Industry Meeting

1
Industry Meeting

• Essen
• 16. September 2002

2
Industry MeetingAgenda of the day

• 11.30 13.30 Presentation of HubCo, Hub
  Services and the Hub Customer Services Agreement
• 13.30 14.00 Lunch Break
• 14.00 15.30EBT2002 Emden Bunde Trading
  Termspresented by the companies that developed
  them

3
HubCo MeetingAgenda

• Background
• Hub Company
• Hub Concept and Hub Services
• Hub Customer Services Agreement
• Way Forward
• Current status
• Next steps

4
HubCo MeetingBackground

• Industry meeting Amsterdam 15.11.2001
• Commitment by BEB and Ruhrgas to develop a
  virtual integrated hub
• Statoil decided to join the initiative

5
HubCo MeetingHub Company

• Historical Development
• Company Structure
• Geographical Location
• Hub Interfaces

6
HubCo MeetingHistorical Development

• Shareholders of HubCo are BEB, Ruhrgas and
  Statoil.
• Shareholders providing substantial infrastructure
  in the area.
• Neutrality of HubCo versus one TSO being the sole
  Hub operator
• Sharing of financial risks by Shareholders
• Founding took place in September 2002

7
HubCo MeetingCompany Structure

• Limited Liability Company under German law (GmbH)
• Independent Company
• Own Staff
• Own Offices
• Office LocationHubCo North West European Hub
  Service CompanyNeuer Markt 27-2942781
  HaanGermany

8
HubCo MeetingHub Concept and Hub Services

• Integrated Hub Concept
• Contractual Relationship
• Overview Hub Services
• Back-up/Back-down Concept

9
HubCo MeetingIntegrated Hub Concept
EMS
NPT

Physical access and offtake points under HCSA
GU
RG
BEB
GU
RG
BEB
Nomination for delivery to or offtake from the
Hub at a flange
WG
Bunde
BEB
RG
10
HubCo MeetingContractual Relationship
HubCo
11
HubCo MeetingOverview Hub Services

• Matching Trade Notifications both for Physical
  Transfers and Paper Trades
• Nomination, Allocation and Order Tracking of
  Hub's physical transfers and paper trades
• Physical balancing of the hub between the various
  access and offtake points
• Offering of Back-up/Back-down Services with aim
  to maintain the balance of the Customer at the
  Hub
• HubCo shall not engage trading

12
HubCo MeetingBack-up/Back-down Service
Principles

• The Service is required in order to ensure the
  balance of the Customer and the Hub.
• The Service is mandatory for 6 hours. As from the
  7th hour the Customer can arrange it by himself.
• The Service is designed for mitigating physical
  constraints within the gas day but will also be
  applied for mismatches.

13
HubCo MeetingBack-up/Back-down Pricing

• HubCo receives bids/offers for each flange on D-1
  from the Back-up/Back-down providers.
• HubCo sorts the bids/offers based on the
  following criteria
• cheapest price for back-up at the relevant flange
• highest price for back-down at the relevant
  flange.
• HubCo calls off the offered quantity from the
  Back-up/Back-down Provider if required.
• HubCo will calculate an average price for all
  used quantities for that flange and will use this
  for invoicing to the Customer.
• HubCo will publish not later than 6.00 hours on
  any Day the weighted average price for the
  respective day.

14
HubCo MeetingCalculation of the Weighted Average
Price
Price
8
6
5
4
2
Quantity
1000
200
350
350
500
15
HubCo MeetingHub Customer Services Agreement
(HCSA)

• Agreement structure
• General rights and obligations
• Fees
• Security
• Notification and Nomination Deadlines
• Taxes

16
HubCo MeetingAgreement structure

Hub Customer Services Agreement
Terms and Conditions

• Appendices
• Operating Procedures
• Table of Physical Fee

17
HubCo MeetingGeneral rights and obligations

• HubCo
• acting as a Reasonable and Prudent Operator
• will not take title to the gas traded by the
  Customer
• will take title for a logical second in case of
  Back-up/Back-down.
• Gas Specifications
• Gas nominated at the Access Points has to be
  on-spec.
• Customer has to fulfil the following obligations
• coordinate all his Notifications with his
  Counterparties
• ensure that his Physical Nominations can be
  matched according to his trade position or
  Nominations to any TSO
• balance his overall position.

18
HubCo MeetingFees

• Basic Hub Customer Fee
• 90,000 /a for one gas contract year
• for other periods the fee will be calculated on a
  pro-rata day Fee
• Hub Trading Fee
• 0.0018 /MWh
• energy basis
• Physical Hub Fee
• dependent on season and duration of Nomination
• Month ahead 0.13 0.25 /MWh
• Day ahead 0.16 0.33 /MWh
• energy basis

19
HubCo MeetingReasons for Security

• In case of insolvency of a back-up user HubCo
  faces the credit exposure
• HubCos credit exposure rises with the customers
  increasing net positions on hub. Therefore, HubCo
  cannot limit its own exposure except by
  restriction of quantity for net position and
  demanding of security in line with maximum
  quantities.
• Examples in the gas industry for security
  deposits
• TPA in Germany
• Energy balancing security Transco, UK

20
HubCo MeetingSecurity

• Security Limit
• Maximum Daily Quantity multiplied by
• 32 /MWh (Security Factor) multiplied by
• 5 days
• Warning Limit
• 40 of the Security Limit
• Costs of bank guarantee
• e.g. trade of 100.000 therms, security of 468,914
  , cost of bank guarantee 1,876 /a
• e.g. trade of 50.000 therms, security of 234,457
  , cost of bank guarantee 938 /a

21
HubCo MeetingNotification and Nomination
Deadlines
D-1
Trade Notification A
Trade Notification B
Early Monthly Physical Nomination
Physical Nomination
Renomination Deadline
Nomination Deadline
1200
1300
1400
900
lt 2100
Physical Nomination Status
Physcial Nomination Status
Trade Matching Status and Physical Nomination
Status
Confirmed Matching Status Report
Trade Matching Status and Physical Nomination
Status
Trade Matching Status to A
Trade Matching Status to B and revised
TradeMatching Status to A
22
HubCo MeetingTaxes
Solutions for the tax transactions
Solutions for the tax transactions are under
negotiation
No solutions for the tax transactions
23
HubCo MeetingTaxes

• HubCo will offer an additional service for the
  tax transactions
• If the Hub Customers want to export or import gas
  to the Netherlands, it is mandatory to sign a
  sideletter additional to the HCSA
• TSOs agree to take over the tax transactions for
  the Hub
• HubCo agrees to subdivide the costs on the
  customers
• The admin. costs are in line with those charged
  by the TSO

24
HubCo MeetingCurrent Status

• Shareholders Agreement and By-laws
• signed
• HCSA and Operating Procedures
• Pre execution version finalised
• Framework Agreement for Back-up/Back-down
  Providers
• under negotiations
• Wheeling/Transportation Agreements
• under negotiations

25
HubCo MeetingNext Steps

• 01.10.2002
• Beginning of testing phase of the ITsoftware for
  traders
• Offering of special training courses for those
  Customers who will participate in the testing
  phase
• If the Customer signs before the first of
  December, he gets three months for free (Basic
  Hub Customer Fee)
• 15.10.2002
• Target day for start of operations subject to
  successful testing to be confirmed.