1. Christopher Burleson Leslie Kay Ritchie Jitesh Sharma European Energy Restructuring: The Quest for a Competitive Single Energy Market

2. Presentation: 1.Overview of EU and Restructuring Vision 2.Comparison of European Restructuring to U.S. Restructuring 3.Timeline: Implementation of EU Directives & Description of EU Energy Stakeholders 4.Impediments to Single Market & Recommendations European Energy Restructuring: The Quest for a Competitive Single Energy Market

3. EU Vision: –To liberalize the electricity markets into a single, internal competitive model European Energy Restructuring: The Quest for a Competitive Single Energy Market

4. The EU has determined three objectives for a comprehensive European energy policy: –(1) combating climate change –(2) promoting jobs and growth, –(3) limiting the EU's external vulnerability to gas and oil imports. –News Release, An energy policy for Europe: Commission steps up to the energy challenges of the 21st Century, 10 January 2007. European Energy Restructuring: The Quest for a Competitive Single Energy Market

5. 27 Member States of the EU 1958 Belgium, France, (West) Germany, Italy, Luxembourg, Netherlands 1973 Denmark, Ireland, UK 1981 Greece 1986 Portugal, Spain 1995 Austria, Finland, Sweden 2004 Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia 2007 Romania

6. European Parliament: represents the EU’s citizens and is directly elected by them Council of the European Union: represents the individual member states European Commission: seeks to uphold the interests of the whole Union The EU’s “Institutional Triangle” European Regulators' Group for Electricity and Gas: advisory body on internal energy market issues.

7. U.S. Electric Power Markets (clockwise from top) –Northwest –Midwest –New York –New England –PJM (Beige) –Southeast –SPP –ERCOT –Southwest –California Comparative Study: U.S. vs. European Restructuring Models

8. Comparative Study: U.S. vs. European Restructuring Models

9. Similarities between Europe & U.S. Restructuring European Energy Restructuring: The Quest for a Competitive Single Energy Market Both Driven by Top-Down Political Maneuvering Both Protect Against Price Volatility Both Work to Ensure Sufficient Energy Capacity

10. Differences between Europe & U.S. Restructuring European Energy Restructuring: The Quest for a Competitive Single Energy Market Structure of Market Infrastructure/Transmission Management Relative Capability of Facilitating Restructuring Comparative Success of Response to Transmission Discrimination

11. Liberalisation process – Timeline 1 st Liberalisation Directive: Directive 96/92/EC concerning common rules for the internal market in electricity 2 nd Liberalisation Package: Directive 2003/54/EC concerning common rules for the internal market in electricity 3 rd Liberalisation Package: Proposals issued on 19 th September 19962003200720?? Full implementation of 3 rd Liberalisation Package? Source: Union of the Electricity Industry, Eurelectric

12. Liberalisation process – Timeline 1996 European Regulators Group for Electricity & Gas 2003 1st Electricity Directive: 96/92/EC 2nd Electricity Directive: 2003/54/EC CEER Florence Forum 19982004 Cross Border Trade Regulation Effective 2005 Directive on Electricity Security of Supply and Infrastructure

13. European Energy Restructuring: The Quest for a Competitive Single Energy Market

14. Key Indicators – Single market not working Significant price differences prevailing in the internal markets –Price difference of more than 100% for industrial users in some cases Low level of cross border trades –Cross border flows was at 10.7% of consumption at the end of 2004 –Increased only by 2% in 4 years Prices have been increasing instead of decreasing as part of increased competition in the market Lack of real competition –Switching by customers remains limited in most Member States –Choosing a new supplier from another Member State remains the exception

15. Key Indicators – Single market not working Prices in different regionsMarket share of biggest three producers

16. Key Indicators – Single market not working

17. Impediments for single market Insufficient interconnection between many Member States, leading to congestion Concentration and consolidation in the industry –Number of newcomers has decreased Independence of network operators –There is an inadequate unbundling between network and supply activities Vertical foreclosure –Vertical integration between generation and retail markets –long term power purchase agreements lead to illiquid wholesale markets. Lack of transparency –Survey shows that 84% people feel that they do not have current market information –Only a few TSOs publish all information related to network access and availability Lack of FERC like regulatory authority

18. Impediments for single market Insufficient interconnection between many Member States, leading to congestion Concentration and consolidation in the industry –Number of newcomers has decreased Independence of network operators –There is an inadequate unbundling between network and supply activities Vertical foreclosure –Vertical integration between generation and retail markets –long term power purchase agreements lead to illiquid wholesale markets. Lack of transparency –Survey shows that 84% people feel that they do not have current market information –Only a few TSOs publish all information related to network access and availability Lack of FERC like regulatory authority

19. What should be done? Investments in electricity generation and infrastructure Separate supply and production activities from network operation –Require strong national regulators to oversee the running of electricity and gas markets Establish an independent mechanism for cooperation and governance among national regulators (FERC-like authority) Greater transparency in energy market operations – Create mechanism for transmission system operators to improve coordination of networks operation.

20. Thank you! Questions? European Energy Restructuring: The Quest for a Competitive Single Energy Market