calculating the (b) the calculation ofaafs on bidding zone borders ofa CCR (Article 3(2) ofthe CIDM); (c) the calculation of external flows (Article 3(3) of the CIDM); and amends the Proposal by adding a new Article 3, which specifies the following elements: (64) Based on the informal proposal from all TSOs referred to in the previous Recital, the Agency AAFs and external flows (Article 3(1 ) of the CIDM); from external flows (Article 3(4) ofthe CIDM). Agency for the Cooperation

16 a) The parameters to determine the interconnector s contribution to allocated capacities The Proposal also clarifies that, in case an interconnector is owned by entities other than concerns (raised both by the Agency and regulatory authorities): (67) The Agency considers that the Proposal needs several amendments to address the following TSOs, these entities, instead of the TSO, shall receive the respective congestion income. N Page 16\ç20 an Annex to the CIDM. Nonetheless, the Agency finds it reasonable to establish more remove the additional approval procedures by regulatory authorities. Instead, the Agency establishes that sharing keys deviating from the 50%-50% default rule be defined directly in (7 1 ) Third, in accordance with Principle 2 described in Recital (4 1 ), the Proposal is amended to default sharing key. This default sharing key is specified in Article 5( 1 ) of the CIDM. Exceptions to the default rule may be allowed due, for example, to different ownership decisions on cross-border cost allocation. While the Agency does not recognise a European interest in harmonising all existing agreements for specific interconnectors, it finds it sharing key. These exemptions are listed in Annex 1 to the CIDM, which constitute an necessary that, in accordance with Principle 1 described in Recital (41), these deviations are clearly defined and explained in an annex to the CIDM. For this reason, the Agency asked integral part of the CIDM. all TSOs to provide the Agency with the information on all such exemptions to the default (70) Second, the Agency amends the Proposal by establishing the 50%-50% sharing key as the shares, different shares of investments costs or other reasons such as exemption decisions or between the interconnectors on the bidding zone border is applied only in exceptional cases when these interconnectors need different sharing keys or are owned by different TSOs. The contribution to the allocated capacity and subsequently between the TSOs on each side of amended Article 5(3) specifies that only in such cases, the congestion income on the bidding (69) Therefore, first, the Agency amends the Proposal such that the sharing ofcongestion income zone border is first distributed between the interconnectors on that border based on their each interconnector. from the default rule and the reasons for exemptions and (iii) does not establish additional approval procedures by the involved regulatory authorities. (68) To address the above two concerns, the Agency deems it necessary to amend the Proposal in a way that (i) clearly establishes a default sharing key, (ii) defines specific exemptions b) The sharing key to distribute congestion income on a specific interconnector provides with Principle 1 mentioned in Recital (41). regard to the application of this sharing key. The Agency notes that this is not in line with Principle 3 mentioned in Recital (41). approval procedure by regulatory authorities. The Agency notes that this is not in line three different options without providing sufficient clarity on the default rule and specific conditions under which exemptions may be used. This creates uncertainty with are proposed to be included in a sub-methodology, which would be subject to additional Agency for the Cooperation

17 capacity. The Agency does not find it appropriate to define these parameters in the CIDM, since these parameters may need to change very often (e.g. in case of outages or subject to regulatory approval, would not allow for a continuous and timely application of flexibility for parameters defining the contribution of each interconnector to the allocated maintenances) and it would thus require frequent changes in the CIDM which, if they were Page 17\2O December See ENTSO-E web page for details: a guideline on capacity allocation and congestion management. This proposal was consulted from 3 November to 3 coupling in accordance with Article 43 ofthe Commission Regulation (EU) 2015/1222 of24 July 2015 establishing transparency on commercial flows used and other information used in the congestion income publish the commercial flows which were used as a basis for the congestion income of congestion income distribution. This new Article provides an obligation for TSOs to distribution. The Agency therefore introduces a new Article 6 in the CIDM on transparency (75) To minimise the confusion introduced by different approaches to calculate commercial flows and scheduled exchanges, the Agency deems it important to add additional requirements on scheduled exchanges is therefore leading to a divergence between commercial flows and scheduled exchanges, which were traditionally considered as the same. Such a divergence provides more confusion to the market and the Agency regrets that the scheduled exchanges will not represent a physical realisation of cross-border trade in the SDAC. as proposed by all TSOs will no longer mean the same as commercial flows and that they (74) The development and the adoption of CIDM and the methodology for the calculation of net transmission capacity approach, because allocated capacities are used as a basis for both. net positions as is the case for commercial flows in the CIDM. capacity in case the coordinated net transmission capacity approach applies and on calculated physical flows resulting from regional net positions in case the flow-based approach applies. Based on the all-t$o proposal on methodology for calculating scheduled exchanges7, the commercial flow will essentially be equal to a scheduled exchange in case of coordinated propose to calculate scheduled exchanges based on physical flows resulting from regional However, the Agency understands that, in case the flow-based approach applies, this will not be the case, since the methodology for the calculation of scheduled exchanges does not (73) The Proposal establishes a new definition of commercial flow which is based on allocated Amendments related to transparency of information owning interconnectors into a single paragraph and to clarify that, in such cases, the references to TSOs are referring to those other entities. (72) Finally, the Agency amends the CIDM to combine all references to entities other than TSOs parameters is rather limited and therefore establishes that they be rather transparently published on ENTSO-E web page and amended, when necessary, without additional regulatory approval. the CIDM. The Agency considers that the discretion given to T$Os in defining these Agency for the Cooperation 7 All TSOs proposal for a Methodology for Calculating Scheduled Exchanges resulting from single day-ahead

18 5.3 Assessment of other points of the Proposal is currently not available to the general public in the Union. distribution. These commercial flows carry an important information on the physical realisation of net positions of bidding zones, which disclose the extent to which different interconnectors are hosting the physical flows resulting from the SDAC. Such information Page 18 2O (80) Based on a proposal from all TSOs received by the Agency after the consultation with all TSOs and regulatory authorities, the Agency added a new sentence in Article 4(2) of the CIDM to address the issue related to congestion income allocated to bidding zone borders or interconnectors where transmission losses are taken into account in capacity calculation based on the regional nature of remuneration of non-nominated LTTRs. All TSOs in a CCR need jointly to calculate long term cross-zonal capacities and guarantee the remuneration of non-nominated LTTRs using the congestion income from SDAC. Skipping this regional step second justification is based on non-harmonised definition of commercial flows in the flowbased approach and the coordinated net transmission capacity approach. (79) The Agency amends the CIDM to add a new Recital (6), which provides a justification for the second layer in the congestion income distribution. The first part of the justification is ensure revenue adequacy for each CCR and TSO to remunerate non-nominated LTTRs. The and sharing the EU-wide congestion income directly to bidding zone borders would not construction of the congestion income distribution. This Recital explains that the CIDM is designed in three layers. First, for each CCR the congestion income generated by exchanges within a CCR is defined and collected. Second, the congestion income of a CCR is distributed among the bidding zone borders of the CCR. Third, the congestion income attributed to the bidding zone border is distributed among TSOs having interconnectors on that bidding zone border. (78) The Agency amends the CIDM to add a new Recital (5), which clarifies the overall implementation of the intraday capacity pricing methodology pursuant to Article 55 of the congestion income until sufficient clarity is obtained about how the congestion income is applies only to the congestion income collected within the context of the SDAC and not the CACM Regulation, it therefore does not make sense to define rules for sharing such generated within the context of the SIDC. The CIDM will therefore be amended at a later (77) The Agency amends the CIDM to add a new Recital (4) which clarifies that the CIDM SDIC. Since the SDIC will not provide any congestion income until the approval and stage to extend the scope also to the intraday timeframe. calculation. Instead the flow-based approach is mandated by Article 20(1) of the CACM coordinated net transmission capacity approach are not equivalent approaches to capacity Regulation as a default approach, whereas the coordinated net transmission capacity approach may be applied if specific conditions are met. (76) In Recital (3) of the CIDM, the Agency clarifies that a flow-based approach and a Agency for the Cooperation

19 such bidding zone border or interconnector is lower than the absolute value of the product spread for the calculation of congestion income shall be reduced to take into account the costs of network losses on such bidding zone border or interconnector. between the commercial flow and the market spread. In such a case, the relevant market and allocation. This additional provision clarifies that the congestion income allocated to Page This Decision is addressed to all TSOs. Article 2 The congestion income distribution methodology, pursuant to Article 73 of Regulation (EU) 2015/1222, is adopted as set out in Annex I to this Decision. Article 1 HAS ADOPTED 1111$ DECISION: editorial amendments. To provide clarity, Annex I to this Decision sets out the amended Proposal as approved, including the above mentioned amendments, (84) Therefore, the Agency approves the Proposal subject to the necessary amendments and integrated in the Proposal, as presented in Annex I to this Decision. of the CACM Regulation, provided that the amendments described in this Decision are (83) For all the above reasons, the Agency considers the Proposal in line with the requirements 5.4 Conclusion is not excluded from the scope of the CIDM. that their TSO, which does not need to be certified in accordance with Directive 2009/72/EC, (82) Finally, the Agency amends the CIDM to remove the reference to certified T$Os in Recital amendment of the CIDM in accordance with Article 9(1 3) of the CACM Regulation. of the applicable CIDM, because such changes should only be allowed through an Agency for the Cooperation (8 1 ) The Agency amends the CIDM to delete Article 5(3) of the Proposal. In line with Principle 1 described in Recital (41), TSOs should not be allowed to change the sharing key outside (7) ofthe Proposal. The removal was proposed by one regulatory authority in order to ensure

