1. Transelectrica - The Romanian TSO: Chalenges and Perspectives Bogdan Popescu-Vifor Director Strategy, Planning, Marketing & Sales Transelectrica SA Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006

2. Transelectrica 2 2 Power Market Structure Co-generation companies and IPP’s TSO Power Exchange Thermal generators 8 distribution & supply companies Traders and suppliers Nuclearelectrica Hidroelectrica Transelectrica OPCOM T7T2T1 E1E2E3E8... … Market opening degree 1.07.2005: ~83%

3. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 3 3 Mission and responsibility: to ensure the Romanian Power System’s reliable and stable operations, at high quality standards, while providing a national electricity market infrastructure and securing regulated access to the Romanian electricity transmission network under transparent, non-discriminatory and fair conditions to all market participants. Main activities of Transelectrica are: »Technical and operational management of the Power System, to ensure its safety and stability »Operation, maintenance and development of its assets »Planning of the National Power System and transmission network development »Market administration through its legally independent subsidiary OPCOM »Management of interconnections and electricity transits with neighbouring countries »Transelectrica does not trade electricity, except to cover its own transmission losses Transelectrica’s functions: Transmission and System Operator for the Romanian Power System; Balancing Market Operator; Commercial operator of the electricity market, through OPCOM; Metering Operator in the wholesale market. Transelectrica’s roles and responsibilities

4. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 4 4 The Romanian Transmission Grid 8,800 km of Over Head Lines (OHL) : 154.4 km of 750 kV 4,474.2 km of 400 kV 4,134 km of 220 kV 40 km of 110 kV 79 transforming substations 1 of 750 kV 32 of 400 kV 46 of 220 kV The total transmission capacity is 22,000 MW Ukraine Hungary Serbia & Montenegro Ukraine Moldova Bulgaria Black Sea

5. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 5 5 Transelectrica – the TSO Transelectrica is member of UCTE ETSO SETSO TF Continuous involvement in Athens Forum process ECSEE Development

6. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 6 6 Tariffs structure Three categories of tariffs: Transmission tariff: covers total network costs, including maintenance and development System services tariff: covers the costs of the national power system dispatching, including the cost of purchasing ancillary services Market administration tariff: covers the costs of OPCOM Determination / adjustment of the transmission tariff Methodology for setting transmission tariff: starting with 2005 - Revenue – Cap Model Input data used: regulated asset base, changes in WC, forecast calculation of operational costs, interest expenses and CAPEX submitted by Transelectrica Tariff reviewed annually in the first regulatory period (2005-2007) and on 5-year periods afterwards. ANRE can make interim adjustments according to the EURO/RON rate. Tariff adjustments - also triggered by cost deviations over +/- 5% of the assumed level. 6.5% - WACC used by ANRE for the 2006 transmission tariff. Tariffs: determined by ANRE, based on the Regulated Assets Base mechanism Tariff for market administration - set under a pass-through logic Tariff determination methodology

7. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 7 7 The most important clients in 2006

8. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 8 8 The Power Market and the System Operation The Wholesale Market Commercial Code approved by ANRE in 2004 provides for TSO  to running the balancing market  to purchasing ancillary services on market-based procedures  to allocating interconnection capacities on market- based procedures  To awarding green certificates to green energy producers

9. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 9 9 Power Market in Romania (2005)

10. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 10 Balancing Market The Balancing Market represents a tool for the TSO to handle: the unpredictable imbalances between production and consumption as a result of the deviations from the operational program established based on the physical notifications from the market participants, as scheduled according to the other electricity markets (spot market, OTC contracts etc.), forecast imprecision, forced outages, etc. the system constraints resulted from both the ex-ante trading, on the basis of physical notifications, and in real time.

11. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 11 The Power Market And System Balancing

12. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 12 Bids on the Balancing Market Bids per generating unit, for each hour, up to 10 pairs {Qty/Price} Same bid used for secondary, fast and slow tertiary regulation Secondary regulation energy settled at marginal price Fast and slow tertiary regulation energy settled “pay-as-bid” Secondary, fast tertiary and slow tertiary reserves contracted and settled separately

13. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 13 Commercial arrangements on the balancing market

14. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 14 Romanian Experience until now Complex software needed for Running the balancing market Settlement of the balancing market Settlement of imbalances Complex metering system needed for Metered data on the balancing responsible parties’ boundaries Metered data for the balancing market participants Defining balancing responsible parties is crucial Adequate training for all the market participants is highly required

15. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 15 The Power Market and the System Operation The Wholesale Market Commercial Code approved by ANRE in 2004 provides for TSO  to running the balancing market  to purchasing ancillary services on market-based procedures  to allocating interconnection capacities on market-based procedures  To awarding green certificates to green energy producers

16. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 16 Power exchanges on interconnection lines 2005 (in MWh)  The transmission, system and market administration services for the imported/exported energy is provided on contractual basis.  The tariffs applied are regulated by ANRE and are the same as on the domestic market.  The only restriction on imported/exported power is the net transfer capacity of the interconnection lines.  Transelectrica aims to participate in the inter-TSO compensation mechanism within the SEE region, facilitating the cross border trades. [GWh] 34 201470 0 0 0 112784 762926 22102 0 0 226246 708000 0 0 0 1183 21860 0 0 194474 1449 281830 30482 (*) physical flows on interconnection lines for 2005 [MWh] 2010809 Dobrudja 0 0 MOLDAVIA SERBIA and MONTENEGRO 774 767436 962 1747 1601 1,469 2,077 3,290 3,046 2938 4517 ImportExport 20002001 20022003 20042005 Cross – Border Transmission

17. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 17 Rationals for capacity allocation Directive 2003/54 on Internal Energy Market EC Regulation 1228/2003 on Congestion management and Cross-border trading Congestion management should be performed with market-based solutions Explicit and implicit auctions are the only market-based ways to allocate the capacity

18. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 18 Agreements with the Neighbouring TSOs Memoranda concluded with MAVIR Rt, NEK EAD si EMS for: NTC, ATC evaluation and convening 50:50 sharing of allocation responsibility on each direction Explicit auction on each border on the Romanian side Exceptions: Ukraine: Agreement still to be negotiated with Ukrenergo Moldova: Power imports and exports possible only in pasive islands and radial operation

19. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 19 Explicit Auctions Procedure Registration of auction participants: Any market participant intending to take part in Cross-Border Auctions have to fulfil the following preconditions: Hold a valid license from ANRE (for all applying parties from Romania) Provide ETSO Identification Code (EIC) Be assigned to a Balance Responsible Party ATC Allocation Procedure aproved by ANRE and published on the web site www.ope.rowww.ope.ro

20. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 20 ATC Auction: Standard Bid Bids per cross- border interface and direction, same for each hour of the auction period, up to 10 pairs {Qty/Price}

21. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 21 ATC Auction: Standard Merit Order (1)

22. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 22 ATC Auction: Standard Merit Order (2)

23. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 23 ATC Auction: 50% Rule

24. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 24 Romanian Experience until now There is a need for all TSOs involved to use a common agreed procedure to calculate the NTC values Auctioning process unification on each border might be more adequate Requires bilateral agreements between TSOs Requires regulatory agreement and aproval on the both sides Flow-based coordinated explicit auction at regional level could be a better solution. Day-ahead implicit auctions on the spot market could enhance the usage degree of the cross- border lines

25. Conferinta Energiei in regiunea Marii Negre, Bucuresti, 4.04.2006 Transelectrica 25 Conclusions Romania achieved steps forward in terms of: Transmission network development Market mechanisms implementation with Internal and Regional perspective Romania is ready to share its expertise