SUMMARY OF THE ASSESSMENT OF THE COMMENTS FROM THE PUBLIC CONSULTATION OF REGARDING PRICE OF THE SERVICES OF ACCESS TO INTERCONNECTION LINES

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1 SUMMARY OF THE ASSESSMENT OF THE COMMENTS FROM THE PUBLIC CONSULTATION OF REGARDING PRICE OF THE SERVICES OF ACCESS TO INTERCONNECTION LINES 1 Estonian Competition Authority, November 16, 2015 (Estonian NRA) Commenter Comments Answers On the 6th November 2015 letter is stated that NCC will launch the public consultation and opinion is asked not only from the Baltic States regulators and market participants but also Finland, Sweden Denmark and Norway regulators and market participants. The Estonian Competition Authority is in view that cross-border transmission tariffs for electricity export from Lithuania to the 3rd countries will affect the whole Baltic electricity market functioning and implementing the cross-border transmission tariffs must be seriously considered and analyzed. Therefore, the Estonian Competition Authority wishes that NCC should make results from public consultation available for the Baltic States regulators and after analysis of the results from the public consultation the Estonian Competition Authority can give the opinion regarding the cross-border transmission tariff for electricity export from Lithuania to the 3rd countries. 2 Danish Energy Regulatory Authority (DERA) November 19, 2015 It is not clear from proposal how a NJL tariff would comply with Commission regulation (EU) No 838/2010 of 23 September 2010 on laying down guidelines relating to the inter- 1. Results of the public consultation are published in webpage. 2. The main purpose of NJL tariff is to cover cross-border transmission costs, which are not covered through the Inter-Transmission System Operator Compensation Mechanism (hereinafter ITC mechanism). According to the NJL tariff calculation methodology of National

2 2 3 Energinet.dk November 19, 2015 (Danish TSO) transmission system operator compensation mechanism and a common regulatory approach to a transmission charging. In that connection DERA would like to point to Annex A, article 7 on Transmission system use fee on third country imports and exports of electricity in Commission regulation (EU) No 838/2010 of 23 September 2010 which regulates tariffs on third countries and especially Article 7.3 in Annex A, which states that the fee for each year shall be calculated in advance by ENTSO-E. The article also states, that the fee shall be set at the estimated contribution per megawatt hour transmission system operators from a participating country would make that the ITC Fund based on projected cross-border flows of electricity for the relevant year. It is Energinet.dk s clear interpretation that the compensation for electricity export to non-eu and non-eea countries (referred to as perimeter countries by ACER and ENTSO-E) is already covered by a use fee set by the ENTSO-E under the ITC mechanism. In the Commissions regulation (EU) No 838/2010 of 23 September 2010 in Annex part A in point 7.3 regarding transmission system use fee on third country imports and exports of electricity, it is stated that the transmission system use fee for each year shall be calculated in advance by ENTSO-E. Commission Energy Control and Prices (hereinafter Commission) (which could be find in Commission webpage the costs incurred in accordance with the ITC mechanism shall not be included in the costs of the service of access to interconnection lines. Therefore the same costs will not be attributed to the same amount of energy twice. The same mechanism of subtracting ITC fee from cross-border tariff is used in Finland. According to the Article 14 (1) of EU Regulation No. 714/2009 charges applied by network operators for access to networks should reflect actual costs. There aren t stated in Commission regulation (EU) No 838/2010 of 23 September 2010 that other cost-based tariffs, except the ITC tariff, cannot be set. NJL tariff is set in accordance with Law on Electricity of Republic of Lithuania Article 67 paragraph 10. Also we would like to emphasize that similar tariff is set in Finland. 3. Please see the answer No. 2.

3 3 4 Public Utilities Commission of Latvia (PUC), November 20, 2015 (Latvian regulator) This perimeter countries fee shall be set at the estimated contribution per megawatt hour transmission system operators from participating country would make to the ITC Fund based on projected cross-border flows of electricity for the relevant year. In 2015 the fee is set at 0.6 EUR/MWh, and was 0.7 EUR/MWh in 2013 and Energinet.dk strongly advices the NCC to cancel the proposed fee. Answering to NCC's request to provide an opinion on export tariff, PUC expresses the following concerns: 1. According to the information provided by NCC, the legal background for introduction of the export tariff is Article 67 paragraph 10 of the Law on Electricity of the Republic of Lithuania and a letter from the Ministry of Energy of the Republic of Lithuania in which the ministry outlines the practical reasons for the necessity to introduce the export tariff. PUC holds the opinion that the above-mentioned justification is not sufficient to introduce such measure as the export tariff that is directly related with the development of the European Union electricity market, especially with the Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a guideline on capacity allocation and congestion management (CACM). 2. As already stated in the PUC's letter No /2205 of October 19, 2015, the Baltic 4. Please see the answer No The Rules is the trilateral document, prepared by three Baltic TSOs and adopted by three Baltic NRAs. According to CACM, next year there will