20 For the Agency: Done at Ljubljana on 14 December Page 20 of 20 on the Proposal Annex II - only) Annex Ia income distribution methodology in accordance with Article 73 of the Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a Guideline on Capacity Allocation and Congestion Management in track change compared to the Proposal (for information Annex I income distribution methodology in accordance with Article 73 of the Commission Regulation (EU) 201 5/1222 of 24 July establishing a Guideline on Capacity Allocation and Congestion Management Annexes: Director AIb Pototschrng Agency for the Cooperation I Congestion Congestion Evaluation of responses to the consultation of all regulatory authorities and all TSOs

21 Annex I Capacity Allocation and Congestion Management in accordance with Article 73 of the Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a Guideline on Congestion income distribution methodology Agency for the Cooperation

22 TITLE 1 General provisions 5 Whereas. 3 Contents Page 2 TITLE 2 Collection and distribution of congestion income to the bidding zone borders 6 Article 1 Subject matter and scope 5 Article 2 Definitions and interpretation 5 Article 3 Calculation of commercial flow in FB approach 6 Article 4 Process and calculation of congestion income 7 Article 5 Sharing keys 8 Article 6 Publication of data 8 Article 7 Publication and implementation of the CD methodology 9 Article 8 Language 9 TITLE 3 Congestion income distribution on the bidding zone border 8 TITLE 4 Transparency of information 8 TITLE 5 Final provisions 9 Agency for the Cooperation

23 Agency for the Cooperation Whereas (1) This document establishes the methodology for congestion income distribution (hereafter referred to as CD methodology ) in accordance with Article 73 of Commission Regulation (EU) 2015/1222 establishing a guideline on Capacity Allocation and Congestion Management (hereafter referred to as the CACM Regulation ). (2) The CD methodology takes into consideration the provisions on general principles of congestion income in Article 16 (6) of Regulation (EC) No 714/2009 of the European Parliament and of the Council of 1 3 July 2009 on conditions for access to the network for cross-border exchanges in electricity (hereafter referred to as Regulation (EC) No 714/2009 ). (3) This CD methodology takes into account the general principles, goals and other methodologies set in the CACM Regulation. The goal of the CACM Regulation is the coordination and harmonisation of capacity calculation and capacity allocation in the day-ahead and intraday cross-border markets, and it sets requirements for the Transmission System Operators (hereafter referred to as TSOs ) to co-operate on the level of capacity calculation regions (hereinafter referred to as CCRs ), on a pan-european level and across bidding zone borders. The CACM Regulation sets also rules for establishing capacity calculation methodologies based either on the flow-based approach ( FB approach ) or, subject to conditions specified therein, the coordinated net transmission capacity approach ( coordinated NTC approach ). (4) Tn accordance with Article 73 of the CACM Regulation, the CD methodology should cover the congestion income distribution in both the day-ahead and the intraday timeframe. However, since the intraday capacity pricing methodology pursuant to Article 55 ofthe CACM Regulation is not defined yet, it is therefore currently not possible to devise the rules for the sharing of congestion income in the intraday timeframe. For this reason, the CD methodology covers only the distribution of congestion income in the day-ahead timeframe, whereas the scope of the CD methodology should be amended in order to extend the scope to intraday timeframe once sufficient clarity is gained on how congestion income in the intraday timeframe will be created. (5) The CD methodology is designed in three layers. First, for each CCR the congestion income generated by exchanges within a CCR is defined and collected. Second, the congestion income of a CCR is distributed among the bidding zone borders of a CCR. This is done using a harmonised approach based on the absolute value of a product between the commercial flow and the market spread on the bidding zone border. Third, the congestion income attributed to the bidding zone border is distributed among TSOs having interconnectors on that bidding zone border. (6) Regional application of congestion income distribution is needed for two main reasons. First, the congestion income from SDAC includes also the congestion income resulting from reallocated long-term transmission rights ( LTTR ), for which TSOs need to coordinate in capacity calculation and allocation, as well as guaranteeing their firmness and remuneration including sharing of related costs in accordance with Article 61 of the Commission Regulation (EU) 2016/1719 of 26 September 2016 establishing a guideline on forward capacity allocation (hereinafter referred to as the FCA Regulation ). All these requirements are defined at a level of CCR and therefore sharing of congestion income must be kept at the same level in order to ensure revenue adequacy. Second, the definition of commercial flow is not harmonised across Page 3 o ki

24 Agency for the Cooperation EU mainly because CCRs with coordinated NTC and FB approach allocate cross-zonal capacity in a fundamentally different way. In CCRs with coordinated NTC approach, the commercial flows can be set to equal allocated cross-zonal capacities, which are directly resulting from single day-ahead coupling ( SDAC ) algorithm. In CCRs with FB approach, where SDAC algorithm does not calculate allocated capacities on bidding zone borders, the commercial flows need to be calculated additionally. This is done by first calculating, for each bidding zone, the net position resulting from exchanges within a CCR (i.e. the regional net positions) and then the physical flows resulting from the regional net positions are calculated for each bidding zone border of a 1 For those bidding zones, where part of the its regional net position is physically realised through borders outside of CCR, the external flow is calculated such that the sum of calculated physical flows on internal borders and external flow is equal to the regional net position of a bidding zone. (7) The congestion income from SDAC also contains the congestion income generated by nonnominated LTTRs (i.e. non-nominated PTRs or FTRs), which TSOs have the obligation to remunerate in accordance with the FCA Regulation. While the remuneration oflttrs is outside the scope of this CID methodology, it is important to maintain the revenue adequacy of each T$O. Thus, in a situation where LTTRs have been issued in a CCR, the costs for the remuneration of those LTTRs should be borne by the same TSOs, which receive the congestion income in the day-ahead timeframe that is generated by the capacity corresponding to these non-nominated LTTRs. This principle should be reflected in the methodology for sharing costs incurred to ensure firmness and remuneration of long-term transmission rights in accordance with Article 61(3) of the FCA Regulation. (8) According to Article 9 (9) of the CACM Regulation, the expected impact of the proposed CD methodology on the objectives of the CACM Regulation has to be described and is presented below. (9) The proposed CD methodology generally contributes to the achievement of the objectives of Article 3 of CACM Regulation or the usage principles for congestion income set in Regulation (EC) No 714/2009. In particular, the CD methodology serves the objective of promoting effective competition in the trading and supply of electricity, non-discriminatory access to crosszonal capacity as it lays down the exact methodology for the distribution of congestion income to be applied by all involved TSOs, thus, creating a solid basis for congestion income distribution for the first time at European level. (10) Congestion income indicates how much market participants value the possibility for cross-border trade, how interconnections are used and where capacity should be increased. Via the possibility to consider investment costs in the sharing key, more certainty can be achieved for a more optimal sharing key for future investments and thus, long-term operation and development of the electricity transmission system and electricity sector in the European Union is supported. (1 1) Furthermore, the CD methodology ensures non-discriminatory treatment of all affected parties, as it sets rules to be applied by all parties. Further, the methodology takes into account congestion income derived by interconnections on bidding zone borders owned by legal entities other than I These flows are calculated based on power transfer distribution factors, which are calculated based on common grid model. Page 4

25 For The methodology as long as these interconnections are operated by ISOs. provides clear rules and a solid basis for congestion income distribution in a transparent and reliable way. Regulation to the benefit of all market participants and electricity end consumers. (12) Regarding the objective of transparency and reliability of information, the CD methodology (13) In conclusion, the proposed CD methodology contributes to the general objectives ofthe CACM TSOs, preventing exclusion of such congestion income from the application of the CIIJ Page 5 of\\ the bidding zone border. from the SDAC that cannot be directly assigned to a bidding zone border of that CCR and b. External flow means the calculated physical flow resulting from exchanges within a CCR ii. for CCRs applying coordinated NTC approach it means the allocated capacities on if applicable the external flow as specified in Article 3; and i. for CCRs applying the FB approach it is the additional aggregated flow (AAF) and it is distinguished as follows: a. Commercial Flow means the flow over a bidding zone border resulting from SDAC where 2. Tn addition, in this Cifi methodology the following terms shall apply: (EC) 714/2009, Directive 2009/72/EC and Commission Regulation (EU) 543/2013. definitions included in Article 2 of the CACM Regulation, of the FCA Regulation, of Regulation Definitions and interpretation Article 2 their behalf. these parties shall be treated in a transparent and non-discriminatory way. The TSOs operating these relevant transmission asset owners to remunerate them for the transmission assets they operate on assets shall conclude the necessary agreements compliant with this CD methodology with the 2. Where congestion income derives from transmission assets owned by legal entities other than TSOs, c. Congestion income derived from capacity allocation based on coordinated NTC approach d. Congestion income derived from capacity allocation in the day-ahead timeframe. b. Interconnectors which are owned by TSOs or by other legal entities; a. all existing and future bidding zone borders and interconnectors within and between Member shall cover the congestion income distribution for: States, to which the CACM Regulation applies and where congestion income is collected; Subject matter and scope Article 1 TITLE 1 General provisions Agency for the Cooperation the purpose of the CD methodology, terms used in this document shall have the meaning of the CD methodology is established in accordance with Article 73 of the CACM Regulation and and FB approach; and

