1 Identification of the needs to modify auction rules in the FUI region Congestion management meeting – 11 January 2007

2 Proposed Agenda Opening and Welcome + Roundtable Identification of the needs for improving current CM methods on interconnectors in the FUI region Conclusion and summary of all the needs Lunch Open discussions on the concrete implementation of these improvements and on the prioritization of their achievement Conclusion and proposition of a timetable for implementation Recommendation to the RCC what steps need to be taken to ensure the necessary implementation of these improvements in due time

3 IFA auction rules that have to evolve to be compliant with the CM guidelines (1/2) Reserve Price: “Other than in the case of new interconnections which benefit from exemption under article 7 of the Regulation, establishing reserve prices in capacity allocation methods shall not be allowed” §2.9new interconnections UIOLI/UIOSI: “They [access rights] shall be subject to UIOLI or UIOSI principles at the time of nomination” § 2.5 “Market participants shall firmly nominate their use of the capacity to the TSOs by a defined deadline for each timeframe. The deadline shall be set such that TSOs are able to reassign unused capacity for reallocation in the next relevant timeframe —including intra-day sessions. § 2.11 “[..] the nominations of transmission rights shall take place sufficiently in advance, before the publication of the capacity to be allocated under the day-ahead or intra-day allocation mechanism” § 4.2 Intraday allocation mechanism “By not later than 1 January 2008, mechanisms for the intra-day congestion management of interconnection capacity shall be established” §1.9 “Successive intra-day allocations of available transmission capacity for day D shall take place on days D-1 and D, after the issuing of the indicated or actual day-ahead production schedules.” § 4.3 “[…] For intra-day trade continuous trading may be used.” §2.1 Firmness of capacity “TSO shall optimize the degree to which capacity is firm” § 2.4 “The access rights for long and medium term allocations shall be firm transmission capacity rights” §2.5 “TSOs shall offer to the market transmission capacity that is as ‘firm' as possible” Regulation 1228 Example: On several European interconnections, TSOs can guarantee both, the realization of the exchange programmes corresponding to firmly allocated PTRs, and daily PTRs (except for cases that constitute Force Majeure)

4 IFA auction rules that have to evolve to be compliant with the CM guidelines (2/2) Guidel ines Situation on IFA MoyleNSIAction Plan (to be decided) No reserve Price Existence of Reserve/Guide price for capacitycapacity YesNoReserve prices are actually set to 0 right now A new version of IFA rules, integrating officially this fact, will be sent asap for regulators’ approval UIOLI/UIOSIExistence of a UIOLI/UIOSI but this one is ineffective because nominations are not firm (binding); nettingfirm No Under consideration No- Implementation of firm nomination deadlines for LT and day-ahead products - Implementation of UIOSI before the D-1 allocation with a phased approach for already allocated products - Timetable for implementation will be proposed before the 1st February by TSOs Intraday allocation capacity No intraday allocation capacity ; “discrimination” between commercial and non commercial use No - In June (tbc), TSOs propose an implementation timetable and a feasibility study for the “target mechanism” (capacity platform) - Since the target mechanism appears not to be implementable for the 1st January 2008, an interim solution must be implemented. - An interim solution, with implementation timetable, has to be proposed by TSOs by the 1st of May 2007 Firmness of capacity Capacity/Program curtailments are always possible, even outside case of force majeureforce majeure Capacity/ Program curtailments are always possible, even outside case of Force Majeure -TSOs provide the probability data to quantify the cost of offering full firmness/compensation of allocated capacity/nominated programs before the 1st February

5 Auction rules in Europe have to be harmonised (1/3)  The lack of Market integration is identified as one of the main shortcomings in the European Electricity market: Sector Inquiry: “ In order to achieve a single European network from the perspective of the network user, there is a need for appropriate harmonisation of market design, especially regarding methods having an effect on cross border trade”  ERGEG supports this Commission’s view when it announces in its work program for 2007 that “Market integration and cross border issues, access to infrastructure […] are priorities in 2007.”