4 4 States' National Regulatory Authorities (Estonian Competition Authority, PUC, NCC, hereinafter -NRAs) on October 8, 2015 with the joint letter No. No.R2-(E)/l- 2.81/2155 approved "Agreement on Terms, Conditions and Methodologies on Cross- Zonal Capacity Calculation, Provision and Allocation within the Baltic States and with the 3rd Countries" with annexed The Terms, Conditions and Methodologies on Cross-Zonal Capacity Calculation, Provision and Allocation within the Baltic States and with the 3rd Countries" (hereinafter - Rules). In accordance with the Rules the Baltic States' market participants should carry out electricity trade with the 3rd countries only via cross-border mentioned in the Rules and the Rules do not envisage the proposed export tariff. 3. The assumptions and results calculated by Lithuanian electricity transmission system operator Litgrid AB and included in the NCC's letter without additional clarification are disputable. Therefore, more be even more parties to agree and NRAs to adopt the common capacity calculation rules as these are supposed to cover the whole region. It is important to emphasize that EU integrated electricity market legislation does not specify terms and conditions for the cross-border transmission service between EU member state and a 3 rd country. Therefore, the decision on cross-border tariff for the export to 3 rd countries as the national decision to be taken following the Law on Electricity of the Republic of Lithuania, indicating that need for introducing the tariff should be reasoned in and a letter from the Ministry of Energy of the Republic of Lithuania which was received by the Commission on 18 th of May, Moreover, the discussion on implementing the common cross-border tariff for 3 rd country issues are ongoing from the year In year Baltic and Finish TSOs prepared the draft methodology and calculations for the Pricing of the Cross-Border Electricity Transmission Services with Regard to Trade in Electricity with the Third Countries. However, further discussions on TSOs level were suspended until year 2016 referring to new interconnections coming. Moreover, it was indicated that there could be national fee in Lithuania if common solution is not approved. During the meetings of Committees of Senior Officials of Baltic Council of Ministers held on 27 th of February and 27 th of March, 2015 Lithuania presented its willingness to introduce the tariff from 1 st of January, 2016 using entry/exit fee model. Lithuanian TSO Litgrid AB in its letter No SD-4829 as of 7 th December 2015 also emphasized that all interested parties were informed about the discussion ongoing and position of Lithuania according to the 3 rd countries tariff. 6. The results of the analysis performed by Litgrid AB have been published by Commission when announcing the public consultation also presented in the 20th Baltic Electricity Market Forum working group meeting on November 2, As the decision to implement such tariff is national, no extended analysis for the region with many different scenarios have been made. However, Commission is of opinion that

5 5 detailed presentation on the results, by taking into account different scenarios, is necessary. 4. Regarding the formula for calculation of the export tariff PUC has the following concerns: 4.1. "market price" should be directly linked to Nord Pool Spot day ahead prices and not specially calculated; 4.2. "market price" calculation formula is not further explained (Methodology for Setting the Market Price of Electricity, mentioned in the NCC's letter, is not available in English); 4.3. the transit compensation with the third countries is not mentioned and therefore it is not clear whether these costs will be included in the export tariff calculation. common solution for the 3 rd countries tariff should be implemented in the near future and the extended analysis should be performed by all the parties. It should be emphasized that the initial objective and aspiration is to implement common regional solution for the 3 rd countries tariff. National decision is an intermediate step in the process. The final goal for both regulators and market participants should be to implement more harmonized, transparent and reciprocal principles on the trade with the non-eea countries. 7. According to the NJL tariff calculation methodology, NJL tariff shall be calculated according to the actual costs and scope of the NJL services. But in the first two years of setting the NJL tariff in absence of actual costs and scope data, NJL tariff is calculated using different formula in which market price, calculated according to the Commission s Methodology for Setting the Market Price of Electricity approved by the Commission s Resolution No O3-175 of 8 July 2011 (it could be find here: (text available only in Lithuanian). It should be noted that market price is calculated and very much linked to data used from Nord Pool Spot day ahead prices, also takes into account bilateral contracts and auxiliary services. For future projections of the market price is used the Nasdaq OMX data of future transactions. Regarding transit compensation it should be noted that the income form transit from and to the 3 rd countries reduce the total costs and by this amount transmission tariff is being reduced according to The Methodology for Setting the Price Caps of the Electricity Transmission, Distribution and Public Supply Services and the Public Price approved by the Commission Resolution No O3-3 of 15 January It has to be noted that the transit flows from and to the 3 rd countries are not considered as the export to the 3 rd countries and will not be charged NJL tariff.

