Transmission Issues in Emerging Regional Electricity Markets Black Sea Regional Energy Conference Bucharest, Romania April 3-5, 2006 Presented by: Ashley C. Brown Executive Director, Harvard Electricity Policy Group John F. Kennedy School of Government Harvard University Of Counsel, LeBoeuf, Lamb, Greene and MacRae, LLP Romanian Energy Program, Phase III (REP3)

Role of Transmission in Electric Markets ■Road of Commerce ■Security of Supply ■Market Maker or Market Participants

Critical Transmission Issues to be Addressed A. Planning B. Siting and Certification C. Access D. Pricing and Services E. Ownership Issues

A. PLANNING ■Who Has Responsibility? ■Nature of Process ■Transparency? ■Who Participates? ■Method ■Administrative (Top-Down) ■Market Driven (Bottom-Up) ■Considerations of Alternatives (e.g. Generation, Load Management)

B. SITING AND CERTIFICATION ■Balancing Internal Economics and Externalities ■Who Benefits? Who Loses? ■Regional vs. Local Interests ■Who Has Authority to Decide? ■Private Property Issues (e.g. Taking of Property)

C. ACCESS ■Open or Closed? ■Discrimination Issues ■Security Constraints and Redispatch ■Who Makes Access Rules?

D. PRICING AND SERVICES 1.Pricing ■Socialized Pricing ■Locational and Time Pricing ■License Plate or Postage Stamps ■Rate of Return (Risk Premium?) ■Benchmark/ Indexed Pricing ■Wholesale Users vs. Retail Users ■What Incentives?

D. PRICING AND SERVICES (con’t) 2.Services ■Basic Services ■Ancillary Services (e.g. reactive power voltage support, black start, etc.) ■Who Provides? ■What Prices? ■Monopoly or Competition? ■Monopsony? ■Who Procures? Who Pays?

E. OWNERSHIP ISSUES ■Vertical Integration/ Disaggregation ■Is Transmission a Monopoly? ■Passive or Active Ownership ■Independent System Operators