6 Auction rules in Europe have to be harmonised (2/3) Situation on IFA Current situation and perspectives on other European interconnections MoyleNSI Action Plan Compensation rule in case of reduction Very complex rules of compensation. Introduction of a Target Availability. - For reductions occuring before the “Autorisations à programmer”, the unit holder is compensated at 110% of the total payments effectuated for the hours of curtailed capacity rights. - Compensation at “full market price differential” will be addressed by TSOs N/ACapacity charges are rebated for unplanned outages greater than 24hrs Conditions of suspension and Termination by the operators Users may be disqualified of relevant bids in event of collusion or improper behaviour. The operators are entitled to warn, in consultation with the competent regulators, those who have an a behaviour which affects competition. Ofreg may declare the auction void if it determines that the process appears to have been gamed, or that the outcome would lead to a non-competitive situation in the Northern Ireland or Republic of Ireland wholesale markets. In the event of such occurrence another suitable allocation method would be devised and enacted at a later date. Cancellation or suspension “The operators are under no obligation to hold Auctions and may at any time cancel, suspend or defer any Auction for any reason” D 2.5 Auctions may be cancelled in event of unavailability or technical problems in functioning of the “outil enchère”

7 Auction rules in Europe have to be harmonised (3/3) IFACurrent situation and perspectives on other European interconnections MoyleNSIAction Plan Nature of allocated products - Multistage auctions - Quarterly and seasonal products - No hourly products - One auction by product - Only Annual and Monthly - Hourly products 2 stage annual auction; monthly auction Standard and non-standard product; import and export 2 stage annual auction; monthly auction; interruptible product under consideration Nature of auctions- Pay-as-bid - Opened auction - First come-First served when identical bids - Losses are paid in nature - Marginal Price - Closed auctions - Pro-rata when identical bids - No specific payment for losses pay-as-bid, sealed envelope format Pro-rata when identical bids and no payment for losses pay-as-bid, sealed envelope format Pro-rata when identical bids and no payment for losses Secondary capacity market - Resale and Transfer of capacity mechanisms already exist but have to be improved Resale and transfer allowed Implicit Day-ahead allocation Not really discussed for the time being - Already implemented between F-B-NL - Actively discussed in other ERI No intraday trading Other items? Auction plateform Market arrangement

8 Target mechanism for intraday trade in the Central-West region: continuous trading platform  This mechanism is proposed by the TSOs of the CW region. The principles are supported by their regulators, EFET and EURELECTRIC  Principles of this mechanism:  A single capacity platform has the information concerning intraday cross-border capacities in the whole region  One or several continuous trading platforms are connected to this single capacity platform and receive the information concerning capacities  Market players of any country submit their intraday bids for offer or demand of energy to a continuous trading platform  When two bids match:  If they are in the same country, the transaction is made  If they are not in the same country, and if there is enough cross- border capacity:  the transaction is made  the capacity is allocated for free by the capacity platform to the trading platform (non market-based mechanism, cf. article 2.1 of the Guidelines)  the capacity platform updates the cross-border capacity

9 Target mechanism for intraday trade in the Central-West region: continuous trading platform Continuous trading platform 1 Capacity platform Country B  Information flows: Country A TSO A TSO B Intraday capacity from B to A Intraday capacity from A to B Bids match There is enough capacity from A to B Continuous trading platform 2 Market player 1 Market player 2 Bid for demand of energy Bid for offer of energy Capacity is nominated Capacities are updated

10 How to implement this target mechanism?  This target mechanism implies to complete first the following steps:  A detailed study from the TSOs is needed, particularly regarding the possibility/opportunity to have several competing intraday platforms  Its cost has to be estimated  The possible interaction with cross-border balancing trade has to be analysed  An interim solution has thus to be considered in order to meet the requirements of the Guidelines on the 1st January Two possibilities:  Intraday explicit auctions  Market-based  Big drawbacks: high cost and high technical constraints that reduce flexibility (only 2 gate closures on the France-Spain Interconnection)  Improved pro-rata mechanism  Largely used by RTE (interconnections with Germany, Switzerland, Belgium, and Spain before June 2006)  Low cost, easy to implement  Non market-based (as the target mechanism!)