26 c. Net border income means the congestion income allocated per bidding zone border as 3. Jn addition, in this CID methodology, unless the context requires otherwise: a. a bidding zone border may consist of one or more interconnector(s) for the purposes of the therefore represents exchanges within a CCR, which are physically realised through borders outside of a CCR; defined in Article 4(2) and (3) of this methodology. Page 6 0f11\ bidding zone. The external flow of such bidding zone shall be calculated using the following formula: flows calculated on the internal borders of such bidding zone pursuant to paragraph 2, the external flow is needed as additional commercial flow in order to balance the regional net position of such where: on the bidding zone border i. NF is the regional net position of the bidding zone]; AAF = Nf PTDF,k the calculated physical flow on internal bidding zone borders of a CCR resulting from the electricity exchanges within a CCR. AAF shall be calculated with the following formula: on bidding zone borders of a CCR, which result from regional net positions of bidding zones in a and subtracting the exchanges with bidding zones outside of a CCR. Calculation of commercial flow in FB approach Article 3 Collection and distribution of congestion income to the bidding zone borders TITLE 2 congestion income distribution; interpretation of this CID methodology; and enactment shall include any modification, extension or re-enactment of it when in force. Agency for the Cooperation b. unless specified otherwise, the terms used apply in the context of the SDAC; c. the singular indicates the plural and vice versa; d. the table of contents and headings are inserted for convenience only and do not affect the e. any reference to legislation, regulations, directives, orders, instruments, codes or any other 1. For CCRs applying the FB approach, the commercial flow shall be based on calculated physical flow CCR. These regional net positions shall be derived from the total net positions resulting from SDAC 2. On the internal bidding zone borders of a CCR the commercial flow shall be equal to AAF, which is j,kei AAF1 is the AAF on the bidding zone border i; FTDP),k IS the power transfer distribution factor for the bidding zone] on the interconnector k located 3. For each bidding zone, which has the regional net position not equal to the sum of all commercial EF) = NF AAF EP) is the external flows for the bidding zone]; AAF1 is the additional aggregated flow on the bidding zone border i; NP is the regional net position of the bidding zone]; where: iem

27 4. For bidding zones, where additional commercial flow is calculated based on external flow pursuant In paragraph 3) flowing in the opposite direction of EMS (i.e. non-intuitive external flows) using the be calculated as: following optimisation: and F,,,1,, 5 the price that minimises the sum of external flows (calculated in accordance with EMS = 1j htt1, to paragraph 3, the market spread of such commercial flow used in accordance with Article 4(2) shall M is the subset ofbidding zone borders within a CCR that are part of a bidding zonej. Page 7 external borders where relevant) pursuant to paragraph 2 is not equal to the total congestion income generated by electricity exchanges within a CCR, the congestion income attributed to the bidding adjusted proportionally in order to match the total congestion income generated by electricity zone borders within a CCR (and external borders where relevant) pursuant to paragraph (2) shall be exchanges within a CCR. be calculated as the absolute value of the product of the commercial flow multiplied by the market these are considered in capacity calculation and allocation on the given bidding zone border or interconnector. spread. The relevant market spread shall be reduced to reflect the costs of network losses in case or shipping agents shall collect the congestion income arising from the SDAC and shall ensure that two weeks after the date ofthe settlement. collected congestion income is transferred to the TSOs or entities appointed by TSOs no later than Article 4 Process and calculation of congestion income and the minimum value from a set ofp,,11b satisfying the formula above. If there is no unique solution for F1,11b, then Fi1, shall be calculated as the average of the maximum 1i is the clearing price of a bidding zone] resulting from SDAC; where: flows; minz ( _ Agency for the Cooperation chub j=1 Phlib) x E EMS) is the market spread for the external flow of a bidding zone]; F/iitb IS the price of a virtual hub, which represents a common virtual sink or source for all external n is the number ofbidding zones having external flows For the day-ahead market time-frame, the congestion income attributed to a bidding zone border shall 3. In case the sum of congestion income attributed to all bidding zone borders within a CCR (and accordance with Article 68(7) and (8) ofthe CACM Regulation, the relevant central counter parties

28 1. For the bidding zone borders where congestion income was calculated based on allocated capacities Congestion income distribution on the bidding zone border Article 5 TITLE 3 Sharing keys Page the following information required for the transparency of congestion income distribution: Publication of data Article 6 Transparency of information TITLE 4 article shall be understood as referring to those entities. pursuant to paragraph 1 to 3 reduced by the costs for remuneration of long term transmission rights allocation at the day-ahead timeframe. to be paid in accordance with Article 61 of the FCA Regulation. This reduction shall cover only the costs for remuneration of those long-term transmission rights, which have been offered for re on its web page. The congestion income assigned to each interconnector shall subsequently be shared which are owned by different TSOs, the net border income shall be assigned first to the respective interconnectors on that bidding zone border based on each interconnector s contribution to the the TSOs on the bidding zone border. They shall be published in a common document by ENTSO-E allocated capacity. The parameters defining the contribution of each interconnector will be agreed by between the TSOs on each side of the interconnector using the principles described in paragraph 1 whereas the exemptions for specific interconnectors are also defined in Annex 1 to this methodology. zone for which the associated external flow was calculated and have interconnectors through which the external flows are realised. or AAF, the TSOs on each side of the bidding zone border shall receive their share of net border income based on a 50%-50% sharing key. In specific cases the concerned TSOs may also use a sharing key different from 50%-50%. Such cases may involve, but are not limited to, different ownership shares or different investment costs. The percentages for these specific cases, as well as the underlying reasons are defined in Annex 1 to this methodology. Agency for the Cooperation 2. The congestion income calculated based on external flow shall be attributed to TSO(s) of a bidding 3. In case the bidding zone border consists of several interconnectors with different sharing keys, or 4. The final congestion income attributed to each TSO shall consist of congestion income calculated 5. In case specific interconnectors are owned by entities other than TSOs, the reference to TSOs in this 1. No later than at the time of the time of implementation of this methodology all TSOs shall publish a) for CCRs applying the FB approach: - power - regional of each bidding zone on the physical flows on each interconnector on each bidding zone transfer distribution factors showing the influence ofthe change in the net position border within a CCR; net position of each bidding zone within a CCR;

29 - price - price - commercial ofthe virtual hub, which represents a common virtual sink or source for all external for each bidding zone within a CCR. flows and the corresponding market prices used for the purpose of congestion income distribution in accordance with this methodology. least on a monthly basis. 2. The information pursuant to paragraph 1 shall be published with market time unit resolution and at flows; and 5) for all CCRs: Page9 1 The reference language for this CD methodology shall be English. For the avoidance ofdoubt, where inconsistencies between the English version published by T$Os in accordance with Article 9 (14) of the CACM Regulation and any version in another language the relevant TSOs shall, in accordance Methodology. T$Os need to translate this CD methodology into their national language(s), in the event of with national legislation, provide the relevant NRAs with an updated translation of the CD Language Article 8 implementation of the capacity calculation methodology within their respective CCR in accordance with Articles 20 and 21 ofthe CACM Regulation. 2. The T$Os of each capacity calculation region shall implement the methodology at the date of by the Agency in accordance with Article 9(11) and 9(12) ofthe CACM Regulation. Publication and implementation of the CID methodology Article 7 Final provisions TITLE 5 m Agency for the Cooperation 1. The TSOs shall publish the CD methodology without undue delay after the decision has been taken

30 Pursuant to Article 5 of the Congestion income distribution methodology, this annex outlines the specific sharing keys applied for sharing congestion income among TSOs on the bidding zone border. Two types of specific keys are defined: a) Specific sharing keys pursuant to Article 5(1) of the Congestion income distribution methodology describing a specific sharing key for the whole bidding zone border (which applies to all interconnectors on that border); and b) Specific sharing keys pursuant to Article 5(3) of the Congestion income distribution methodology describing a specific sharing key for specific interconnectors of a bidding zone border. The involved TSOs and entities may differ from those specified in the definition of capacity calculation regions for a specific bidding zone border when entities other than TSOs are present in the border. Bidding Interconnector Involved TSOs/ Parties Sharing key applied Reason Zone border DK2- all Energinet.dk, Hours with congestion from DE/LU to Ownership shares DE/LU 5OHertz, DK2: Vattenfall AB Energinet.dk: 1/3 Vattenfall: 1/3 50 Hertz: 1/3 Hours with congestion from DK2 to DE/LU: Energinet.dk: 190/585 Vattenfall: 200/ Hertz: 195/585 GB-NL BritNed BritNed, BritNed: 100%; Ownership shares TenneT TSO B.V. TenneT TSO B.V. : 0%; NGET NGET 0% Page 10 of 11 Agency for the Cooperation Annex 1 to the Congestion income distribution methodology

