EuroPEX ACTIVITIES

1. Association of Power Exchanges - EuroPEX EuroPEX ACTIVITIES Maria Luisa Huidobro President of the Steering committee

2. Association of Power Exchanges - EuroPEX EuroPEX ACTIVITIES • CREATION OF EUROPEX: MANDATE FROM THE APEX STEERING COMMITTEE. • COMMUNICATION TO EUROPEAN UNION AUTHORITIES. • FLORENCE FORUM. • LISBON CONFERENCE. • PUBLIC HEARING OF THE EUROPEAN UNION ON INTERNAL MARKET DEVELOPMENT. • MEETINGS WITH ETSO AND EFET. • STEERING COMMITTEE MEETING. • CONGESTION MANAGEMENT.

3. MANDATE FROM THE APEX STEERING COMMITEE • CREATE A EUROPEAN BRANCH OF THE APEX ASSOCIATION, NAMED EUROPEX, JANUARY 19, 2000. • COMMUNICATION TO THE E.U. FEBRUARY, 2000. • COMMUNICATION TO ESTO, MARCH 15, 2000. • COMMUNICATION TO THE FLORENCE FORUM. • PREVIOUS TO THE CONSTITUTION OF EUROPEX: 23-11-99. • OFFICIAL PRESENTATION: MARCH, 29, 2000. • MANAGEMENT BODIES. • STEERING COMMITTEE FORMED BY THE CEOS OF THE APEX EUROPEAN MEMBERS COOPERATING POWER EXCHANGE. • STEERING COMMITTEE ASSISTED BY TWO REPRESENTATIVES.

4. MAIN TASKS OF EUROPEX • TO PROMOTE THE ROLE OF POWER EXCHANGES AS A WAY OF INCREASING COMPETITION AND IMPLEMENTING THE EUROPEAN SINGLE ELECTRICITY MARKET. • TO FOLLOW UP THE LIBERALISATION OF THE DIFFERENT EUROPEAN ELECTRICITY SYSTEMS. • TO DEAL WITH THE ISSUE OF INTERNATIONAL TRADING, WITH SPECIAL EMPHASIS ON PROVIDING A MARKET SOLUTION TO THE CONGESTION PROBLEMS. • TO START A DIALOGUE WITH THE EUROPEAN COMMUNITY AUTHORITIES, AND WITH OTHER EUROPEAN ELECTRICITY RELATED ENTITIES SUCH AS ESTO (EUROPEAN TRANSMISSION SYSTEM OPERATORS), EFET (EUROPEAN FEDERATION OF ENERGY TRADERS), ETC… • TO INCREASE COOPERATION BETWEEN EUROPEAN POWER EXCHANGES AND TO PROMOTE FREE TRADING. • TO ASSESS THE NEED FOR RECOMMENDATIONS REGARDING MARKET INFORMATION DISSEMINATION AND MARKET RULES, ESPECIALLY RELATED TO MARKET POWER ABUSE.

5. ACTIVITIES OF EUROPEX • FLUENT RELATIONSHIPS WITH ETSO AND EFET. • 5 MEETINGS OF THE STEERING COMMITTEE. • 3 COMMUNICATIONS TO THE EU. • PARTICIPATION IN THE PUBLIC HEARING OF THE EU ON THE COMPLETION OF THE INTERNAL ENERGY MARKET. • EuroPEX WORKING PAPER ON CONGESTION MANAGEMENT

6. EU STATES ELECTRICITY LIBERALIZATION STATUS • EU DIRECTIVE TRANSPOSED FOR ALL MEMBER STATES. • REDUCED INTERSTATE COMMERCIAL ELECTRICITY EXCHANGES. • LIMITATIONS TO NETWORK FREE ACCESS. • DIFFERENT ELECTRICITY MARKET OPENING TO QUALIFIED CONSUMERS. • TREND TOWARDS THE ESTABLISHMENT OF ORGANIZED MARKETS.

