1. 1 Establishing Efficient Marketplaces - lessons learned Presentation by: Kjell Asserlind kjell.asserlind@om.com APEx Annual Conference Cartagena, October 15, 2003

2. 2 OM The world’s leading provider of transaction technology to financial and energy markets. OM operates marketplaces, develops new marketplaces and makes existing marketplaces more efficient. Partner of choice and leading provider of exchange technology to over 25 international exchanges and clearing houses.

3. 3 OM Customer examples System Solutions System Operation Exchange Ownership

4. 4 What is deregulation into a competitive environment all about? … to achieve the highest possible efficiency in electricity supply through market mechanisms instead of natural monopoly and regulation…

5. 5 Important market mechanisms Voluntary - Choices for the market participants –OTC markets –Brokers –Exchanges Trust –Clear and sufficient market rules –How is the price calculated?

6. 6 Evolution of Power markets OTC, Bilateral contracts Development of short-term or spot- market for physical balancing Market acquires transparency as prices are quoted Spot prices accepted as benchmarks Separation of supply and pricing Resulting volatility generates needs to manage price risk => Forwards & Futures markets

7. 7 Future/forward market Liquid traded forward markets are essential to healthy power markets in order to provide: hedging and trading opportunities the correct long-term investment signals to generators and suppliers Definition of liquid market: A Market allowing the buying or selling of large quantities of an asset at any time and at low transactions costs

8. 8 Chain of Power Markets Forward Market Short-term Forward Market Spot Market Intra-dayDay(s) Ahead Week(s) Ahead Month(s) Ahead Year(s) Ahead Physical Market Balancing Ancilliry services Scheduling / dispatch Physical Market Financial Market Weather driven Fine tuning of portfolio Physical Market Financial Market Long-term Hedging Lock-in Returns Speculation Delivery Real time Balan -cing Energy market is not a easy defined concept A energy market usually comprises a number of interdependent markets with shifting characteristics Alternative price-calculation methods applied

9. 9 Power Market Phases in the Development Towards Maturity Trade as % of Consumption Phase 5 Speculation Phase Phase 4 Rapid Growth Phase Phase 3 Expansion phase Phase 2 Build up phase Phase 1 Pre-trade Phase 0 100 200 300 400 500 Time 600 700 800 900 The six phases of commodity trading (conceptual picture) Phase 6 Mature Phase Spot Derivatives

10. 10 The issue of liquidity Prerequisites –Market design that is easy to understand for ALL market participants –Transparent market information –Attract speculators/ traders –Strong credit rating and clearing facilities Obstacles –Insufficient or inadequate liberalisation / rules –Market design –Market power

11. 11 Clear vision by all stakeholders of the benefits of electricity market deregulation Supportive and vigilant regulator is most critical Voluntary - Choices for the market participants Clear and well defined price discovery mechanism to gain confidence among traders for price reference Minimize impact of grid and operational constraints on energy price reference to gain confidence among traders outside traditional energy sector Complete chain of markets. -Sole focus on short-term spot markets for physical delivery leads to high market volatility Establishing Efficient Marketplaces - lessons learned

12. 12 “Establishment of a power exchange may not be a necessity in a particular power market. However, a power exchange greatly facilitates trade, timely dissemination of price- sensitive information, and greater market competition and liquidity.”

13. 13 A world leader in transaction technology