1 The regulators’ view on the Central West REM: Emphasis on the completion of existing initiatives Presentation for the Mini-Forum 20 June 2006

2 Based on a joint synthesis of contributions from stakeholders to large public consultations, the 2 “Roadmaps” initially adapted to their specific context put the focus on short-term and long-term priority actions to improve regional market integration Implementing accurately these roadmaps is a TOP PRIORITY for regulators. Until the end of 2007, the Central West REM will focus on:  monitoring the implementation of the roadmaps;  harmonizing the two roadmaps whenever necessary;  reporting on the progress made. Context The 2 roadmaps CRE-CREG-DTe and CRE-FNA

3 Monitoring of correct implementation Principal agreed action points of the roadmaps  To facilitate the functioning of explicit auction mechanisms 1.Implementation of coordinated explicit auction between B-F and F-G 2.Implementation of harmonized secondary capacity markets 3.Full harmonization of explicit auction rules between F-B-NL 4.Increased Transparency (F-B-NL)  To increase the use of existing ATC 5.Implementation of cross-border intraday trade and implementation of cross-border balancing trade 6.Implementation of trilateral market coupling (F-B-NL)  Monitoring and cooperation between regulators  To increase the overall level of cross-border capacities 7. Implementation of a common calculation method

4 Monitoring of correct implementation 1. Coordinated explicit auctions Already implemented on the NL-B-G borders. Implemented, by the 1 st of January 2006, on F-B and F-G borders as requested by the roadmaps. But three different auction platforms currently coexist:  one for F-B, B-F and F-G  one for G-F  one for NL-B-G French and German TSOs are requested to provide by the 1 st of July 2006 an analysis concerning the advantages/disadvantages of integrating both platforms into a single auction office.

5 Monitoring of correct implementation 2. Harmonized secondary capacity markets Two mechanisms are already in place on the NL-B-G borders:  a “Basic transfer capacity”, and  a “Capacity Resale on request” TSOs submitted their joint proposal by the 12 th April This proposal considered several possible options with respective cost and time schedules. Regulators informed TSOs recently of their joint decision:  To extend the two existing mechanisms on the NL-B-G borders to other borders of the Central-Western Region (with potential for slight improvement) asap (and at the latest by the 1 st of January 2007).  By the 1 st of July 2007, the “Basic transfer capacity” mechanism will have to be transformed into “Full transfer capacity”.

6 Monitoring of correct implementation 3. Full harmonization of existing explicit auctions Regulators have noted that there are currently three different sets of auction rules in the Central-West Region (IFB, IFG and TSO Auction rules) with a strong potential for harmonization in users interests IFB and TSO Auction rules (at least for the NL-B border) must be fully harmonized by the 1 st of January 2007 Full harmonization with IFG auction rules is not explicitly planned in the roadmap but should be considered by TSOs involved.

7 Monitoring of correct implementation 4. Increased Transparency (F-B-NL) CRE, CREG and DTe will publish, by the 1st of August 2006, a detailed list of transparency items, based on the “Guidelines for Good Practice for Information Management and Transparency in Electricity Markets” ERGEG’s consultation paper  Identify the “state of the art” in the three respective national markets in terms of transparency  Present the possible ways, including time schedule, to achieve significant improvements Harmonization of the level of transparency between the three countries is expected by the 1st of July 2007

8 Monitoring of correct implementation 5. Cross-border intraday and balancing trade All regulators strongly support the establishment of a cross-border intraday and balancing trade, which will provide:  More flexibility to marketplayers;  Optimization of the utilization of capacities;  Enhancement of competition in these near real-time markets;  Stability of the network and reduction of the TSOs overall costs. Cross-border intraday trade must be implemented on the F-B-NL border by the 1 st of January 2007 Cross-border balancing trade must be implemented on the F-B-NL border by the 1 st of July 2007 Not yet specific implementation date on the F-G border

9 Monitoring of correct implementation 6. Trilateral Market Coupling CRE, CREG and DTe fully support the principle of integration of energy and transmission markets near real time. Four issues to be addressed by the operators:  Correct functioning of the algorithm;  Potential for generalisation;  Absence of discriminatory treatment for day ahead nominated programs;  Implementation and operational costs; financing methods All these issues are being finalized ; A regulators’ decision is expected in the coming weeks.

10 Monitoring of correct implementation 7. Coordinated method for calculating cross-border capacities TSOs are requested to submit, by the 1 st August 2006, a joint proposal for a coordinated method for calculating cross-border capacities. For this purpose, regulators consider it crucial that the three TSOs start by sharing a common set of information/forecasts regarding, in particular: 1. Best estimation of detailed generation and demand patterns ; 2. Network topology and relevant characteristics in full detail ; 3. Transactions already executed. Once approved by the regulators, pursuant of article 5 of the Regulation, this coordinated calculation method shall be published by TSOs and become operational by the 1st of January 2007.

11 Monitoring of correct implementation 8. Market power mitigation and regulatory cooperation Regulators committed to creating a joint regulatory task force in order to monitor the correct functioning of cross-border trade. Exchange of confidential information by the regulators (e.g. to enable market monitoring) ; market power issues This monitoring will particularly deal with following concerns:  Do market players value cross-border capacity correctly?  Do market players use cross-border capacity efficiently?  Is the level of allocated capacity sufficient?  Is the level of firmness sufficient?  Is the UIOLI rule well applied? Publication of an annual joint regulatory report is expected by the 1 st of January 2007

12 Monitoring of correct implementation First impressions from the regulators Regulators reaffirm that the implementation of the agreed action points in the 2 roadmaps is of utmost importance for the further regional integration of CWE wholesale markets Up to now, TSOs have shown serious involvement and have cooperated actively  Delivery dates are respected  No significant delay are expected from TSOs  The implementation of harmonized secondary capacity markets could possibly be delayed to the 1 st January 2007 Governments are reacting positively but some issues to be addressed (e.g. legal framework for the exchange of confidential information between regulators)