Bruxelles, 13 February 2008 Regional Market and Cross Border Luigi de Francisci TERNA - Rete Elettrica Nazionale S.p.A.

2 Regional Market and Cross BorderBruxelles, 13 February 2008 Terna at a Glance Business Unit TERNA SpA ETEO (1) TSN with 100% GTESA/PATESA + incorporating Novatrans (2) ETAU (3) Business Unit Italy Business Unit Brazil 100% 66% 100% 52.6% RTL Including RTM1, RTM2, RTT Terna Participações (1)Pending ANEEL approval (2)Novatrans incorporation still subject to ANEEL and BNDES approval (3)Consolidated with the Equity Method Main Owner of 98,3% of the Transmission Grid in Italy Sole Concessionaire Responsible for Transmission and Dispatching of Electricity Responsible for Grid Planning, Development and Maintenance Listed on the Stock Exchange Market Since Year 2004

3 Regional Market and Cross BorderBruxelles, 13 February 2008 Background: why regionalization to manage cross border issues Regulatory process established: the ERGEG Regional Initiatives The way forward: the 3° Electricity Package Introduction Regional Electricity Markets and cross border

4 Regional Market and Cross BorderBruxelles, 13 February 2008 The main goal shall be to improve cross border exchanges in order to really put in place IEM Via: Definition and maximization of Network Interconnection Capacity under security constraints Investments on interconnection capacity Regional Electricity Markets and cross border

5 Regional Market and Cross BorderBruxelles, 13 February 2008 GR E F PT B A PL CZ SK HU SLO HR YU MK AL BG ROM DE UA BIH I GB IRL CH LT EST LV N SE CY FIN DK NL GR Baltic Region: Estonia, Latvia, Lithuania Lead Regulator: PUC (Latvia) Central-East Region: Austria, Czech R, Germany, Hungary, Poland, Slovakia, Slovenia Lead Regulator: E-Control (Austria) Central-South Region: Austria, France, Germany, Greece, Italy, Slovenia Lead Regulator: AEEG (Italy) Central-West Region: Belgium, France, Germany, Luxemburg, Netherlands Lead Regulator : CREG (Belgium) Northern Region: Denmark, Finland, Germany, Norway, Poland, Sweden Lead Regulator : DERA (Denmark) South-West Region: France, Portugal Spain. Lead Regulator : CNE (Spain) UK & Ireland Region: UK, Ireland Lead Regulator : OFGEM (UK) Regional Electricity Markets and cross border State of the Art in Regionalization: the Electricity Regional Initiatives

6 Regional Market and Cross BorderBruxelles, 13 February 2008 Non joint allocation 50/50 NTC Managed by Each Country Implicit Auction on 50 NTC managed by Italy Explicit Auction on 50 NTC managed by bordering EU countries Main Achievements on the Italian Borders: Congestion Management Joint Allocation among Italy, France and Austria and Greece (100 NTC) Non joint allocation with Slovenia and Switzerland (50/50 NTC) Explicit Auction on all the borders Joint Allocation among Italy, France and Austria Slovenia and Switzerland and Greece(100 NTC) Explicit Auction on all the borders Harmonized allocation rules Not Coordinated Not Joint AllocationCoordinated Not Joint allocationCoordinated - Joint allocation Interconnection Transmission Capacity based upon NTC values not Flow Based Coordination among TSOs to set the NTC Values based upon ETSO methods Agreement on NTC value through a common Pentalateral Procedure (Italy, France, Austria, Slovenia, Switzerland) Regional Electricity Markets and cross border

7 Regional Market and Cross BorderBruxelles, 13 February 2008 to set up a Single Auction Office (unbundled by TSOs) to further improve coordination among TSOs via Intraday Markets during year 2008 Work in progress and next steps on Congestion Management on the Italian Border Regional Electricity Markets and cross border

8 Regional Market and Cross BorderBruxelles, 13 February 2008 to start up studies on Market Coupling solution for congestion management on day ahead where the different power exchanges operate in each area to set up a Secondary Market where market operators can trade interconnection capacity already allocated Regional Electricity Markets and cross border Work in progress and next steps on Congestion Management on the Italian Border

9 Regional Market and Cross BorderBruxelles, 13 February 2008 Network Investments and Development of new Infrastructure are the prerequisite for the functioning of Regional Markets and the resolution of Cross border congestions The Italian Experience shows that full ownership unbundled TSO increases Investments on Network Infrastructure Clear mandate for TSOs fostered cooperation to develop technical codes and market codes in accordance with Regulatory predefined Terms and Conditions set by Regulators Third Electricity Package Terna Highlights on cross border issues

10 Regional Market and Cross BorderBruxelles, 13 February 2008 Further harmonization with EU third Countries (ie. Switzerland) on cross border issues Lack of transparency on some borders due to the existence of long term contracts and reserved interconnection capacity in Europe (ie. Germany- Switzerland) Market asymmetries Inter TSO Compensation: no double remuneration The use of Congestion Management Revenues coming to TSOs for the allocation of Interconnection Capacity and the use of Inter TSO Compensations due to Cross Border flows shall be taken into due account in order to avoid distortions of competitions among the different national markets Third Electricity Package Terna Highlights on cross border issues

Bruxelles, 13 February 2008 END Luigi de Francisci TERNA - Rete Elettrica Nazionale S.p.A. Regional Market and Cross Border