6 6 5 AS Augstsprieguma tikls (AST), November 20, 2015 (Latvian TSO) AST is grateful to see that previously expressed concerns are taken into account and public consultation for all involved stakeholders is held, however AST would like to emphasize that NCC given time is not sufficient for quality analysis of the situation. Also, in AST opinion, the analysis and calculations provided about NJL tariffs necessity are not complete, therefore stakeholders do not have the full overview of situation to provide respective opinion and feedback. As already mentioned in 15 th October letter, AST would like to repeatedly emphasize the agreed principles of cross-border capacity calculation and allocation between Baltic countries and with 3 countries stipulated in the Terms, Conditions and Methodologies on Cross-Zonal Capacity Calculation, Provision and Allocation within the Baltic States and with the 3rd Countries" (hereinafter - Baltic CCCA Rules). As expressed in previous letter. AST would like to see the social-economic welfare analysis of the entire Baltic States area regarding to the introduction of cross-border tariffs and proof based on calculations and/or simulations that NJL tariff will not affect negatively electricity prices in Latvian and Estonian electricity markets since all trading capacity with third countries (Russia. Belorussia) and Baltic countries is allocated through Lithuanian-Belorussian and 8. Please note that the information about the NJL tariff was communicated several times. Firstly, during the meetings of Committees of Senior Officials of Baltic Council of Ministers held on 27 th of February and 27 th of March, 2015 Lithuania presented its willingness to introduce the tariff from 1 st of January, 2016 using entry/exit fee model. Secondly, by Commission letter No R2-(E)-3151 as of 8 October 2015, finally, discussed in the 20th Baltic Electricity Market Forum working group meeting on November 2, 2015 by providing the assumptions and modeling of the NJL tariff. Finally, the second public consulattion introduced by Commission letter No R2-(E)-3421 as of 6 November Therefore Commission is of opinijon that overall timeframe for assesment of the NJL tariff calculation was reasonably sufficient. Regarding other comments, please see comments by the Commission in points 5 and 6.

7 7 6 Energy Authority of Finland, November 23, 2015 (Finish NRA) 7 Energy Regulatory Office of Poland, November 23, 2015 Lithuanian-Kaliningrad cross-borders according to Baltic CCCA Rules. AST disagrees with calculation results presented in public consultation documents as not all possible conditions and considerations are taken into account. Based on already received notice from non-eu state counterparty AST would like to point out that such regionally not coordinated decisions of NCC might cause reverse reactions from involved stakeholders of non- EU states and directly cause losses for AST and eventually other Baltic market participants. Taking into account all above mentioned, AST is against introducing the NJL tariff from l st January In general the tariff structure seems reasonable as price of the service covers transmission costs. The Energy Authority would support further harmonization of transmission tariffs between Member States and third countries. Energy Authority of Finland doesn t know if the new tariff in Lithuania has influence on Finland or other Nordic countries. Since we don't know exact details in this issue we have no greater comments to NJL tariff. According to Commission Regulation (EU) No 838/2010 of 23 September 2010 on laying down guidelines relating to the intertransmission system operator compensation 9. The positive answer from Finnish national regulatory authority is a very important and significant in the implementation of NJL tariff. The Commission is also of the opinion that further discussions and initiatives should be on implementation of regional solution for the 3 rd countries tariff. Also please see the answers No 5 and It is important to emphasize that EU integrated electricity market legislation does not specify terms and conditions for the cross-border transmission service between EU member state and a 3 rd country. Therefore, the decision on cross-border tariff for the export to 3 rd

