Transelectrica - The Romanian TSO: Chalenges and Perspectives Bogdan Popescu-Vifor Director Strategy, Planning, Marketi

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 OPCOM E1 E2 E3 E8 Hidroelectrica T1 T2 T7 ... ... ... Nuclearelectrica … Power Market Structure Market opening degree 1.07.2005: ~83% TSO Power Exchange 8 distribution & supply companies Thermal generators Co-generation companies and IPP’s Traders and suppliers

3. Transelectrica’s roles and responsibilities • 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. • 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

4. 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 The Romanian Transmission Grid Ukraine Moldova Hungary Ukraine Black Sea Serbia & Montenegro Bulgaria

5. Transelectrica – the TSO • Transelectrica is member of • UCTE • ETSO • SETSO TF • Continuous involvement in • Athens Forum process • ECSEE Development

6. Tariffs structure Determination / adjustment of the transmission tariff Tariff determination methodology • Tariffs: determined by ANRE, based on the Regulated Assets Base mechanism • Tariff for market administration - set under a pass-through logic • 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 • 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.

7. The most important clients in 2006

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. Power Market in Romania (2005)

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. The Power Market And System Balancing

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. Commercial arrangements on the balancing market

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. 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. Power exchanges on interconnection lines 2005 (in MWh) 2000 2001 4517 2002 2003 2004 2005 3,290 3,046 2938 2,077 1747 1601 1,469 962 774 767 436 Import Export Cross – Border Transmission • 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. 1449 34 281830 MOLDAVIA 201470 0 0 0 194474 30482 112784 0 0 0 [GWh] [GWh] 21860 0 0 762926 0 2010809 (*) 226246 0 SERBIA and MONTENEGRO 1183 0 Dobrudja 22102 708000 0 physical flows on interconnection lines for 2005[MWh]

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. 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. Explicit Auctions Procedure ATC Allocation Procedure aproved by ANRE and published on the web site www.ope.ro • 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

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. ATC Auction: Standard Merit Order (1)

22. ATC Auction: Standard Merit Order (2)

23. 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

24. 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