7. EUROPEAN COMMISSION’S XXVIII REPORT ON COMPETITION POLICY • ELECTRICAL INTERCONNECTIONS BETWEEN THE MEMBER STATES WILL PLAY AN IMPORTANT ROLE IN THE CREATION OF A SINGLE MARKET OF ELECTRICITY. • PANCAKING WHEN REFERRED TO THE SUM OF TRANSMISSION COSTS RESULTING FROM THE USE OF SYSTEMS BELONGING TO SEVERAL OPERATORS. • CUSTOMERS FREEDOM OF CHOICE, LIMITED AS A CONSEQUENCE OF THE INTRODUCTION OF EXCLUSIVE OR LONG TERM CONTRACTS. UTILITIES OPERATING IN THE ELECTRICITY MARKET WILL ADAPT THEIR COMMERCIAL PRACTICES TO THE NEW FRAME CREATED BY THE DIRECTIVE. CLAUSES OF OLD CONTRACTS COULD BE REACHED BY OTHER METHODS, LESS RESTRICTED OF THE COMPETENCE. • GUARANTEES TO BE GIVEN REGARDING SYSTEM ACCESS AND FREEDOM OF CHOICE FOR CUSTOMERS WILL NOT SERVE THEIR INTENDED PURPOSE UNLESS ELECTRICITY IS PROVIDED BY A SUFFICIENT NUMBER OF SUPPLIERS.

8. REASONS FOR THE OBSTACLES TO COMMERCIAL EXCHANGES • WIDELY DIFFERENT LEVELS OF DEREGULATION AND MARKET OPENING IN EU MEMBER STATES. • LIMITED COMMERCIAL CAPACITY. • THE TECHNICAL MANAGEMENT OF ELECTRICITY SYSTEMS REQUIRES ADAPTATION TO DEVELOP THE INTERNAL MARKET. • MULTIPLE PAYMENTS FOR THE USE OF GRIDS (PANCAKING). • LONG-TERM CONTRACTS. • LACK OF EU-WIDE HARMONISATION OF MATTERS AFFECTING COMMERCIAL CAPACITY AND THE MANAGEMENT OF INTERCONNECTED ELECTRICITY SYSTEMS. • LIMITED RECOGNITION OF ORGANISED MARKETS WITHIN THE EU.

9. EuroPEX POSITION REGARDING Available Transmission Capacity (ATC) • EUROPEX BELIEVES THE TSOS SHOULD BE RESPONSIBLE FOR PROVIDING ATC WHILE MARKET PARTICIPANTS SHOULD BE ALLOWED THE FREEDOM TO DETERMINE HOW IT IS USED. • TO ENABLE OPTIMAL TRADING, THE PARTICIPANTS NEED TO BE CONFIDENT OF THE TERMS ON WHICH IT WILL BE AVAILABLE. THIS REQUIRES THAT TSOS MAKE CAPACITY AVAILABLE ON A FIRM BASIS WITH SUFFICIENT LEAD-TIME FOR PARTICIPANTS TO USE IT EFFICIENTLY, AND THAT FULL INFORMATION ON AVAILABILITY IS PUBLISHED BY THE TSOS. • CAPACITY IS IN SOME PLACES SCARCE AND HENCE VALUABLE. EUROPEX BELIEVES THAT TSOS SHOULD BE INCENTIVISED TO MAXIMISE THE CAPACITY AVAILABLE. INITIALLY, THIS MAY BE THROUGH REGULATION, BUT EUROPEX BELIEVES THAT APPROPRIATE ECONOMIC INCENTIVES SHOULD BE DEVELOPED. THIS SHOULD ALSO FACILITATE EFFICIENT LONG-TERM INVESTMENT. • IF THE TSO WISHES TO CURTAIL ATC, AFTER IT IS MADE AVAILABLE ON A FIRM BASES, IT SHOULD COMPENSATE THE PARTICIPANTS IMPACTED. IN A “POOL-BASED” SYSTEM THIS MIGHT REQUIRE THE TSO UNDERTAKING COUNTER TRADES TO REDUCE THE FLOW; IN A “BILATERAL-BASED” SYSTEM THIS MIGHT REQUIRE THE TSO TO BUY BACK THE CURTAILED RIGHTS.

