Day-Ahead Market Coupling Proposal for algorithm approval process 8 th ACER Coordination Group for ERI Brussels, 9 th January 2012

2 Background. Cross-regional roadmap: ACER shall coordinate NRAs endorsement (e.g. through letter of comfort) of: [the] starting point of the PCR algorithm in Q All NRAs shall agree on [a] common, coordinated approval/review process for the algorithm. This agreement shall also be finalised in Q and it is dedicated also towards the final algorithm to be used in operation in NWE and EPC.. To contribute to this process, NWE Day-Ahead Cross-Regional Coordination Committee (CRCC) drafted common approval process for the algorithm with the aim to align as far as possible aspects of national processes and to limit duplication of work.. The draft will be submitted to ACER in order to coordinate NRAs endorsement of the starting point of the PCR algorithm.

3 Proposal for common, coordinated regional approval/review process (I) Step 1: Description of methodology. After NWE IG meeting in October 2011 PX were asked to provide NRAs with a high-level description of the PCR algorithm, inter alia objective function, side conditions, requirements, functioning of the algorithm.. Main elements/components of PCR starting point algorithm (i.e. COSMOS algorithm in production in CWE) already published ( Moreover, the algorithm has to be made fully transparent and accessible for regulators, so that every detail can be assessed.. ENTSO-E shall evaluate the PCR algorithm starting point (now delayed) by January Furthermore, ENTSO-E shall send algorithm requirements to Europex and NRAs. This will be another basis for regulators approval.. ENTSO-E and Europex shall consult market participants on starting point PCR algorithm as validated by ENTSO-E and report outcome to ACER and NRAs Deadline: Q / early Q1 2012

4 Proposal for common, coordinated regional approval/review process (I) Step 2: Regulators task force. NRAs establish algorithm task force to evaluate (1) first the starting point of the PCR algorithm based on the information received in step 1 and (2) afterwards further assess the detailed descriptions of the algorithm from the TSO/PX NWE design phase and the further development towards EPC. Main contact persons from the task force and the TSO/PX project are nominated.. Task force gives recommendation for endorsement of the starting point of the PCR algorithm based on an assessment of compliance with the CACM framework guideline (Chapter 3.1 and 3.2) and Annex 1 of regulation 714/2009. Deadline: Q This is then evaluated by the NWE CRCC and afterwards submitted to the ACER in order to coordinate NRAs endorsement of the starting point of the PCR algorithm, e.g. letter of comfort. Deadline: end Q1 2012

5 Proposal for common, coordinated regional approval/review process (III) Step 3: Final algorithm for implementation in NWE and EPC. For approval of final algorithm for operation in NWE PXs shall demonstrate to NRAs that algorithm is running stable and producing robust results also in extreme situations. Minimum condition: Simulation results using historical data (also including critical days). Deadline: Q Task force gives recommendation for approval/review of the final algorithm based on the above information and on an assessment of compliance with the CACM framework guideline (Chapter 3.1 and 3.2) and Annex 1 of regulation 714/2009. Deadline: Q Thisis then evaluated by the NWE CRCC and ACER and afterwards submitted to NRAs as input to the national approval/review process. Deadline: Q3 2012

6 Proposal for common, coordinated regional approval/review process (IV) Step 4: National approval/review processes. In parallel to the common coordinated regional approval process, there will also be national approval processes, depending on the respective national legislations. Deadline: End Q for NWE and repeated for further step towards EPC.

7 Proposal for common, coordinated regional approval/review process (IV) Step 5: Evaluation after implementation. The regulators will continuously evaluate the functioning of the price coupling algorithm in order to (i) monitor the price coupling, (ii) capture effects that were not anticipated in the approval of the algorithm and (iii) propose changes to the algorithm if deemed necessary.. The first evaluation of the pricing algorithm will take place after one year of operation.. The TSOs/PXs will be asked to provide a report based on all relevant data, e.g. on flow, capacity allocation and prices.. Regulators will evaluate whether the results live up to the criteria in the approval. Deadline: Q / Q for NEW; periodically with further extension towards EPC

8 Thank you for your attention