8 8 (Polish NRA) mechanism and a common regulatory approach to transmission charging, each regulatory authority shall ensure that transmission system operators in its area of competence participate in the ITC mechanism and that no additional charges for hosting cross-border flows of electricity are included in charges applied by transmission system operators for access to networks (point 2.1 of Part A of the Annex). Transmission system operators from third countries which have concluded agreements with the Union whereby they have adopted and are applying Union law in the field of electricity shall be entitled to participate in the ITC mechanism point 2.2 of Part A of the Annex). In a case that the TSO responsible for the transmission system of a third country is not involved in the mechanism of the ITC (is not a party to the ITC agreement) or the third country has not concluded agreement with the Union on applying Union law in the field of electricity; TSO which is participant of ITC mechanism shall charge transmission system use fee used for all scheduled imports and exports of electricity from/to the third country (section 7 of Part A of the Annex). This fee is to be calculated annually by ENTSO-E (point 7.3 of Part A of the Annex). The above provisions of Regulation 838/2010 therefore regulate the issue of determining and collecting fees for system use, applied for the exports/imports of countries as the national decision to be taken following the Law on Electricity of the Republic of Lithuania, indicating that need for introducing the tariff should be reasoned in and a letter from the Ministry of Energy of the Republic of Lithuania which was received by the Commission on 18 th of May, Moreover, please see the answers No 3 and 5.

9 energy from third countries to the countries which are parties of ITC mechanism and taking them into account in the ITC mechanism. The abovementioned legislation does not contain additional regulations on charging additional fees for exports/imports of energy to/from third countries. However, it should be noted that point 2.1 of Regulation 838/2010 indicates that regulators will ensure that they will not apply additional charges for hosting cross-border flows of electricity, which will be included in fees for access to the network. The legal grounds indicated by NCC in the letter of 6 November 2015 are Law on Electricity of Republic of Lithuania and a letter of Ministry of Energy of Lithuania, submitted on 18 May 2015, which provides following reasons for the necessity of NJL tariff: (i) costs of usage of interconnection services are not covered by the ITC mechanism, (ii) therefore the costs are assessed in transmission tariff and covered by energy consumers in Lithuania, (iii) the new interconnections (NordBalt and LitPol Link) will result in additional costs that are not covered by the ITC mechanism and (iv) there will be new possibilities for energy exports to third countries. Taking the above into account, I would like to express an opinion that the proposal presented by a letter of National Commission for Prices and Energy Control requires a 9

10 10 detailed legal analysis on the contingency of setting and applying fees for transmission of electricity to/from third countries, other than those stipulated in point 7 of Regulation 838/ Regardless of the remarks on a legal basis for determining the NJL tariff, it should be noted that the fee will be applied to energy exports from Lithuania to Russia and Belarus, and its level will have an impact on the volume of imported/exported energy between: Lithuania -Belarus and Russia, and possibly also between Lithuania and Poland, what in part has been shown in the NCC letter. The assessment of the impact of implementation of the NJL tariff on the Polish and European markets requires a detailed analysis using the data of the Lithuanian and Scandinavian market, which are not held by URE. It should be also noted that the amount of the fee (5.45 /MWh) is many times higher than the fee calculated by ENTSO-E for the third countries. 9 Fingrid Oyj, November 27, 2015 (Finnish TSO) Nordic and Baltic countries formulate a common electricity market with equal market rules and conditions. Fingrid emphasizes the importance of harmonized and reciprocal solutions in the whole market area. This includes also the cross border trade principles with the non-eea third countries. The reinforced Baltic Energy Market Interconnection Plan, BEMIP, also 11. Please see answers No 5 and 6. The purpose of the NJL tariff is to cover cross-border transmission costs, which are not covered through the ITC mechanism. The NJL is calculated according to the actual costs. Moreover, please see answer No Please see answers No 5 and 6.

11 11 10 Swedish Energy Markets Inspectorate (Swedish NRA) highlights compatible trading principles and platform towards non-eea countries as a common target of the BEMIP-parties. Fingrid finds the proposed NJL tariff as a step to the right direction towards more harmonized, transparent and reciprocal principles applied on the trade with the non- EEA countries. On behalf of the Swedish Energy Markets Inspectorate I can confirm that we do not have any comments or objections to the new tariff that will be introduced. 13. The positive answer from Swedish national regulatory authority as a very important and significant in the implementation of NJL tariff.

Draft. COMMISSION REGULATION (EU) No /

Draft. COMMISSION REGULATION (EU) No / EN EN EN EUROPEAN COMMISSION Brussels, C(2010) XXX final Draft COMMISSION REGULATION (EU) No / of on laying down guidelines relating to the inter-transmission system operator compensation mechanism and