1. ELECTRICITY MARKET CASE STUDY - ROMANIA Ion Lungu President of ANRE Romania Budapest, Hungary 8-9 May 2003 2nd Energy Regulation & Investment Conference

2. ANRE Romanian Electricity and Heat Regulatory Authority © Energy Regulators Regional Association 2 nd Energy Regulation & Investment Conference Budapest, Hungary, 8-9 2003 Slide 2 From integrated monopoly to competitive electricity market - 1 Government Decision no. 365/1998 Nuclearelectrica GovoraRomag CONEL Electrica Hidroelectrica Termoelectrica RENEL

3. ANRE Romanian Electricity and Heat Regulatory Authority © Energy Regulators Regional Association 2 nd Energy Regulation & Investment Conference Budapest, Hungary, 8-9 2003 Slide 3 Government Decision no. 627/2000 Nuclearelectrica GovoraRomag CONEL Electrica Hidroelectrica Termoelectrica Nuclearelectrica GovoraRomag Electrica Hidroelectrica Termoelectrica Transelectrica OPCOM From integrated monopoly to competitive electricity market - 2

4. ANRE Romanian Electricity and Heat Regulatory Authority © Energy Regulators Regional Association 2 nd Energy Regulation & Investment Conference Budapest, Hungary, 8-9 2003 Slide 4 Romanian electricity sector structure- 2003 Transmission and system operator Market operator 8 Distribution and supply companies (to be privatized) Hydro Producer (fully regulated, at least to 2007) 5 Thermal producers (to be privatized beginning 2003/4) Nuclear producer Almost 20 municipal CoGen producers and IPP’s (to be privatized and/or closed) 41 Independent Electricity Retailers Nuclearelectrica Hidroelectrica Transelectrica OPCOM R41R1R2R3 E1E2E3E8 T1T2T3T4T5T1

5. ANRE Romanian Electricity and Heat Regulatory Authority © Energy Regulators Regional Association 2 nd Energy Regulation & Investment Conference Budapest, Hungary, 8-9 2003 Slide 5 ANRE’s OBJECTIVES to provide efficient use of resources and an equitable allocation of gains in the sector; to encourage competition; to foster an efficient level of investments within the sector and to provide a fair and reasonable return on investments; to prevent the extraction of monopoly rents; to foster efficient use of existing infrastructure; to foster efficient operating and maintenance practices; to ensure the harmonization of the consumers and sector player’s interests.

6. ANRE Romanian Electricity and Heat Regulatory Authority © Energy Regulators Regional Association 2 nd Energy Regulation & Investment Conference Budapest, Hungary, 8-9 2003 Slide 6 Romania general regulatory framework Access to the grids  regulated TPA  Grid codes Authorization procedure for new generators - ANRE Market opening  15 % in 2000  33 % beginning 2002 (February)

7. ANRE Romanian Electricity and Heat Regulatory Authority © Energy Regulators Regional Association 2 nd Energy Regulation & Investment Conference Budapest, Hungary, 8-9 2003 Slide 7 ThermalHydro Nuclear Distribution Dispatch T owner PxQ portfolio contracts small generato r contracts T charges Ancillary services System service charge TSO Arrangements/ contract map for RENEL successor companies Long term PPA style contract

8. ANRE Romanian Electricity and Heat Regulatory Authority © Energy Regulators Regional Association 2 nd Energy Regulation & Investment Conference Budapest, Hungary, 8-9 2003 Slide 8 Wholesale trading arrangements

9. ANRE Romanian Electricity and Heat Regulatory Authority © Energy Regulators Regional Association 2 nd Energy Regulation & Investment Conference Budapest, Hungary, 8-9 2003 Slide 9 Market participants -1 Producers – generation structure 20022003-estimated  Termoelectrica 52 %3x13%+ 8%+ 4% *  Hidroelectrica 30 % 31 %  Nuclearelectrica 11 % 11 %  Self producers 3 % 3 %  IPP’s 4 % 4 % * Taking into consideration the new entities

10. ANRE Romanian Electricity and Heat Regulatory Authority © Energy Regulators Regional Association 2 nd Energy Regulation & Investment Conference Budapest, Hungary, 8-9 2003 Slide 10 Market participants – 2 Suppliers  Electrica  eight independent regional distribution and supply companies: supplier for captive consumers on its territory supplier for eligible consumers on other territories  41 Independent suppliers supplier for eligible consumers without territorial limits

11. ANRE Romanian Electricity and Heat Regulatory Authority © Energy Regulators Regional Association 2 nd Energy Regulation & Investment Conference Budapest, Hungary, 8-9 2003 Slide 11 Regulated transmission tariffs 14 zonal tariffs with two components: -feeding in power component -taking out power component (presently the same value) Transmission charge is USD 4.1/MWh on average and does not depend on the electric paths and distances Short-run marginal cost based methodologies