31 GB-BE Nemo Lj2 Elia, Elia: 0%; Ownership shares $EM-GB Interconnector IE-GB EirGñd Plc, EirGñd: 100%; Ownership shares $EM-GB Interconnector GB-NI SONI Moyle Interconnector Ltd: 100%; Ownership shares 2 jj accordance with Schedule 3 ofthe Tariffs methodology (Z) CDC-1 109/7, issued by CREG, and dated 18 December 2014, as amended from time to time. 3 The Baltic Cable AB is not yet certified as a TSO. Pagellofli m Agency for the Cooperation Nemo Link Limited, Nemo Link Limited: 100%; NGET NGET: 0% NGET Other entities: 0% NGET Other entities: 0% Moyle Interconnector Ltd, IT-AT Interconnector Eneco Valcanale Tema, Eneco Valcanale: 100% Ownership shares APG, Other entities: 0% FR-GB Eneco Valcanale - Interconnector WA RTE, RTE: 50%; Ownership shares NGIC, NGIC:50%; NGET NGET: 0% FR-GB Interconnector IFA2 RTE, RTE: 50%; Ownership shares NG ffa2 Limited, NG ffa2 Limited: 50%; NGET NGET: 0% FR-GB Interconnector Eleclink RTE, RTE: 0%; Ownership shares Eleclink Limited, Eleclink Limited: 100%; NGET NGET: 0% SE4- Baltic Cable Baltic Cable AB, Baltic Cable AB: 100%, Ownership shares DE/LU3 $venska krafinät, Svenska krafinät: 0%, TenneT TSO GmbH TenneT T$O GmbH: 0%

32 All TSOs Proposal for a Congestion Income Distribution (CID) methodology in accordance with Article 73 of the Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a Guideline on Capacity Allocation and Congestion Management Style Definition: TOC 1: Tab stops: cm, Right,Leader: 7 April 2017 ENTSO-E AISBL Avenue de Cortenbergh Brussels Belgium Tel Fax info@entsoe.eu www. entsoe.eu

33 All TSOs Proposal for a Congestion Income Distribution (CID) methodology in accordance with Article 73 of the Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a Guideline on Capacity Allocation and Congestion Management Annex Ia (for information only) Congestion income distribution methodology in accordance with Article 73 of the Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a Guideline on Capacity Allocation and Congestion Management 2 ENTSO-E AISBL Avenue de Cortenbergh Brussels Belgium Tel Fax info@entsoe.eu www. entsoe.eu

34 All TSOs Proposal for a Congestion Income Distribution (CID) methodology in accordance with Article 73 of the Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a Guideline on Capacity Allocation and Congestion Management Contents Formatted: Font: Times New Roman, 18 pt, Bold, English (United Kingdom) Whereas TITLE 1 General Provisions Article 1 Subject matter and scope Article 2 Definitions and interpretation TITLE 2 Collection and distribution of Congestion Income to the Bidding Zone Borders Article 3 Process and calculation of Congestion Income TITLE 3 Congestion Income Distribution on the Bidding Zone border Article 4 Sharing keys TITLE 4 Final provisions Article Publication and Implementation of the CID Methodology Article 6 Language Whereas TITLE 1 General provisions Article 1 Subject matter and scope Article 2 Definitions and interpretation TITLE 2 Collection and distribution of congestion income to the bidding zone borders Article 3 Calculation of commercial flow in FB approach Article 4 Process and calculation of congestion income TITLE 3 Congestion income distribution on the bidding zone border Article 5 Sharing keys TITLE 4 Transparency of information Article 6 Publication of data TITLE 5 Final provisions Article 7 Publication and implementation of the CID methodology Article 8 Language ENTSO-E AISBL Avenue de Cortenbergh Brussels Belgium Tel Fax info@entsoe.eu www. entsoe.eu

35 All TSOs Proposal for a Congestion Income Distribution (CID) methodology in accordance with Article 73 of the Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a Guideline on Capacity Allocation and Congestion Management All TSOs, taking into account the following, 4 ENTSO-E AISBL Avenue de Cortenbergh Brussels Belgium Tel Fax info@entsoe.eu www. entsoe.eu

36 All TSOs Proposal for a Congestion Income Distribution (CID) methodology in accordance with Article 73 of the Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a Guideline on Capacity Allocation and Congestion Management Whereas (1) This document is a common proposal developed by all Transmission System Operators (hereafter referred to as TSOs ) regarding aestablishes the methodology for Congestion Incomecongestion income distribution (hereafter referred to as CID Methodologymethodology ) in accordance with Article 73 of Commission Regulation (EU) 2015/1222 establishing a guideline on Capacity Allocation and Congestion Management (hereafter referred to as the CACM Regulation ). This proposal is hereafter referred to as CID Methodology Proposal. (2) The CID Methodology Proposalmethodology takes into consideration the provisions on general principles of Congestion Incomecongestion income in Article 16 (6) of Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity (hereafter referred to as Regulation (EC) No 714/2009 ). (3) This CID Methodology Proposalmethodology takes into account the general principles, goals and other methodologies set in the CACM Regulation. The goal of the CACM Regulation is the coordination and harmonisation of capacity calculation and Capacity Allocationcapacity allocation in the day-ahead and intraday cross-border markets, and it sets requirements for the Transmission System Operators (hereafter referred to as TSOs ) to co-operate on the level of capacity calculation regions (hereinafter referred to as CCRs ), on a pan-european level and across bidding zone borders. The CACM Regulation sets also rules for establishing capacity calculation methodologies based either on the Coordinated Net Transmission Capacity Approach ( Coordinated NTC Approach ) or the Flow-Based Approach ( FB Approachflow-based approach ( FB approach ) or, subject to conditions specified therein, the coordinated net transmission capacity approach ( coordinated NTC approach ). (4) In accordance with Article 73 of the CACM Regulation, the CID methodology should cover the congestion income distribution in both the day-ahead and the intraday timeframe. However, since the intraday capacity pricing methodology pursuant to Article 55 of the CACM Regulation is not defined yet, it is therefore currently not possible to devise the rules for the sharing of congestion income in the intraday timeframe. For this reason, the CID methodology covers only the distribution of congestion income in the day-ahead timeframe, whereas the scope of the CID methodology should be amended in order to extend the scope to intraday timeframe once sufficient clarity is gained on how congestion income in the intraday timeframe will be created. (5) The CID methodology is designed in three layers. First, for each CCR the congestion income generated by exchanges within a CCR is defined and collected. Second, the congestion income of a CCR is distributed among the bidding zone borders of a CCR. This is done using a harmonised approach based on the absolute value of a product between the commercial flow and the market spread on the bidding zone border. Third, the congestion income attributed to the bidding zone border is distributed among TSOs having interconnectors on that bidding zone border. (6) Regional application of congestion income distribution is needed for two main reasons. First, the congestion income from SDAC includes also the congestion income resulting from reallocated long-term transmission rights ( LTTR ), for which TSOs need to coordinate in capacity calculation and allocation, as well as guaranteeing their firmness and remuneration including 5 ENTSO-E AISBL Avenue de Cortenbergh Brussels Belgium Tel Fax info@entsoe.eu www. entsoe.eu

37 All TSOs Proposal for a Congestion Income Distribution (CID) methodology in accordance with Article 73 of the Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a Guideline on Capacity Allocation and Congestion Management sharing of related costs in accordance with Article 61 of the Commission Regulation (EU) 2016/1719 of 26 September 2016 establishing a guideline on forward capacity allocation (hereinafter referred to as the FCA Regulation ). All these requirements are defined at a level of CCR and therefore sharing of congestion income must be kept at the same level in order to ensure revenue adequacy. Second, the definition of commercial flow is not harmonised across EU mainly because CCRs with coordinated NTC and FB approach allocate cross-zonal capacity in a fundamentally different way. In CCRs with coordinated NTC approach, the commercial flows can be set to equal allocated cross-zonal capacities, which are directly resulting from single day-ahead coupling ( SDAC ) algorithm. In CCRs with FB approach, where SDAC algorithm does not calculate allocated capacities on bidding zone borders, the commercial flows need to be calculated additionally. This is done by first calculating, for each bidding zone, the net position resulting from exchanges within a CCR (i.e. the regional net positions) and then the physical flows resulting from the regional net positions are calculated for each bidding zone border of a CCR. 1 For those bidding zones, where part of the its regional net position is physically realised through borders outside of CCR, the external flow is calculated such that the sum of calculated physical flows on internal borders and external flow is equal to the regional net position of a bidding zone. (7) The congestion income from SDAC also contains the congestion income generated by nonnominated LTTRs (i.e. non-nominated PTRs or FTRs), which TSOs have the obligation to remunerate in accordance with the FCA Regulation. While the remuneration of LTTRs is outside the scope of this CID methodology, it is important to maintain the revenue adequacy of each TSO. Thus, in a situation where LTTRs have been issued in a coordinated manner by all TSOs of a CCR, the costs for the remuneration of those LTTRs should be borne by thosethe same TSOs, which receive the congestion income in the day-ahead timeframe that is generated by the capacity corresponding to these non-nominated LTTRs. This principle should be reflected in the methodology for sharing costs incurred to ensure firmness and remuneration of long-term transmission rights in accordance with Article 61(3) of the FCA Regulation. (4)(8) According to Article 9 (9) of the CACM Regulation, the expected impact of the proposed CID Methodologymethodology on the objectives of the CACM Regulation has to be described and is presented below. (5)(9) The proposed CID Methodologymethodology generally contributes to the achievement of the objectives of Article 3 of CACM Regulation or the usage principles for Congestion Incomecongestion income set in Regulation (EC) No 714/2009. In particular, the CID Methodologymethodology serves the objective of promoting effective competition in the trading and supply of electricity, non-discriminatory access to cross-zonal capacity as it lays down objective criteria and solutionsthe exact methodology for the distribution of Congestion Incomecongestion income to be applied by all involved TSOs, thus, creating a solid basis for Congestion Incomecongestion income distribution for the first time at European level. Principles for sharing keys are provided for all bidding zone borders under the conditions described herein. (6)(10) Congestion Incomeincome indicates how much market participants value the possibility for cross-border trade, how Interconnectionsinterconnections are used and where capacity should be 1 These flows are calculated based on power transfer distribution factors, which are calculated based on common grid model. 6 ENTSO-E AISBL Avenue de Cortenbergh Brussels Belgium Tel Fax info@entsoe.eu www. entsoe.eu

