Harmonisation within a merger of two spot power exchanges - Experiences by EEX and Powernext

1. Harmonisation within a merger of two spot power exchanges - Experiences by EEX and Powernext APEX CONFERENCE 2008 IN SYDNEY | 13 October 2008 Dr. Wolfgang von Rintelen • Director Legal & Compliance European Energy Exchange AG

2. The Situation

3. EEX, created as a result of the EU liberalisation of the European energy markets Liberalization of the European Energy Markets in 1998 1998 Merger of the former Leipzig Power Exchange LPX and the EEX, Frankfurt, to the European Energy Exchange AG 2002 Start of Trading of Emission Allowances within the EuropeanEmission Trading System (EU ETS) 2005 Spin-off of the EEX Clearing business into the subsidiary European Commodity Clearing AG 2006 Launch of the German Gas Exchange:EEX covers 60% of the German H-gas market volumewith the market areas BEB and E.ON GT 2007 Further spin-offs within the European Growth Strategy of EEXSpot market (Power): EEX Power Spot GmbH Derivatives market (Power): EEX Power Derivatives GmbH 2007+

4. 1992: energy exchanges in Europe- an empty landscape

5. 2004: EU Vision - Through regional markets to European electricity markets Source: Regional markets in Europe according to a strategy paper by the EU-Commission

6. 1993 – 2004:History of the EU Regulation • 1993: Investment Services Directive (ISD) 93/22/EEC • 2004: Markets in Financial Instruments Directive (MiFID) 2004/39/EC • Market Abuse Directive (MAD) • Capital Requirement Directive (CRD) • Capital Adequancy Directive (CAD) • Many of this regulations are currently under review • Comittees of regulators in charge: • ERGEG (European Regulators' Group for electricity and gas) • CEER (Council of European Energy Regulators) • CESR (Committee of European Securities Regulators) • CEBS (Committee of European Banking Supervisors)

7. Today: overview of the national regulationsfor power spot markets in Europe • NordREG* recently made a assessment about the national regulationsin Europe (eight exchanges) • Summary for the power spot markets: • Legislation/Ministry: energy, exchange, financial and a mix of them • Regulator/Supervisory Authority: energy, exchange, financial and more of one • Market Surveillance (MS):All exchanges monitor compliance with the rulesbut only two exchanges have MS as a independent body • If more than one authority is in charge it is not common praxis to share information and work together on a formal basis. *NordREG is a working group of Scandinavian Energy Regulators

8. Imarex Group OMX AB /Nord Pool ASA Energy brokers,mainly London-based IntercontinentalExchange Nord Pool Spot AS European Market CouplingCompany (EMCC) GmbH Tender to build anPower Exchange in UK European EnergyExchange AG APX B.V. Towarowa GieldaEnergii SA ENDEX N.V. Operátor trhu selektrinou a.s. Climex Belpex SA EnergetickáBurza Praha Auction officeCASC-CWE EXAA EnergyExchange Austria Powernext SA Operatorul Pietei deEnergie ElectricaOPCOM SA Operadorde MercadoIbérico de Energia(Pólo Português) S.A. Borzen, organizator trgaz elektricno energijo, d.o.o. Gestore del mercatoelettrico S.p.a. Operador del MercadoIbérico de Energía(Polo Español) S.A. Bolsas y MercadosEspañoles plansCO2 spot trading New CO2 market place Borsaitaliana TSO-initiative in Hungaria 2008: Power exchanges and other market places in Europe - a colorful landscape

9. First Remarks • In Europe there is not a common standard for energy exchanges. • MiFID covers only Commodity Derivatives Markets, not Spot Markets. • Commodity Derivatives Markets are not the major task of MiFID, from its origin it is a regulation for stock exchanges. • The Regulation for Power Spot Markets as well as its structure of supervision/legislation is quite different within Europe. • There are (too) many commissions of regulators or supervisors in charge for the Energy Markets within Europe.

10. The Merger of Power Spot Markets

11. Early 2008: EEX and Powernext agreed on a cooperation • These countries representmore than a third of European electricity production • Around 70% of Powernext participants are EEX participants • Around 30% of EEX participants are Powernext participants • Price correlation: over 90 percent

12. Key aspects of the cooperation • Common Power Spot Exchange based in Paris • Common Power Derivatives Exchange based in Leipzig • Clearing of all spot and derivatives energy products through European Commodity Clearing AG (ECC) Cooperation model open to further partners

13. Implementation steps • Establishment of a common spot trading company namedEPEX Spot SE with registered offices in Paris. • The partner exchanges will integrate their entire spot trading activities in power under the umbrella of the SE by the end of the year. Both partners hold 50 percent of the shares. • EEX has transfered its trading in power derivatives to the newly established EEX Power Derivatives GmbH in Leipzig. • Retroactively as of 1st January 2009, Powernext will contribute the French power futures to the new GmbH [German limited liability company] in Leipzig and, in return, it will receive 20 percent of the shares in the company.

14. Nordic market GB/IRL market separate 2005 integrated 2010? Baltic market (2008?) Eastern European market (2006-08?) Western European market (2006-08?) Western European market (2006-08?) Iberian market (2004) South Eastern European market (2006-08?) Italian market (2004) Fulfilling a big part of the European Vision Source: Regional markets in Europe according to a strategy paper by the EU-Commission

15. Impacts on the Power Spot Markets • The French Power Market will continue to be traded in Paris. • The German Power Market will be traded in Paris as well as the Austrian and Swiss Market. • Will the French Energy Authority be responsible for this “new” Power Markets? • The German Exchange Authority will lose its responsibility for the German Spot Market, but remains to be in charge for the Derivatives Markets. The Task: • The Parties agreed to harmonise the Powernext Power Spot Market and the EEX Power Spot Market Rules and organisational structure and to have“the best of both”. That means inter alia: • Rules for transparency and proper market behaviour • Independent Market Surveillance Office • Exchange Council

16. EEX Spot Market Governed by Public Law Exchange bodies are: Exchange Council (elected) Exchange Board Market Surveillance Office Exchange has own rules and regulations and the opportunityto develop it The Exchange Council decides about the rules and its changeson request of the Board Traders become a member of the Exchange by admission Powernext Spot Market Governed by Private Law No exchange specific bodies necessary Everything has to be ruled by agreements with the participants Differences and its handling • Solution: We will „translate“ the contribution governed by German Public Laws into agreements to be accepted by the exchange participants under French Private Law.

17. Open issues:legislative and regulatory level But there are still some open issues: • How long will the energy market be a annex to the stock markets or is there a chance for tailor made regulations for the energy markets? • How will the interactions between the spot and the derivatives markets across country borders be handled by the authorities? • How long takes it to have harmonisation or at least information sharing of the authorities? • Who will supervise the European energy market across borders? • When will the European energy exchanges have harmonised rules and a harmonised organisational structure? • In future the European energy market needs tailor madepan-European regulation and supervision.

18. Thank you very much for your attention!