10. FLORENCE FORUM CONCLUSIONS MARCH 30/31 2000(I) • “CROSS BORDER TARIFICATION” (NETWORK ACCESS IN THE EUROPEAN CONTEXT) • Agents will pay the network access tariffs established in each state. • There will be a compensation between networks. • Export networks will pay money. • Transited networks will earn money. • Each state will define how he will collect the money. (Harmonized by the EU). • Costs to be recuperated by all networks are defined as a lump sum to be justified to the National regulators, member states and EU authorities. • Once agents pay the access tariffs their electricity will circulate free through the network, except for congestion problems. • Harmonizing the proportions between the G and L terms of the network access.

11. EuroPex POSITION REGARDING CROSS BORDER TARIFFS • THE COLLECTION OF THE MONEY SHOULD BE IN THE FORM OF AN ADDITIONAL COMPONENT OF THE GENERAL GRID POINT OF ACCESS TARIFF. THERE WILL NOT BE ANY KIND OF DISCRIMINATION ASSOCIATED WITH THE USE OF THE ELECTRICITY, OR RELATED TO THE ORIGIN OR DESTINATION OF THE ELECTRICITY, PAYING ALL THE ELECTRICITY THE SAME GRID ACCESS TARIFFS IN EACH STATE. • THE COST COMPONENT SHOULD BE VERY SIMPLE TO COMPUTE. • THE AMOUNT OF MONEY CHARGED DUE TO THIS CONCEPT IN THE DIFFERENT STATES SHOULD BE HARMONIZED, IN ORDER NOT TO DISTORT INTERNATIONAL TRADING OF ELECTRICITY. • THE NEW CHARGES SHOULD ALSO BE APPLIED TO HISTORIC AND LONG TERM CONTRACTS THAT SHOULD NOT BE FAVORED AGAINST NEW ONES. • ELECTRIC ENERGY, ONCE THE GRID ACCESS TARIFF IS PAID IN THE STATE OF ORIGIN (G TERM) AND DESTINATION (L TERM) SHOULD BE TREATED IN THE STATE OF ORIGIN, IN THE STATE OF DESTINATION AND IN ANY INTERMEDIATE STATE AS ANY OTHER DOMESTIC ELECTRIC ENERGY.

12. FLORENCE FORUM CONCLUSIONS MARCH 30/31 2000 (II) • “Congestion management” • TSOs will publish the ATC • The EU has requested clarifications regarding the calculation basis • Separation of the commercial interest between the network management an commercial interest of the rest of the agents • Congestion management should be based on market mechanisms • The solution for each particular congested point will be discussed by the two neighboring countries

13. EuroPEX POSITION REGARDING CONGESTION MANAGEMENT • CONGESTED INTERCONNECTORS CLEARLY HAVE ECONOMIC VALUE, WHEN ACTUAL DEMAND EXCEEDS PHYSICAL CAPACITY. ETSO PROPOSES A MECHANISM TO PREVENT CONGESTION IN ADVANCE, BUT THIS WILL NOT REVEAL WHERE A REAL CONGESTION EXISTS. THIS WILL FRUSTRATE AND WEAKEN INTERNATIONAL TRADING. • AN ADMINISTERED APPROACH TO RATIONING ACCESS WILL NOT LEAD TO THE OPTIMAL USE OF THIS SCARE RESOURCE. A METHOD IS REQUIRED WHICH ENABLES THE CAPACITY TO BE USED BY THE PARTICIPANT WHO VALUES IT MOST – I.E., ON A MARKET BASIS. • ONE METHOD, WHERE POOL BASED MARKETS EXIST, RECOMMENDED BY EUROPEX, IS MARKET SPLITTING BASED IN THE METHOD USED BY NORDPOOL, WHICH ALLOCATES TRANSMISSION CAPACITY BASED ON THE ENERGY BIDS. THE METHOD USES PARTICIPANTS’ ENERGY BIDS TO RATION ACCESS, AND THIS APPROACH IS ALSO USED TO ALLOCATE THE ATC BETWEEN THE AREA WHERE THE MARKET OPERATES AND OTHER AREAS, OR WITHIN THE AREA ITSELF, LIKE IN NORDPOOL. • ANOTHER METHOD, RECOMMENDED BY EUROPEX FOR SYSTEMS BASED ON NEGOTIATED BILATERAL CONTRACTS, IS TO GRANT OR AUCTION TRANSMISSION RIGHTS ACROSS NON CONGESTED TRANSMISSION “FLOW GATES”, THIS RIGHTS CAN BE TRADED BETWEEN PARTICIPANTS.

