Establishment of the HTSO: Stakeholders’ Workshop

1. Establishment of the HTSO:Stakeholders’ Workshop 18 October 2000

2. Introduction to the New Industry Structure

3. EU Directive and the Electricity Law • The EU Directive aimed to introduce a degree of competition to the electricity industry throughout the EU. It takes effect for Greece from February 2001 and envisages, among other things, that: • competing suppliers have access to supply large consumers • there be accounting separation of the different parts of the industry to achieve greater transparency of operation • regulatory arrangements be put in place for these new arrangements • The new Greek Electricity Law elaborated the implementation of the EU Directive for Greece • The proposed new industry structure applies to the interconnected system, and complies with the requirements of the EU Electricity Directive

4. Key Elements of the New Structure The key to the new structure is the distinction created between different sectors of the electricity industry: • Generation:competition is permitted between different generators • Transmission (wires): remains a natural monopoly in the ownership of PPC • Distribution (wires): remains a natural monopoly in the ownership of PPC • Supply (sales to customers): opened to competition, initially to a limited category of “Eligible” Customers • HTSO: plays a vital role in permitting this structure to work

5. HTSO Goals and Responsibilities • Central to the new structure is the creation of HTSO - an independent system operation organisation • HTSO will take over from PPC the responsibility for system planning and operation, including dispatch of generators and operation of the new trading arrangements • HTSO will be the key institution in ensuring transparency and fairness, so that new entrants to the industry are not discriminated against, and that: • independent generators can have connection and access rights • independent suppliers can use PPC-owned lines on reasonable terms to supply consumers • the pricing of “imbalance” power is transparent and non-discriminatory

6. PPC Generators Overview of the New Structure Independent Generators (incl. Inter-connected Generators) Independent Generator Renewable Generator H.T.S.O Independent Supply Co Eligible Customers Eligible Customers PPC Transmission Eligible Customers Eligible Customers Distribution System Operator PPC Distribution and Supply Non-Eligible Customers Electricity Flow

7. PPC Generators Overview of the New Structure Independent Generators (incl. Inter-connected Generators) Independent Generator Renewable Generator H.T.S.O Independent Supply Co Eligible Customers Eligible Customers PPC Transmission Eligible Customers Eligible Customers Distribution System Operator PPC Distribution and Supply Non-Eligible Customers Electricity Flow Commercial transaction

8. Unbundling PPC’s Activities • Virtually all of PPC’s present activities will remain within PPC, but a separation will be required in accounting and regulatory terms between: • generation • transmission • distribution • supply • HTSO takes over from PPC the functions of system planning, system development, and system control, (with PPC remaining responsible for actually carrying out development work and physical operation) • HTSO will also be responsible for granting access to system users, and the operation of the new trading arrangements

9. The Regulatory Arrangements • Establishment of a new regulatory agency for the industry, (the Regulatory Authority for Energy or “RAE”) is an important part of these new arrangements • RAE will be responsible for regulation of these new competitive activities, under the auspices of the Ministry of Development • RAE and the Ministry are responsible for: • issuing authorisations to HTSO, and to the transmission, distribution, generation and supply entities • approval of the Operating Code and Power Exchange Code • approval of the transmission control agreement • regulation of prices • dispute resolution, etc • These new regulatory arrangements are crucial to ensuring the effective operation of the new market arrangements – they must ensure that independent generators and suppliers are treated in a fair and non-discriminatory way

10. Installed Capacity Adequacy • Only Authorised Suppliers may sell to consumers and participate in the trading arrangements • The Ministry of Development will issue Supply Authorizations, on the recommendation of RAE • To be authorized to supply, a supplier must: • Own adequate capacity in the EU • Own, or contract on a firm basis, additional capacity to meet reserve requirements • Arrange, on a long-term basis, the necessary interconnector capacity and transmission capacity within Greece • The law doesn’t specify the exact capacity requirement; this will need to be specified by RAE

11. The Supply Code • Article 27 of the Electricity Law requires that RAE will prepare Supply Codes covering both Eligible Customers and Non-Eligible Customers. • The Law says that for Eligible Customers the Supply Code will regulate: • the terms, conditions, and specifications of the supply services of PPC to Eligible Customers; and • the terms and the specifications of the supply services of other supply authorisation holders to Eligible Customers.