38 All TSOs Proposal for a Congestion Income Distribution (CID) methodology in accordance with Article 73 of the Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a Guideline on Capacity Allocation and Congestion Management increased. Via the possibility to consider investment costs in the sharing key, more certainty can be achieved for a more optimal sharing key for future investments and thus, long-term operation and development of the electricity transmission system and electricity sector in the European Union is supported. (7)(11) Furthermore, the CID Methodologymethodology ensures non-discriminatory treatment of all affected parties, as it sets rules to be applied by all parties. Further, the methodology takes into account Congestion Incomecongestion income derived by Interconnectionsinterconnections on bidding zone borders owned by legal entities other than TSOs, preventing exclusion of such Congestion Incomecongestion income from the application of the CID Methodologymethodology as long as these Interconnectionsinterconnections are operated by certified TSOs. (8)(12) Regarding the objective of transparency and reliability of information, the CID methodology provides clear rules and a solid basis for Congestion Incomecongestion income distribution in a transparent and reliable way. (9)(13) In conclusion, the proposed CID Methodologymethodology contributes to the general objectives of the CACM Regulation to the benefit of all market participants and electricity end consumers. SUBMIT THE FOLLOWING CID METHODOLOGY TO ALL REGULATORY AUTHORITIES: TITLE 1 General Provisionsprovisions Article 1 Subject matter and scope 1. The CID Methodology shall be considered as the common proposal of all TSOsmethodology is established in accordance with Article 73 of the CACM Regulation and shall cover the Congestion Incomecongestion income distribution for: a. all existing and future Bidding Zonebidding zone borders and Interconnectorsinterconnectors within and between Member States, to which the CACM Regulation applies and where Congestion Incomecongestion income is collected; b. Interconnectors which are owned by TSOs or by other legal entities; c. Congestion Incomeincome derived from Capacity Allocationcapacity allocation based on Coordinatedcoordinated NTC Approachapproach and FB Approachapproach; and d. Congestion Incomeincome derived from Capacity Allocationcapacity allocation in the Day- Ahead and Intraday Market Timeframesday-ahead timeframe. 2. Where Congestion Incomecongestion income derives from transmission assets owned by legal entities other than TSOs, these parties shall be treated in a transparent and non-discriminatory way. The TSOs operating these assets shall conclude the necessary agreements compliant with this CID Methodologymethodology with the relevant transmission asset owners to remunerate them for the transmission assestsassets they operate on their behalf. Article 2 Definitions and interpretation 7 ENTSO-E AISBL Avenue de Cortenbergh Brussels Belgium Tel Fax info@entsoe.eu www. entsoe.eu

39 All TSOs Proposal for a Congestion Income Distribution (CID) methodology in accordance with Article 73 of the Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a Guideline on Capacity Allocation and Congestion Management 1. For the purpose of the CID Methodologymethodology, terms used in this document shall have the meaning of the definitions included in Article 2 of the CACM Regulation, of the Comission Regulation (EU) 2016/1719 of 26 September 2016 establishing a guideline on forward capacity allocation (hereinafter referred to as the FCA Regulation ),FCA Regulation, of Regulation (EC) 714/2009, Directive 2009/72/EC and Commission Regulation (EU) 543/ In addition, in this CID Methodologymethodology the following terms shall apply: a. Commercial Flow means the flow over a Bidding Zonebidding zone border resulting from Single Day-Ahead Coupling or Single Intraday CouplingSDAC where it is distinguished as follows: i. for CCRs applying Coordinated NTC Approach it means the allocated flows over the Bidding Zone border; and ii. for CCRs applying the FB Approachapproach it means: a)i. eitheris the additional aggregated flow (AAF) between two adjacent Bidding Zones where the AAF means the and if applicable the external flow between two Bidding Zonesas specified in Article 3; and is calculated based on the FB parameters and the results of the Capacity Allocation within respective day-ahead or intraday market timeframe; or b) a calculated value per Bidding Zone border where the sum of these values per Bidding Zone are equal to the respective net position of the same Bidding Zone to the extent this net position is a result of the Capacity Allocation based on the FB Approach; ii. for CCRs applying coordinated NTC approach it means the allocated capacities on the bidding zone border. b. External Flowflow means the calculated physical flow resulting from exchanges within a CCR from the Single Day-Ahead Coupling and Single Intraday CouplingSDAC that cannot be directly assigned to a Bidding Zonebidding zone border of that CCR and is calculated as the flow needed in order to balance the net position resulting from exchanges within the CCR and the sum of AAFs over each Bidding Zone border within the CCR in case where: i. AAF is used within a CCR applying the FB Approach; and ii.b. at least two Bidding Zones are connected to an alternative current (AC) Interconnectortherefore represents exchanges within a CCR, which, as indicated by the FB Approach, carries flows over Bidding Zone are physically realised through borders not included in the sameoutside of a CCR; c. External Flow Value Net border income means the Congestion Incomecongestion income allocated to the External Flow or the External Flow times the Market Spread and it equals the difference between the Congestion Income available for the entire CCR and the Congestion Income allocated to each Bidding Zone border; d.c. Net Border Income means the Congestion Income allocated per Bidding Zone Border per bidding zone border as defined in Article 4(2) and (3.1) of this methodology. Formatted Formatted 3. In addition, in this CID Methodologymethodology, unless the context requires otherwise: a. a Bidding Zonebidding zone border may consist of one or more Interconnectorinterconnector(s) for the purposes of the Congestion Incomecongestion income distribution; b. unless specified otherwise, the terms used apply in the context of the SDAC; b.c. the singular indicates the plural and vice versa; 8 ENTSO-E AISBL Avenue de Cortenbergh Brussels Belgium Tel Fax info@entsoe.eu www. entsoe.eu

40 All TSOs Proposal for a Congestion Income Distribution (CID) methodology in accordance with Article 73 of the Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a Guideline on Capacity Allocation and Congestion Management c.d. the table of contents and headings are inserted for convenience only and do not affect the interpretation of this CID Methodologymethodology; and d.e. any reference to legislation, regulations, directives, orders, instruments, codes or any other enactment shall include any modification, extension or re-enactment of it when in force. TITLE 2 Collection and distribution of Congestion Incomecongestion income to the Bidding Zone Bordersbidding zone borders Article 3 Process and calculation of Congestion IncomeCalculation of commercial flow in FB approach 1. For the Day-Ahead Market Time-frame, the Congestion Income generated on a Bidding Zone border shall be calculated as the absolute values of the product of the Commercial Flow multiplied by the Market Spread. For the Intraday Market Time-Frame, the Congestion Income shall be calculated as the sum of all revenues from the Capacity Allocation per market time unit (hereinafter referred to as MTU ). The result of the calculation of the Congestion Income shall be the Net Border Income that reflects what is stipulated in paragraphs 3 and 4 of this Article, where appropriate. 1. For CCRs applying the FB approach, the commercial flow shall be based on calculated physical flow on bidding zone borders of a CCR, which result from regional net positions of bidding zones in a CCR. These regional net positions shall be derived from the total net positions resulting from SDAC and subtracting the exchanges with bidding zones outside of a CCR. 2. On the internal bidding zone borders of a CCR the commercial flow shall be equal to AAF, which is the calculated physical flow on internal bidding zone borders of a CCR resulting from the electricity exchanges within a CCR. AAF shall be calculated with the following formula:,, where: AAF i is the AAF on the bidding zone border i; NP j is the regional net position of the bidding zone j; PTDF j,k is the power transfer distribution factor for the bidding zone j on the interconnector k located on the bidding zone border i. 3. For each bidding zone, which has the regional net position not equal to the sum of all commercial flows calculated on the internal borders of such bidding zone pursuant to paragraph 2, the external flow is needed as additional commercial flow in order to balance the regional net position of such bidding zone. The external flow of such bidding zone shall be calculated using the following formula: where: EF j is the external flows for the bidding zone j; NP j is the regional net position of the bidding zone j; AAF i is the additional aggregated flow on the bidding zone border i; 9 ENTSO-E AISBL Avenue de Cortenbergh Brussels Belgium Tel Fax info@entsoe.eu www. entsoe.eu

