3 rd Stakeholder Group Meeting 1 February 2007

1. France-UK-Ireland REM Workstream on Congestion Management Conclusions of the first workshop (11 January 2007) Sophie Dourlens – Electrical Grid Access Directorate Commission de Régulation de l’Energie 3rd Stakeholder Group Meeting 1 February 2007

2. Agenda of the workshop • Attendance of the workshop: 28 persons from • Regulators: CER, Ofgem, CRE • TSOs: Eirgrid, NG, RTE, Scottish Power, SONI • 11 market players • All attendees agreed on the following agenda: • Identification of the non compliance points in the current CM rules within the FUI region with Regulation 1228 and with CM Guidelines • Identification of the points in the current CM methods that should be harmonized within the FUI region and with continental Europe and possible other useful improvements • Proposition of a timetable for the implementation of the agreed improvements in close cooperation with TSOs and interconnector operators • Recommendation to the RCC which steps need to be taken to ensure the necessary implementation of these improvements in due time • New national legal framework (French decree of 23 Dec 2006) that will request a formal approval by CRE of all the cross-border congestion management rules to be used by RTE: CRE will not formally approve rules that are non compliant with the European regulation in force

3. 4 points were identified as non compliant with the CM guidelines (1/5) - The Reserve Price “Other than in the case of new interconnections which benefit from exemption under article 7 of the Regulation, establishing reserve prices in capacity allocation methods shall not be allowed” §2.9 Action: • During the workshop, TSOs announced that reserve prices had been effectively set to zero on IFA since 11 January 2007 • It was agreed that the concerned TSOs / interconnector operator will modify the rules consequently in order to remove definitely any mention to a reserve price. The new version of the rules will have to be submitted to regulators’ approval as soon as possible

4. 4 points were identified as non compliant with the CM guidelines (2/5) - UIOLI/UIOSI and netting “They [access rights] shall be subject to UIOLI or UIOSI principles at the time of nomination” § 2.5 “Market participants shall firmly nominate their use of the capacity to the TSOs by a defined deadline for each timeframe. The deadline shall be set such that TSOs are able to reassign unused capacity for reallocation in the next relevant timeframe — including intra-day sessions. § 2.11 “[..] the nominations of transmission rights shall take place sufficiently in advance, before the publication of the capacity to be allocated under the day-ahead or intra-day allocation mechanism. Nominations of transmission rights in the opposite direction shall be netted in order to make efficient use of the interconnection” § 4.2 Action: A timetable shall be submitted by TSOs to regulators, concerning: • the implementation of a firm nomination deadline for both long term and day-ahead products allowing TSOs / interconnector operator to allocate the unused capacity and to net the firmly nominated programs, and • the implementation of a UIOSI before the D-1 allocation with a phased approach for already allocated long term products, consistent with market players’ expectations.

5. 4 points were identified as non compliant with the CM guidelines (3/5) - Intraday allocation mechanism “By not later than 1 January 2008, mechanisms for the intra-day congestion management of interconnection capacity shall be established” §1.9 “Successive intra-day allocations of available transmission capacity for day D shall take place on days D-1 and D, after the issuing of the indicated or actual day-ahead production schedules.” § 4.3 “[…] For intra-day trade continuous trading may be used.” §2.1 Action: In June, TSOs shall propose an implementation timetable and a feasibility study for a continuous intraday platform consistent with the one under discussion within the Central-West region. Since the implementation of such a mechanism appears not feasible for 1 January 2008, an interim solution must be implemented “such that TSOs are able to reassign unused capacity for reallocation in the next relevant timeframe — including intra-day sessions”. TSOs must propose such an interim solution, with implementation timetable, by 1 May 2007.

6. Firm nomination deadline for long term products Firm nomination deadline for daily product First intraday nomination gate UIOLI Long term auctions Daily auctions First intraday allocation UIOSI UIOSI 4 points were identified as non compliant with the CM guidelines (4/5) - Interim intraday allocation mechanism: only 2 options are available for implementation by 1 January 2008 1) Explicit auctions  Market-based  Big drawbacks: - high cost - high technical constraints that reduce flexibility (e.g. France-Spain) - gaming risks if UIOSI  Very different with the discussed target mechanism  Supported by EDF Trading, Centrica, …? 2) Non market-based allocation mechanisms  Largely used by RTE (interconnections with Germany, Switzerland, Belgium, and Spain before June 2006)  Low cost, easy to implement  Non market-based, but very similar with the discussed target mechanism  Supported by Electrabel, …?

7. 4 points were identified as non compliant with the CM guidelines (5/5) - Firmness of capacity “TSO shall optimize the degree to which capacity is firm” § 2.4 “The access rights for long and medium term allocations shall be firm transmission capacity rights” §2.5 “TSOs shall offer to the market transmission capacity that is as ‘firm' as possible” Regulation 1228 Example: On several European interconnections (even on DC links, cf. Kontek DC cable linking Germany to Denmark), TSOs are able to guarantee both, the realization of the exchange programs corresponding to firmly allocated PTRs, and daily PTRs (except for situation resulting from acts of God) Action: • TSOs shall provide, before 1 February 2007, the probability data to quantify the cost of offering - full firmness of allocated capacity and nominated programs - compensation at full market price differential in case of curtailments • Stakeholders were requested to provide cost impact data resulting from IFA curtailments

8. Auction rules have to be harmonised (1/2) The lack of Market integration is identified as one of the main shortcomings in the European Electricity market: Sector Inquiry: “In order to achieve a single European network from the perspective of the network user, there is a need for appropriate harmonisation of market design, especially regarding methods having an effect on cross border trade” •  ERGEG supports this Commission’s view when it announces in its work program for 2007 that “Market integration and cross border issues, access to infrastructure […] are priorities in 2007.”

9. Auction rules have to be harmonised (2/2) Action: for all these issues, TSOs shall provide harmonization propositions with indicative implementation timetable

10. Next steps • Regulators and market actors are now expecting concrete proposals from TSOs (IFA, Moyle and NSI), both in terms of Compliance with the CM guidelines and in terms of Harmonization with other continental interconnectors for effective implementation before the 1st January 2008 • Compliance with the CM Guidelines cannot be deferred, i.e.: • Formal suppression of the reserve price in the auction rules • Introduction of a deadline for firm nomination of both long term and day-ahead capacity  effective UIOLI/UIOSI principle and Netting • Implementation of an interim intraday allocation mechanism that permits TSOs to reallocate unused capacity after the firm day-ahead nomination deadline • Increase the degree of firmness of capacity rights One full year is largely enough to solve all implementation problems for these four requirements • The necessary CRE approval of rules under the recent French decree will only be possible for rules fully compliant with the European regulation in force