12. Role of the System Trading Arrangements • When competing generators and suppliers participate in an integrated power sector there needs to be a common set of rules governing technical and commercial operation • These common rules are referred to collectively as the System Trading Arrangements, or STA, and they are necessary to: • ensure effective grid discipline through a mix of rules and incentives • aim to achieve merit order dispatch • determine the price at which imbalances are traded between the various participants • ensure a balance between demand and available capacity

13. Key Features of theSystem Trading Arrangements

14. The System Trading Arrangements are Designed to Provide: • The means by which Participants can: • Use the transmission system • Buy and sell imbalance energy • The rules by which HTSO operates the system: • Reliably • Efficiently • Fairly • Transparently • Market-based incentives for production & investment • Efficient entry without losing the existing benefits of integration

15. The STA has 5 Steps • Day-ahead forecast • Real-time dispatch • Metering and calculation of SMP • Calculation of Constrained-On/Off Payments & other items • Billing & funds transfer Determine Meter Quantities Determine SMP Calculate Settlement Amounts Issue Bills & Statements Funds Transfer Day-Ahead: Dispatch: 16:00 0:00 0:00 24:00

16. Key Features of the STA(Compared to other Countries) • Independent ISO/ power exchange • An Offer-based dispatch • A single price for imbalance energy in each hour • SMPs are determined once for each hour (ex-post) • Regulation of Offer prices • Uplift • Net settlement in respect of ownership • Gross settlement in respect of contracts

17. Independent ISO/ Power Exchange • The ISO is both ISO (operator of the physical system) and Power Exchange (operator of the commercial system) • The HTSO is independent of PPC

18. Offer-Based Dispatch • Least-cost, security-constrained dispatch • Based on offers, not NCC-determined costs • Offer prices consist of a 3-step function and a start-up cost (Operating Code) • Offers cannot be changed after a Unit is scheduled day-ahead, except in “genuine” conditions such as forced outages • Offers must be consistent with registered/declared Info. • Offer quantity parameters can vary hourly • Offer price parameters cannot vary hourly - one price function per day

19. SMP Calculated Ex-Post • SMPs are the prices at which imbalance energy trades • SMPs set by the marginal Offer accepted in each hour • There are no forward markets, like in some countries • Day-ahead SMPs are only forecasts • However, there is financial commitment from the day-ahead schedule because scheduled offers cannot be changed

20. A Single SMP in each Hour • Prices are not locational, like in some countries • There is one SMP per hour for all of Greece • However, Settlement Quantities are adjusted by loss factors • SMPs are calculated ex-post, once metering data has been collected and all actual system information is known • Determination of SMP designed to be: straightforward, transparent

21. Regulation of Offer Prices • Offers must contain “true” costs • This is a requirement of the Law • This requirement, & its interpretation, is overseen by the RAE, not by HTSO • There is nothing in the codes that specifies this requirement, however: • Offers must be approved and available for audit by the ERA. HTSO will provide info the RAE as it requires • It is anticipated that this restriction might not apply to Units in foreign countries

22. Net Settlement in Respect of Ownership • Key feature of the STA: Participants • The roles of “Participant Purchaser” and “Participant Generator” are always separated. • The category “Participant Purchasers” comprises: • Suppliers authorised in accordance with the Greek Electricity Law to sell electricity to final customers in Greece; and • Exporting Purchasers that purchase electricity in the STA for the purpose of export from Greece to supply customers in another country. • The category “Participant Generators” comprises: • Domestic generating entities owning power plants located in Greece, and holding an Electricity Generation Authorisation; and • Foreign generating entities owning power plants located outside of Greece, where they hold a Greek Electricity Supply Authorisation. • All energy is produced by Generators and sold through the STA • All energy consumed is bought by Purchasers through the STA • HTSO nets invoice of each “Person”

