1. © Vattenfall AB Regional System Operator or Regional TSO Gunnar Lundberg, Vice President Regulatory Affairs, Vattenfall AB Prague, January 21, 2008

2. © Vattenfall AB 2 Regional System Operator or Regional TSO Content: 1. TSO cooperation to create a Nordic Market 2. Why a Nordic System Operator 3. Regulation of a Nordic System Operator 4. Governance of a Nordic System Operator 5. Next steps

3. © Vattenfall AB 3 TSO cooperation in the Nordic market The Nordic market became possible through –Political agreements between governments –Cooperation between TSOs in Nordel –Regulators have not been involved (Sweden and Finland had no regulator in 1992) TSOs have since 1992 gradually harmonized congestion management, tariff structures and balancing

4. © Vattenfall AB 4 Why a Nordic System Operator? I We have a Nordic wholesale market and we want a Nordic retail market, but TSOs have national mandates and are regulated by authorities with national mandates. The network has to be planned and operated for the market it is going to serve National TSOs have become obsolete from a market point of view

5. © Vattenfall AB 5 Why a Nordic System Operator? II Issues that still needs to be harmonized: Congestion management Network investments Reserve power market Compensation for transits Balance settlement Can this be harmonized with todays voluntary cooperation ?

6. © Vattenfall AB 6 Why a Nordic System Operator? III Governments will never leave the national responsibility for security of supply National TSOs a tool to realise national energy policy ISOs makes investments more difficult They don’t have to. With instructions to the NSO they can have a Nordic security of supply at lower cost. Wrong. TSOs unbundled, they can only administrate support systems, but that can also the NSO do. Yes, but the NSO shall be responsible for planning and reinforcement of the network from a Nordic perspective.

7. © Vattenfall AB 7 How to Regulate a Nordic System Operator ? A Nordic System Operator needs a corresponding regulatory function A Nordic Regulator ? As part of the European Agency ? A board of Nordic Regulators ? Develop a Nordic crossborder regulation that goes beyond the European crossborder regulation – implement in national law in the four Nordic countries Issues that can be handled in the statutes of the NSO Security of supply criteria Investment criteria Relation to NordPool

8. © Vattenfall AB 8 Governance structure of a Nordic System Operator The four Nordic states 25 % each Nord Pool spot owned by the NSO Ownership Management Supervisory Board Independent from any market actor Market Committee and Planning Committee with representatives from market actors give advises and prepare decisions One representative for each owner Two independent board members (one of them chairman with casting vote)

9. © Vattenfall AB 9 Next steps My recommendation: Set up a team to formulate a Nordic Crossborder Regulation Set up a team to formulate Governance structure for the NSO Government decisions on Governance structure Appoint NSO management Implement Nordic Crossborder Regulation in national law

10. © Vattenfall AB 10 Next steps on the political side 1.Electricity market group (Nordic Council) prepare report 2.Recommendations from the Electricity market group 3.Seminar in Stockholm May 26-27, Swedish Minister for Industry and Energy 4.September 2008 Nordic Council of Ministers

11. © Vattenfall AB 11 Regional System Operator or Regional TSO Thank you for Your attention !