14. EuroPex POSITION REGARDING CONFIDENTIALITY OF COMMERCIAL INFORMATION • CONFIDENTIALITY IS VITAL IN ORDER TO PROVIDE CONFIDENCE IN THE TRADING ENVIRONMENT. POWER EXCHANGES SHOULD BE ABLE TO PRESENT INFORMATION ON TRANSACTIONS ON BEHALF OF THEIR PARTICIPANTS ON AN AGGREGATE AND ANONYMOUS BASIS.

15. EuroPEX POSITION TO BE PRESENTED TO THE PUBLIC HEARING ON THE COMPLETION OF THE INTERNAL ENERGY MARKET ON 14th SEPTEMBER

16. QUESTION 1: ACCELERATION OF THE LIBERALISATION OF THE INTERNAL ELECTRICITY • TO COMPLETE THE LIBERALISATION ALLOWING ALL CONSUMERS TO SELECT THEIR ELECTRICITY SUPPLY COMPANY • TO ESTABLISH A EUROPEAN HARMONISED SYSTEM OF TARIFFS FOR THE USE OF THE NETWORKS • TO ESTABLISH COMMON PROCEDURES FOR CROSS BORDER CONGESTION MANAGEMENT • TO ESTABLISH, AT THE EUROPEAN LEVEL, HARMONISED BALANCING POWER RULES, SECURITY STANDARDS AND ELECTRIC SYSTEMS TECHNICAL MANAGEMENT PROCEDURES FOR ELECTRICITY EUROPEAN EXCHANGES • TO PROMOTE, AT THE COMMUNITY LEVEL, NEW INVESTMENT AND MEASURES THAT MAKE POSSIBLE A GROWING AVAILABLE CAPACITY FOR EUROPEAN ELECTRICITY EXCHANGES • A COMMON AND EFFICIENT SOLUTION FOR LONG TERM CONTRACTS AND COMPROMISES SHOULD BE IDENTIFIED AND APPLIED IN EQUAL TERMS TO ALL MEMBER COUNTRIES, IN A WAY THAT COMPETITION IS ENCOURAGED

17. QUESTION 2: PUBLIC SERVICE OBLIGATIONS • FREE MARKET AND LIBERALISATION CONTRIBUTE ALSO TO THEM. • SECURITY OF SUPPLY, ORGANISED MARKETS AND FREE TRANSACTIONS ARE AN INCENTIVE TO MAINTAIN GENERATION PLANTS OPERATIVE • THE INCREASE OF COMMERCIAL CAPACITY BETWEEN ELECTRICAL SYSTEMS INCREASES ALSO THE CAPACITY RESERVE OF A SYSTEM AND THUS ITS SUPPLY SECURITY • THE NEW PROJECTS TO INSTALL COMBINED CYCLES OF NATURAL GAS AND RENEWABLE PLANTS • SECURITY STANDARDS AND QUALITY OF SUPPLY SHOULD BE SUBJECTED TO HARMONISED REGULATION • COMPATIBLE INCENTIVES TO RENEWABLE ENERGIES WITH MARKET MECHANISMS