41 All TSOs Proposal for a Congestion Income Distribution (CID) methodology in accordance with Article 73 of the Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a Guideline on Capacity Allocation and Congestion Management M is the subset of bidding zone borders within a CCR that are part of a bidding zone j. 4. For bidding zones, where additional commercial flow is calculated based on external flow pursuant to paragraph 3, the market spread of such commercial flow used in accordance with Article 4(2) shall be calculated as: and P hub is the price that minimises the sum of external flows (calculated in accordance with paragraph 3) flowing in the opposite direction of EMS (i.e. non-intuitive external flows) using the following optimisation: min where: EMS j is the market spread for the external flow of a bidding zone j; P j is the clearing price of a bidding zone j resulting from SDAC; P hub is the price of a virtual hub, which represents a common virtual sink or source for all external flows; n is the number of bidding zones having external flows. If there is no unique solution for P hub, then P hub shall be calculated as the average of the maximum and the minimum value from a set of P hub satisfying the formula above. Article 4 Process and calculation of congestion income 2.1. In accordance with Article 68(7) and (8) of the CACM Regulation, the relevant Central Counter Parties or Shipping Agentscentral counter parties or shipping agents shall collect the Congestion Incomecongestion income arising from the Single Day-Ahead Coupling and from the Single Intraday CouplingSDAC and shall ensure that collected Congestion Incomes arecongestion income is transferred to the TSOs or entities appointed by TSOs no later than two weeks after the date of the settlement. Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, + Start at: 1 + Alignment: Left + Aligned at: 0.63 cm + Indent at: 1.27 cm 3. Before the Congestion Income, calculated in accordance with paragraph 1 and, where appropriate, taking into account the conditions set out in paragraph 4, is allocated to each Bidding Zone border pursuant to paragraph 2, any remunerations of Long Term Transmission Rights (LTRs) to be paid by the relevant TSOs in accordance with Article 61(3) the FCA Regulation shall be deducted from the income of the relevant Bidding Zone border. 4. Where relevant, in the calculation of the Congestion Income the following may be taken into account: a. Allocation constraints within a CCR and between CCRs: an allocation constraint which covers the interdependencies of capacity allocation across different bidding zone borders, and which is taken into account in the capacity allocation of cross zonal capacity shall be taken into account in calculating the Congestion Income by allocating the relative impact of this capacity allocation constraint among the affected TSOs. 10 ENTSO-E AISBL Avenue de Cortenbergh Brussels Belgium Tel Fax info@entsoe.eu www. entsoe.eu

42 All TSOs Proposal for a Congestion Income Distribution (CID) methodology in accordance with Article 73 of the Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a Guideline on Capacity Allocation and Congestion Management b. External Flow Value: A 50% share of the External Flow Value that may be allocated to the TSOs of the CCR which use the External Flow to balance their net position resulting from exchanges within the CCR and the sum of AAFs over each Bidding Zone border within the CCR. This Exernal Flow Value shall be taken into account in calculating the Congestion Income by allocating this External Flow Value proportionally (pro rata) to the External Flows hosted by each TSO (in MW). The remaining 50% of the External Flow Value may be allocated among all Bidding Zone borders within the CCR, proportionally (pro rata) to the Commercial Flow on each Bidding Zone border within the CCR and the External Flow. c. Non-intuitive Commercial Flow: Under the FB Approach where AAF has been used to determine the Commercial Flow applied within a CCR, the Non-intuitive Commercial Flow shall be taken into account in calculating the Congestion Income by proportionally adjusting the absolute values of all Congestion Incomes for all Bidding Zone borders and External Flow Values to ensure that their sum matches the Congestion Income which is available for distribution within the entire CCR. d. Non-negative Net Border Income: to avoid a situation where the remuneration for Long Term Transmission Rights would exceed the Congestion Income assigned to a Bidding Zone border, the Non-negative Net Border Income within a CCR and where relevant, between CCRs shall be taken into account in calculating the Congestion Income by allocating the share of the remuneration of Long Term Transmission Rights which exceeds the Congestion Income of a Bidding Zone border among the relevant TSOs proportionally to their Net Border Income from the respective CCR, in order to ensure that all Net Border Incomes within the same CCR are non-negative under the following conditions: - the determination of offered long term cross-zonal capacity has been coordinated and agreed by the TSOs within the CCR; and - the amount of long term cross-zonal capacity which is subject to remuneration (for example FTRs or PTRs with UIOSI) does not exceed the day ahead capacity for the respective MTU. 2. For the day-ahead market time-frame, the congestion income attributed to a bidding zone border shall be calculated as the absolute value of the product of the commercial flow multiplied by the market spread. The relevant market spread shall be reduced to reflect the costs of network losses in case these are considered in capacity calculation and allocation on the given bidding zone border or interconnector. The adjustment shall be such that the product of the commercial flow multiplied by the market spread shall equal the actual congestion income on the given bidding zone border or interconnector. 3. In case the sum of congestion income attributed to all bidding zone borders within a CCR (and external borders where relevant) pursuant to paragraph 2 is not equal to the total congestion income generated by electricity exchanges within a CCR, the congestion income attributed to the bidding zone borders within a CCR (and external borders where relevant) pursuant to paragraph (2) shall be adjusted proportionally in order to match the total congestion income generated by electricity exchanges within a CCR. Formatted: Highlight 11 ENTSO-E AISBL Avenue de Cortenbergh Brussels Belgium Tel Fax info@entsoe.eu www. entsoe.eu

43 All TSOs Proposal for a Congestion Income Distribution (CID) methodology in accordance with Article 73 of the Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a Guideline on Capacity Allocation and Congestion Management TITLE 3 Congestion Income Distributionincome distribution on the Bidding Zonebidding zone border Article 45 Sharing keys 1. After the calculation of the Net Border Income to be shared by relevant TSOs on the Bidding Zone border, the TSOs on both sides of the Bidding Zone borders shall assign the Net Border Income first to the respective Interconnectors on that Bidding Zone borderfor the bidding zone borders where congestion income was calculated based on a parameter which takes into account the Interconnector s contribution to the allocated capacity. This parameter will be agreed by the TSOs on the Bidding Zone border and approved by the relevant National Regulatory Authorities (hereafter referred to as NRAs ). 2. After the assignment of Congestion Income to each Interconnectorallocated capacities or AAF, the TSOs on each side of the Bidding Zonebidding zone border shall receive their share of this Congestion Incomenet border income based on: a. a 50%-50% sharing key; or b. if an Interconnector is 100% owned by a single TSO, the TSO shall retain 100% of the Congestion Income assigned to that Interconnector. If an Interconnector is 100% owned by another legal entity and is operated by a TSO or if this Interconnector has an exemption in accordance with Article 17 of Regulation (EC) No 714/2009, the owner of such an Interconnector shall retain 100% of the Congestion Income assigned to that Interconnector; or c.1.. In specific cases the concerned TSOs may also use a sharing key reflecting thedifferent from 50%- 50%. Such cases may involve, but are not limited to, different ownership shares or different investment costs or the ownership share upon agreement between the relevant TSOs and the owners of an Interconnector. If there is a difference in the investment costs borne by the owners of an Interconnector or the ownership share, the Congestion Income assigned to the respective Interconnector may be distributed to the owners of the Interconnector proportionate to their share in investment costs or ownership.. The percentages for these specific cases, as well as the underlying reasons are defined in Annex 1 to this methodology. Formatted: Font: Times New Roman, 12 pt, Bold, Font color: Text 2 Formatted: Indent: Left: 0.63 cm, Hanging: 0.63 cm, Space After: 6 pt, Numbered + Level: 1 + Numbering Style: 1, 2, 3, + Start at: 1 + Alignment: Left + Aligned at: 1.27 cm + Indent at: 1.9 cm 2. The congestion income calculated based on external flow shall be attributed to TSO(s) of a bidding zone for which the associated external flow was calculated and have interconnectors through which the external flows are realised. 3. In case the bidding zone border consists of several interconnectors with different sharing keys, or which are owned by different TSOs, the net border income shall be assigned first to the respective interconnectors on that bidding zone border based on each interconnector s contribution to the allocated capacity. The parameters defining the contribution of each interconnector will be agreed by the TSOs on the bidding zone border. They shall be published in a common document by ENTSO-E on its web page. The congestion income assigned to each interconnector shall subsequently be shared between the TSOs on each side of the interconnector using the principles described in paragraph 1 whereas the exemptions for specific interconnectors are also defined in Annex 1 to this methodology. 4. The final congestion income attributed to each TSO shall consist of congestion income calculated pursuant to paragraph 1 to 3 reduced by the costs for remuneration of long term transmission rights 12 ENTSO-E AISBL Avenue de Cortenbergh Brussels Belgium Tel Fax info@entsoe.eu www. entsoe.eu

44 All TSOs Proposal for a Congestion Income Distribution (CID) methodology in accordance with Article 73 of the Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a Guideline on Capacity Allocation and Congestion Management to be paid in accordance with Article 61 of the FCA Regulation. This reduction shall cover only the costs for remuneration of those long-term transmission rights, which have been offered for reallocation at the day-ahead timeframe. 5. In case specific interconnectors are owned by entities other than TSOs, the reference to TSOs in this article shall be understood as referring to those entities. TITLE 4 Transparency of information Article 6 Publication of data 1. No later than at the time of the time of implementation of this methodology all TSOs shall publish the following information required for the transparency of congestion income distribution: a) for CCRs applying the FB approach: - power transfer distribution factors showing the influence of the change in the net position of each bidding zone on the physical flows on each interconnector on each bidding zone border within a CCR; - regional net position of each bidding zone within a CCR; - price of the virtual hub, which represents a common virtual sink or source for all external flows; and - price for each bidding zone within a CCR. b) for all CCRs: - commercial flows and the corresponding market prices used for the purpose of congestion income distribution in accordance with this methodology. 2. The information pursuant to paragraph 1 shall be published with market time unit resolution and at least on a monthly basis. TITLE 5 Final provisions Article 5 7 Publication and Implementationimplementation of the CID Methodologymethodology 1. The TSOs shall publish the CID Methodologymethodology without undue delay after all NRAs have approved the proposed CID Methodology or athe decision has been taken by the Agency for the Cooperation in accordance with Article 9(11) and 9(12) of the CACM Regulation. 2. The TSOs of each capacity calculation region shall implement the methodology at the date of implementation of the capacity calculation methodology within their respective CCR in accordance with the applicable national regulatory regime and at the latest within six (6) months after the approval as referred to in paragraph 1Articles 20 and 21 of the CACM Regulation. 13 ENTSO-E AISBL Avenue de Cortenbergh Brussels Belgium Tel Fax info@entsoe.eu www. entsoe.eu