23. Participants Authorized Entities (“Persons”) Suppliers Exporters Other Gens Participants Purchasers Generators Meter 1 .. Meter N Unit 1 ... Unit N Interface with STA Offer 1 .. Offer N Settlement/ Imbalance Calculation Meter Reading 1 …. Meter Reading N Meter Reading 1 …. Meter Reading N

24. Net Settlement: an Example • 2 Suppliers (“Persons”): A & B • Each Supplier owns generation • Therefore, each Supplier is a Generator and a Purchaser • Supplier A’s and Supplier B’s characteristics are: • In this example: • a Dispatch Day only has 2 Dispatch Hours • transmission and Uplift are ignored

25. Generator Offers • HTSO conducts a least cost Dispatch based on Offers in order to meet total system load • Offers must reflect variable costs • The complete set of Offers is as follows:

26. The Merit Order and Dispatch • Total load is 500MW in hour 1 and 700MW in hour 2 • The merit order, Dispatch and SMPs are thus: • SMP is set by the marginal Offer cost of supplying an additional MW to the system: • Unit A2 in hour1 (10,000 DRS/MWh) • Unit B2 in hour 2 (12,000 DRS/MWh)

27. Energy Sales and Purchases • All energy is sold by Generators, bought by Purchasers and settled by HTSO: • In each hour: total sales = total purchases

28. HTSO Settles Net of Ownership • HTSO consolidates invoices and remittances of Participant Generators and Participant Purchasers owned by the same Person: • Supplier A is paid DRS 1,100,000 (50*10,000 + 50*12,000) • Supplier B is charged DRS 1,100,000 (50*10,000 + 50*12,000) • Supplier B was better off with an imbalance and buying through the PEC instead of generating to meet its own load

29. Gross Settlement in Respect of Contracts • Participants can enter into a bilateral financial contract called a Contract for Differences (CFD) to lock in the SMP • HTSO does not know about CFDs • A CFD has a strike price and a MW quantity: • SMP > strike price: Generator pays Purchaser(SMP - strike price) x MW quantity • SMP < strike price: Purchaser pays Generator(strike price - SMP) x MW quantity • Both Purchaser and Generator are guaranteed the strike price for the MW quantity

30. Gross Settlement in Respect of Contracts: CFDs Price Payments from net Generator to net Purchaser SMP CFD Price Payments from net Purchaser to net Generator Time

31. System Operation • Up to Real Time: • Demand Forecast • Generation/ Interconnector Scheduling • generation despatch • System Services • Demand Control • Emergency Measures

32. Demand Forecasting • Demand forecasting will be required over different time scales - Operational Planning - Programming - Control - Post Control • Will require typical profiles from DSO and Suppliers for defined categories of day type. HTSO will define these day types • Possible agreements required with external TSOs

33. Interconector Management • Interconnector management is part of prudent system control • OC 7 facilitates secure trading with neighbouring utilities • Trading planned over three day time frame requiring posting of Available Transmission Capacity (ATC) and then allowing Independent and Franchise sectors access • Reserve sharing and restoration services should be covered by bilateral agreements

34. Generation Scheduling • HTSO obligation to to schedule and dispatch generation • HTSO requires accurate and timely information relating to generation and supply • SDC1 specifies procedures for issuing a generation schedule for a trading day and Demand forecast • Thus generators receive an indicative dispatch for the following day • HTSO maintains an operating margin • Desired flows on interconnections are scheduled

35. Generation Scheduling • General Requirements - Demand Forecast - Declarations by Generators - Daily Offers - Communication of Declarations - Communication of Daily Offers - ATC for interconnections - Production of Generation Schedule (GS) - Procedure in absence of a daily nomination

36. Generation Scheduling SDC1.4 The HTSO publishes demand forecast for next dispatch day by 11.00 SDC1.5-1.6 SDC1.8 Generators Exporting send Purchasers Declarations send and Daily Nominations Offers for next for next Dispatch Day by 12.00 Dispatch Day by 12.00. SDC1.10 The HTSO issues SDC1.10 The HTSO produces provisional running orders and schedule between 13.00 and publishes forecast system 16.00 for next dispatch day marginal price for each dispatch hour of next dispatch day