18. QUESTION 3: SOCIAL EFFECTS OF LIBERALISATION • AN EFFICIENT ENERGY SYSTEM IS A BIG INCENTIVE TO ACCELERATE EFFICIENCY IN OTHER ECONOMIC SECTORS AND THUS FOR EMPLOYMENT INCREASE • THE ENERGY SECTOR SHOULD NOT BE CONSIDERED AS A DIRECT SOURCE FOR EMPLOYMENT INCREASE • THE LIBERALISATION PROMOTES EFFICIENCY AND GIVES NEW OPPORTUNITIES TO CREATE SERVICE COMPANIES • TO ELIMINATE CONSTRAINTS, SUCH AS THE TREATMENT GIVING TO SOME NATIONAL COAL CONTRACTS, OR THE INCORRECT TREATMENT OF INCENTIVES FOR THE NEW RENEWABLE ENERGIES, IN BETWEEN OTHERS, CAN BE IN THIS RESPECT VERY POSITIVE FOR INCREASING EFFICIENCY AND REACHING THE FULL BENEFITS FROM LIBERALISATION

19. QUESTION 4: OPENING OF THE MARKET – ELIGIBLE CUSTOMERS • A DATE SHOULD BE ESTABLISHED, AT THE COMMUNITY LEVEL, TO FULLY LIBERALISE THE SUPPLY ACCESS FOR ELIGIBLE CONSUMERS NO LONGER THAN YEAR 2004. • TO CREATE A SOLID BASIS FOR THE ENTRANCE INTO THE MARKET OF NEW SUPPLIERS IN ORDER THAT ELIGIBLE CUSTOMERS CAN ACCESS THE LIBERALISATION, IS ESSENTIAL. • THE METERING PROCEDURES AND EQUIPMENT ARE TO BE REVISED TAKING INTO ACCOUNT THE NEW AVAILABLE TECHNOLOGIES AND ELIMINATING OBSTACLES FOR CONSUMERS TO EFFETELY SELECT AND CHANGE THEIR ENERGY SUPPLIER, FACILITATING THEIR ACCESS TO ORGANISED MARKETS.

20. QUESTION 5: UNBUNDLING • THERE IS NOT A COMPLETE FULFILMENT OF THE DIRECTIVES CURRENT REGULATION PROVISIONS ON ELECTRICITY AND GAS • INFORMATION FLOWS BETWEEN THEORETICALLY UNBUNDLED COMPANIES • JUSTIFICATIONS GIVEN BY TRANSMISSION COMPANIES TO DENY COMMERCIAL TRANSACTIONS, BASED ON QUESTIONABLE SECURITY CRITERIA • THE ENTITIES WHICH ARE ENTRUSTED WITH FUNCTIONS LINKED TO NETWORK MANAGEMENT, DETERMINATION OF AVAILABLE CAPACITY IN INTERCONNECTION, SINCE THEY ARE REGULATED ACTIVITIES, SHOULD BE CONSIDERED INCOMPATIBLE WITH ACTIVITIES OF GENERATION AND CUSTOMER SUPPLY. THE LATER ACTIVITIES SHOULD BE ORGANISED BASED ON FREE COMPETITION

21. QUESTION 6: ACCESS TO THE ELECTRICITY AND GAS SYSTEM • LACK OF FIRM AND PUBLISHED AVAILABLE CAPACITY IN INTERCONECTOR. • ACCESS TO THE NETWORK IS NOT ALWAYS BASED ON PUBLISHED TARIFFS. • DIFFERENT REGULATION AND CHARGES, THAT EFFECTIVELY CREATE PANCAKING, IN THE ALLOCATION OF CAPACITY IN THE INTERCONNECTION OF THE DIFFERENT ELECTRICAL SYSTEMS. • ANCILLARY SERVICES ARE NOT PROVIDED ON THE BASIS ON AUCTIONS OR MARKET MECHANISES IN ALL MEMBER COUNTRIES. • SECURITY STANDARDS OF ELECTRICAL SYSTEMS AND LACK OF COMMON PRINCIPLES FOR TECHNICAL MANAGEMENT OF THE NETWORK ARE NOT COMMON ACROSS THE EUROPEAN UNION. • LACK OF HARMONISED MARKET MECHANISMS FOR BALANCING POWER.