45 All TSOs Proposal for a Congestion Income Distribution (CID) methodology in accordance with Article 73 of the Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a Guideline on Capacity Allocation and Congestion Management 3. In case TSOs agree to change the sharing key they have originally implemented in accordance with Article 4 due to a change in the circumstances, they shall submit such an agreement to the relevant NRAs within six (6) months after their decision. 4. The implementation dates mentioned in paragraphs 2 and 3 of this Article shall be postponed and existing CID sharing keys between the relevant TSOs shall remain applicable on Bidding Zone borders until the capacity calculation and Capacity Allocation takes place based on the Coordinated NTC Approach or the FB Approach in accordance with the CACM Regulation. Article 6 Language Article 8 Language The reference language for this CID Methodologymethodology shall be English. For the avoidance of doubt, where TSOs need to translate this CID Methodologymethodology into their national language(s), in the event of inconsistencies between the English version published by TSOs in accordance with Article 9 (14) of the CACM Regulation and any version in another language the relevant TSOs shall, in accordance with national legislation, provide the relevant NRAs with an updated translation of the CID Methodology. 14 ENTSO-E AISBL Avenue de Cortenbergh Brussels Belgium Tel Fax info@entsoe.eu www. entsoe.eu

46 Annex 1 to the Congestion income distribution methodology Pursuant to Article 5 of the Congestion income distribution methodology, this annex outlines the specific sharing keys applied for sharing congestion income among TSOs on the bidding zone border. Two types of specific keys are defined: a) Specific sharing keys pursuant to Article 5(1) of the Congestion income distribution methodology describing a specific sharing key for the whole bidding zone border (which applies to all interconnectors on that border); and b) Specific sharing keys pursuant to Article 5(3) of the Congestion income distribution methodology describing a specific sharing key for specific interconnectors of a bidding zone border. Formatted: Left: 2.54 cm, Right: 2.54 cm, Top: 2.54 cm, Bottom: 2.54 cm, Width: 29.7 cm, Height: 21 cm, Header distance from edge: 1.25 cm, Footer distance from edge: 1.25 cm The involved TSOs and entities may differ from those specified in the definition of capacity calculation regions for a specific bidding zone border when entities other than TSOs are present in the border. Bidding Zone border DK2- DE/LU Interconnector Involved TSOs/ Parties Sharing key applied Reason all Energinet.dk, 50Hertz, Vattenfall AB Hours with congestion from DE/LU to DK2: Energinet.dk: 1/3 Vattenfall: 1/3 Ownership shares ENTSO-E AISBL Avenue de Cortenbergh Brussels Belgium Tel Fax info@entsoe.eu www. entsoe.eu

47 All TSOs Proposal for a Congestion Income Distribution (CID) methodology in accordance with Article 73 of the Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a Guideline on Capacity Allocation and Congestion Management 50 Hertz: 1/3 GB-NL BritNed BritNed, TenneT TSO B.V. NGET GB-BE Nemo Link 2 Elia, Nemo Link Limited, NGET SEM-GB Interconnector IE-GB EirGrid Plc, NGET SEM-GB Interconnector GB-NI SONI NGET IT-AT Interconnector Eneco Valcanale Terna, APG, Moyle Interconnector Ltd, Eneco Valcanale FR-GB Interconnector IFA RTE, NGIC, NGET FR-GB Interconnector IFA2 RTE, NG IFA2 Limited, NGET FR-GB Interconnector Eleclink RTE, Eleclink Limited, NGET Hours with congestion from DK2 to DE/LU: Energinet.dk: 190/585 Vattenfall: 200/ Hertz: 195/585 BritNed: 100%; TenneT TSO B.V.: 0%; NGET 0% Elia: 0%; Nemo Link Limited: 100%; NGET: 0% EirGrid: 100%; Other entities: 0% Moyle Interconnector Ltd: 100%; Other entities: 0% Eneco Valcanale: 100% Other entities: 0% RTE: 50%; NGIC: 50%; NGET: 0% RTE: 50%; NG IFA2 Limited: 50%; NGET: 0% RTE: 0%; Eleclink Limited: 100%; NGET: 0% Ownership shares Ownership shares Ownership shares Ownership shares Ownership shares Ownership shares Ownership shares Ownership shares 2 In accordance with Schedule 3 of the Tariffs methodology (Z) CDC-1109/7, issued by CREG, and dated 18 December 2014, as amended from time to time. ENTSO-E AISBL Avenue de Cortenbergh Brussels Belgium Tel Fax info@entsoe.eu www. entsoe.eu 16

48 All TSOs Proposal for a Congestion Income Distribution (CID) methodology in accordance with Article 73 of the Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a Guideline on Capacity Allocation and Congestion Management SE4- Baltic Cable Baltic Cable AB, DE/LU 3 Svenska kraftnät, TenneT TSO GmbH Baltic Cable AB: 100%, Svenska kraftnät: 0%, TenneT TSO GmbH: 0% Ownership shares 3 The Baltic Cable AB is not yet certified as a TSO. ENTSO-E AISBL Avenue de Cortenbergh Brussels Belgium Tel Fax info@entsoe.eu www. entsoe.eu 17

49 Agency for the Cooperation Annex II Evaluation of responses to the consultation on the Congestion income distribution methodology with all regulatory authorities and T$Os 1 Introduction Pursuant to Article 9(6)(m) and 73(1) of the CACM Regulation, all TSOs submitted the proposal for Congestion income distribution methodology (CJDM) to their respective regulatory authorities for approval. The proposal was received by the last of the concerned regulatory authorities on 1 8 August On 17 February 2017, all regulatory authorities summited to all TSOs a request for amendment to the proposal. Subsequently, all TSOs submitted to all regulatory authorities the amended proposal ( Proposal ), which was received by the last of the concerned regulatory authorities on 27 April On 14 June 2017, all regulatory authorities informed the Agency that they have agreed to request the Agency to adopt a decision on the Proposal, pursuant to Article 9(12) of the CACM Regulation, and indicated that the regulatory authorities were able to agree on the key elements of the Proposal to be addressed by the Agency s decision. From July to September 2017, the Agency organised several web-conferences with all TSOs to discuss the issues raised by all regulatory authorities and subsequently by the Agency. This period of informal consultation continued with the formal consultation involving all TSOs and regulatory authorities lasting from 6 October until 20 October In the consultation document, the Agency proposed amendments to the Proposal. This annex contains the summary and the evaluation ofthe responses received from TSOs and regulatory authorities. 2 Responses The Agency received the following nine responses to the consultation: 1. AEEGSI 2. CRE 3. CREG 4. E-CONTROL 5. El 6. ENTSO-E on behalf of all TSOs 7. ILR 8. SEPS 9. URE The table below is organised according to the proposed amendments in the consultation and provides the respective views from the respondents, as well as the response from the Agency how their comments were taken into account. Agency for the Cooperation Trg Republike 3 Ljubljana - Slovenia

50 Agency for the Cooperation of Incrgy Regutators Respondent s views views General 1. El. 1. considers that the scope of CIIJM should be only to border between EU. Disagree. In the Agency s view, the CIDM should apply to.... all bidding. zone borders. defined.. in the definition of CCRs. Member States in order to be compliant with the defmition of Interconnector A different approach would lead to inconsistencies. and Congestion established by Regulation EC 714/ clarified in the recitals of the CDM that once sufficient clarity is obtained, the CTDM should be amended to include also provisions for distribution of congestion income from ILR considers that CUJM should also include the rules for SIDC. Ifthe CDM is 2. Partly agree. The Agency clarified in the decision that it kept as proposed, then ILR proposed to clarify that, once the clarity about the does not find it reasonable to define the rules for distribution congestion income generated in SIDC is obtained, TSOs should make a proposal of congestion income from SIDC since currently no for amendments of CIDM in accordance with Article 9(13) of CACM congestion income is generated by SDC and it is not yet Regulation. known how it will be generated. Nevertheless, the. Agency SIDC. 3. ILR propose to extend the scope of CDJM to all TSOs and not just to certified 3. Agree. The Agency has removed the reference to certified TSOs. CREOS should considered by this methodology, but it is not a certified TSOs. TSO as Article 9 of Directive EC/72/2009 does not apply to Luxemburg. External flows in FB CCRs 1. ENTSO-E propose to amend the definition of external flow to reflect the main something deviating from the general principles of congestion income distribution. Instead, the external flow should be considered commercial flow for which the Partly agree. The Agency agrees with the amendment of purpose to balance the regional net position of the bidding zones in case these the definition of external flow. The Agency considers that net positions are not equal to the sum of AAFs. ENTSO-E also proposes to add the proposal for a definition of external flow value is not a definition on the external flow value. needed since the external flow should not be considered as 2/8