37. Generation Dispatching • HTSO Authorisations obligation to dispatch generation to meet demand • A structured process is required • SDC2 details the process to be used by HTSO decides the generation dispatch using the generation scheduled provided • HTSO procedure for communicating dispatch instructions - some details will depend on Market protocols

38. SDC2 Summary The HTSO forecasts Demand, sets reserve level and agrees ATC on interconnectors with External System Operators. HTSO issues dispatch instructions up to real time The HTSO issues dispatch instructions up to real time Revise instruction No Instruction in line with Inform HTSO operating characteristics? Inform HTSO-must be for safety or emergency reasons No Accepted by Gen? Yes System Alerts Operating Mode Dispatch Synchronising, desynchronising times Reactive Power Dispatch Active Power Dispatch System Emergency Conditions

39. System Services • System services for network control and operation now more formalised (payments and measurements) • HTSO will manage these services and will specify what services will be provided and by whom • Generator licences must have a requirement to provide certain services on reasonable terms • Services include - Frequency control Voltage control Network control Operating Margin and Power System Restoration

40. Emergency Control and Power System Restoration • OC12 is to ensure that after a partial or total system collapse normal supply is restored to all customers quickly and safely • Generator licences include a provision to offer black start capability to HTSO ( this can be tested under OC10) • Various proposed System Alerts are presented • An up to date Power System Restoration Plan is Required

41. Review of Other Codes and Agreements

42. Why the New Codes and Agreements are Necessary • Participation by independent generators and suppliers must be permitted on a non-discriminatory and competitive basis • To ensure this, many things that were previously actions internal to PPC will be established as arms-length commercial transactions • These changes mean that it is necessary to introduce a number of new Codes, agreements, and other instruments in addition to the Power Exchange Code • These instruments are required partly for commercial reasons, and partly for regulatory reasons • Experience elsewhere has demonstrated that these or similar instruments are necessary to make the new industry structure work effectively

43. Summary of the Key Codes and Agreements E U Directive Greek Electricity Law HTSO Authorisation Transmission Control Agreement Transmission Authorisation Supply Authorisation Generation Authorisation Operating Code Power Exchange Code Distribution Authorisation Connection Agreements Use of System Agreements Ancillary Services Agreements

44. Elaborating the Codes and Agreements • The PEC is explained in more detail later today • The purpose of this session is to explain briefly the other agreements and documents, including the Operating Code

45. The Operating Code

46. Purpose of Operating Code • Fundamentally a technical document containing the Rules governing the Operation, Maintenance, and development of the Transmission System • Gives Users an understanding of the Rules and provides for equitable treatment for all. • It refers to documents that are not part of the Operating Code e.g. transmission planning criteria, operating policies, interconnection • It does not address commercial issues - penalties -violations -failure of services • These are dealt with in other agreements

47. Hierarchy of Documents Legislation Authorisations Operating Power Ancillary Exchange Services Code Code Agreements Other documentation Standards Policies Procedures Safety Transmission Operating Code Rules Planning Compliance Criteria Test UCTE Reserve Policy Power System Standards Restoration Procedure Greek Standards

48. Governance • The Operating Code is a “living” document - it is subject to changes • Approved by Ministry -brings it into being • Modifications, Updates, Derogation requests, will be approved by REA - keeping it alive

49. Operating Code:Contents • General Conditions • Connection Conditions • Planning Code • Operating Codes (13 no.) • Scheduling & Despatch Codes (3 no.)

50. General Conditions • Makes provision for rules of a more general nature making a cohesive document allowing the operation of the transmission System for the benefit of all • Requirement of HTSO to establish and maintain the OCRP • Allows derogation rather than changes to design specifications • General Conditions requires users to comply with the”letter & spirit” of the code and provides HTSO with its rights • HTSO will act reasonably - “Prudent Utility Practice” It should be noted that if there a conflict between Operating Code and any other agreement the provisions of the Operating Code will prevail • If parts of the Operating Code unlawful/invalid the validity of all remaining provisions will not be affected