12. ANRE Romanian Electricity and Heat Regulatory Authority © Energy Regulators Regional Association 2 nd Energy Regulation & Investment Conference Budapest, Hungary, 8-9 2003 Slide 12 Regulated distribution tariffs 5 different tariffs for the use of: -110 kV network -MV network -LV network -110 kV/MV transformers -MV/LV transformers Distribution charge does not depend on the electric paths and distances Cost based methodologies

13. ANRE Romanian Electricity and Heat Regulatory Authority © Energy Regulators Regional Association 2 nd Energy Regulation & Investment Conference Budapest, Hungary, 8-9 2003 Slide 13 Regulated electricity generation prices Only for the regulated part of the market Cost based methodologies for establishing electricity generation prices Present values: Termoelectrica 39 USD/MWh Hidroelectrica 6 USD/MWh (*) Nuclearelectrica23 USD/MWh Other producers (IPP)40 – 44 USD/MWh (*) Hidroelectrica incomes are about 18 USD/MWh, due to sales on the competitive market

14. ANRE Romanian Electricity and Heat Regulatory Authority © Energy Regulators Regional Association 2 nd Energy Regulation & Investment Conference Budapest, Hungary, 8-9 2003 Slide 14 Relevant technical and commercial regulations Transmission Grid Code Distribution Network Code Commercial code for the wholesale electricity market Framework contracts for electricity trade Performance standards for supply of electricity Scheduling and Dispatch regulation

15. ANRE Romanian Electricity and Heat Regulatory Authority © Energy Regulators Regional Association 2 nd Energy Regulation & Investment Conference Budapest, Hungary, 8-9 2003 Slide 15 Transactions on the wholesale market in 2002:  84.4% - covered by regulated contracts  15.6% covered by competitive contracts and spot transactions Competitive trading covered:  9% eligible customers needs;  5,6% contracts for differences between the captive supplier and generators;  1% spot transactions. Facts and figures in 2002 -1

16. ANRE Romanian Electricity and Heat Regulatory Authority © Energy Regulators Regional Association 2 nd Energy Regulation & Investment Conference Budapest, Hungary, 8-9 2003 Slide 16 Facts and figures in 2002- 2 Spot transactions Regulated contracts between producers and Electrica Negotiated contracts between producers and eligible customers Contracts for differences between the captive supplier and generators

17. ANRE Romanian Electricity and Heat Regulatory Authority © Energy Regulators Regional Association 2 nd Energy Regulation & Investment Conference Budapest, Hungary, 8-9 2003 Slide 17 Facts and figures in 2002- 3 SC Electrica SA acquisition mix Regulated contracts Negotiated contracts Spot transactions MWh

18. ANRE Romanian Electricity and Heat Regulatory Authority © Energy Regulators Regional Association 2 nd Energy Regulation & Investment Conference Budapest, Hungary, 8-9 2003 Slide 18 Final consumption regulated prices- 2002 Average price to final consumers: 50,7 USD/MWh Average price to industrial consumers : 47,2 USD/MWh Average price to residential consumers : 60,2 USD/MWh Final price structure (approximately): Generation: 30 USD/MWh Transmission: 4 USD/MWh Ancillary services: 2 USD/MWh Distribution: 10 USD/MWh Retail: 2 USD/MWh Development tax: 4 USD/MWh

19. ANRE Romanian Electricity and Heat Regulatory Authority © Energy Regulators Regional Association 2 nd Energy Regulation & Investment Conference Budapest, Hungary, 8-9 2003 Slide 19 Final consumption regulated prices- 2002 Development tax 8 % Retail 4 % Distribution18 % Ancillary services 4 % Transmission 8 % Generation 58 %

20. ANRE Romanian Electricity and Heat Regulatory Authority © Energy Regulators Regional Association 2 nd Energy Regulation & Investment Conference Budapest, Hungary, 8-9 2003 Slide 20 Self scheduling (compulsory market) T-N DAYSDAY AHEADON THE DAY SETTLEMENT System Operator Balancin g Market SMP P Q S S GG Q Day Ahead Market Simple Bids Firm Volumes by Company Physical Notifications by unit Simple bids by unit Metered Volumes Meter data Imbalance volumes by company Adjustments to Day Ahead schedule BM Volumes MO

21. ANRE Romanian Electricity and Heat Regulatory Authority © Energy Regulators Regional Association 2 nd Energy Regulation & Investment Conference Budapest, Hungary, 8-9 2003 Slide 21 Trading arrangements- hydro fully regulated