51 general rules (i.e. commercial flow multiplied with the market spread) still apply. 2. ENTSO-E and AEEGSI propose to clarify that in FB CCRs the net positions 2. Agree. The Agency agrees and introduces the term used for calculation of AAFs and external flows are not global net positions but regional net position to indicate the net position resulting instead the net positions resulting from exchanges within a CCR. from exchanges within a CCR. Agency for the Cooperation of tnergy Regulators Respondent s views views 3. existing agreement cannot be considered as a sufficient justification. Justification would need to be based on more substantial grounds. on entities (i.e. TSOs) ENT$O-E propose to introduce a flexibility by which the bidding zone borders 3 Disagiee. The proposal is not acceptable because: having external flows may decide to share part ofthe congestion income it does not specify such deviations (i.e. which bidding generated by external flows with other bidding zones in the CCR. These bidding zones will deviate from the general rule); zones would define the percentage that is shared with other bidding zones in the it does not provide adequate justification for such CCR and with which bidding zones the value is to be shared. deviations. The fact that such deviation would mimic - it imposes the obligations on bidding zones rather than 4. CRE asked for concrete example for calculation of external flows in order to be examples are not a prerequisite for making a decision on 4 Partly agree. The Agency would also welcome concrete able to better comprehend the proposal at hand. examples from TSOs, however, it considers that such this issue. 5. from the general rule. In particular: CREG raised objections to the proposal that congestion income generated by Disagree. The Agency has evaluated these comments and external flows are to be allocated to the TSOs ofbidding zones having external concluded that they are not sufficiently strong to justify flows. Their reasons for objections were the following: defming the CWE rule as a default rule or as a deviation 3/8

52 Agency for the Cooperation of Energy Regulatora Respondent s views views (a) existing CWE CII) rules agreed by all UWE parties specify that 50% of external flows are distributed proportionally among all bidding zone borders of the CWE region; (b) The CWE CD rules are more fair, since the congestion income is generated by external flows, which to a certain extent use the interconnectors on other, internal bidding zone borders as well. Exchanges between FR and DE partly flow through CH, but also through BE and NL; (C) Proposed 50/50 sharing key for congestion income generated by external flows results, for those TSOs on the external borders, in the same congestion income as would be the case if CH would be part of the CCR. As the CH part of congestion income cannot be attributed to CH it is fair to share it among all TSOs; and (U) The rule proposed by would reduce the congestion income for Belgian TSO in overall for 17.9 % in a) Existing sub-regional arrangements are not necessary a solid justification for the application of an EU-wide methodology. CWE FB needs to be replaced with new arrangements compliant with the CACM Regulation. b) In the Agency s understanding, external flows do not use BE and NL interconnectors. In FB approach, the market coupling algorithm calculates net positions of bidding zones, but not exchanges between bidding zones or on bidding zone borders. These are identified only when converting the net positions into commercial flows on the borders (i.e. AAFs and external flows). This means that AAF on BE and NL borders already accounts for the flows from all exchanges between all bidding zones in a CCR (including the trade between DE and FR bidding zones). c) Under the assumption that CH would be part of SDAC, the flows on FR-CH and DE-CH borders would be considered as commercial flows between FR and CH and between DE and FR. However, in case CH is not participating in SDAC, there are no commercial flows between FR and CH and between DE-and CH. Instead, external flows represent commercial flows between FR and DE, since the underlying trade is only between CWE bidding zones. d) The Agency took into account this concern. 4/8

53 6. ILR proposed some amendments to better clarify the definitions and the 6. Agiee. The Agency took those suggestions into account. procedure to calculate external flows. 7. regard to the calculation of the price of virtual hub, the Agency made amendments, which clarify that the price of virtual hub is the price that minimises the value of the formula specified in Article 3(4) ofthe CDM. SEPS provided some clarifications on the procedure to calculate external flows. 7 Partly agree. The Agency considers the CACM definition They relate to the clarity of calculating the PTDF (i.e. PTDf should specify of a PTDF sufficiently clear to enable its unambiguous whether it is calculated as zone-to-zone, zone-to-hub or zone-to-reference zone) application (the CACM definition of a PTDf requires a and the clarity in calculating the price of the virtual hub. reference node or zone for the calculation of PTDF). With Agency for the Cooperation () Energy Regulators Respondent s views views Remuneration of LTTRs 1. ENTSO-E proposed an additional Article to include the sharing of costs of T$Os with this respect and has introduced a specific recital, which emphasises the importance of maintaining the revenue adequacy of each TSO when remunerating LTTRs. Thus, the TSOs that receive the congestion income from LTTRs that have been reallocated at the SDAC should also bear a proportional part ofthe costs for remuneration ofthose LTTRs. This principle should be reflected in the methodology for sharing costs incurred to ensure firmness and remuneration of long- term 1. Disagree. Sharing of the costs of remuneration of LTTRs is remuneration oflttrs. According to ENTSO-E, this is needed to ensure that outside the scope ofthe CIDM and should be covered by no T$O will be faced with negative congestion income once the costs of the methodology pursuant to FCA Regulation. remuneration have been paid. Nevertheless, the Agency acknowledges the concerns of 5/8

54 transmission rights in accordance with Article 61(3) of the FCA Regulation. W Agnc> for the (Dooperat ion of Energy Rgu1ators Respondent s views views 2. E-Control finds it important to preserve a rule establishing a link between the 2. Agree. See point 1. remuneration of LTTRs and CI from day-ahead market coupling either in the CDM or in another methodology. 3. Ei proposes to delete all provisions on the remuneration oflttrs including the 3 Paitly disagree. The Agency considers that those TSOs netting ofremuneration costs to determine the final congestion income from which have issued LTTRs in a CCR in a coordinated way, $DAC. Ei is against socialisation of LTTR remuneration costs. should together guarantee the remuneration of LTTRs. 4. CREG acknowledged that all NRAs have made a position that sharing of the Agree. This principle is emphasised in the recitals of the costs of LTTRs is not within the scope of CDM. However, CREG asks the CflJM. Agency to clearly uphold the principle of socialisation of costs of remuneration of LTTR within a CCR in order to ensure that no TSO would have negative congestion income afier it has paid out the costs for remuneration of LTTRs. 5. AEEGSI commented that perhaps the remuneration oflttrs should be done 5 Partly agree. While in practice this may be applied as before the sharing of the congestion income and the remaining income should suggested. Legally the construction of this process is such then be subject to distribution according to CDJM. that T$Os share all ofthe congestion income received at Non-intuitive flows day-ahead timeframe pursuant to the CIDM and in parallel share the costs of remuneration of LTTRs pursuant to a methodology for sharing costs incurred to ensure firmness and remuneration of long- term transmission rights in accordance with Article 61(3) of the FCA Regulation.,::;:::7 6/8

55 t\g:ncy for th Cooperation o Lncrgv Regulators Respondent s views views 1. E-control and CRE support the conversion of negative congestion income due to non-intuitive flows into a positive congestion income and the subsequent readjustment of congestion income in a CCR. 2. AEEG$I does not see any rationale to set negative congestion income to positive since in this case the congestion income is not attributed to the borders with congestions but is instead seen as the distribution of welfare arising from crosszonal trade. 1. Agree. The Agency has evaluated different options and concluded that no better option exists for treating the nonintuitive flows. 2. Partly agree. While the TSO proposal indeed lacks proper justification, the Agency could not find a better and more justified proposal. T$Os and NRAs also did not make any proposals for a better solution. Allocation constraints 1. ENTSO-E proposed to add additional rules for sharing congestion income due to allocation constraints. These rules would address the case where import or export limits would cause a negative congestion income on one border and a higher congestion income on the other border. This problem would not be solved with the general rules for the treatment of non-intuitive flows (i.e. setting the negative income on the border to a positive one and redistribute the missing income proportionally between all borders of a CCR), since the problem may be present only in a part of a CCR and across different CCRs. 1. Disagree. The Agency disagrees with the application of allocation constraints across different CCRs, since the need for such allocation constraints imply that the borders in different CCRs are interdependent and should for this very reason be included in the same CCR. Furthermore, the solution proposed by ENTSO-E is considering only one type of allocation constraints (i.e. export or import limits), whereas other types of allocation constraints that may be applied in future are not considered by this proposal. 2. URE supported the proposal of ENTSO-E to include additional rules on 2. Disagree. See point 1. congestion income due to allocation constraints. Distribution of congestion income on bidding zone border 1. F-Control proposes that the sharing of the congestion income on the situations reflecting specific investment costs or the 1. Agree. The Agency made amendments to the Article 5(1) bidding zone border should be defined as a default key such that if there is no to clarify that the exemptions are limited in scope only to 7/8

56 other specific agreement, the default key is automatically applied. Specific ownership share of the interconnectors and that alternative arrangements should be duly justified. percentages should match these situations exactly. 2. Thus the used percentages cannot deviate from these established ratios. As these previously established rations were likely already approved by NRAs, these deviations, even if not specified as an Annex to the CDM, would entail the required level of regulatory scrutiny. CRE and ILR raised concerns that TSOs would be able to make an agreement to 2. Partly agree. As indicated in point 1, the Agency provided deviate from the sharing key without the involvement and approval of more clarity in which cases deviations are allowed and competent NRAs. CRE asks that such deviations should be specified in the annex fixed the percentages in such cases directly to the already to CDJM. established ratios of investment costs or ownership share. Agency for the Cooperation ctl Energy Regulators Respondent s views views Transparency 1. ENT$O-E proposed some amendments to the transparency provisions proposed 1. Agree. The Agency finds the publication on a monthly by the Agency. ENTSO-E proposed different requirements for FB and CNTC basis reasonable. The Agency also took into account other regions and a publication on a monthly basis. suggestions from ENT$O-E. 0 8/8