1. ANRE Romanian Electricity Sector Evolutions of the Regulatory Framework Nicolae Opriş President of ANRE

2. ANRE Legal Framework Primary legislation Electricity Act – Law 318/2003 (GEO 63/1998), to be revised in 2006 Restructuring decisions – Government Decision (GD) 365/1998, GD 627/2000.... GD 1342/2001, GD 1524/2002 Market opening decisions – GD 122/2000, GD 1272/2001, GD 48/2002, GD 1563/2003, GD 1823/2004, GD 644/2005 Energy sector strategy – GD 890/2003 (Road Map to 2015)

3. ANRE The Electricity Law 318/2003 Stipulates the: –tasks and competencies of the regulator; –regulated access to the electricity transmission and distribution networks; –authorisation procedures for market participants; –unbundling of the generation, transmission and distribution/supply activities; –principles for the development of the electricity market and its gradual opening; –main functions of the TSO, DSOs and electricity market operator; –rights and obligations of the market participants; –tariff principles to be applied in the sector; –promotion of renewable energy sources; –sanctions and contravention.

4. ANRE ANRE - public institution under the co-ordination of the Prime Minister Mission - to create and implement fair and independent regulations to ensure an efficient, transparent and stable functioning of the electricity and heat sector and markets while protecting the interests of consumers Appointment Power - President and Vice President of ANRE are appointed by the Prime Minister for 5 years, upon proposal of the Minister. The Commissioners are appointed for 5 years by the Minister. Financing - sources outside the state budget covered from license and authorization fees and contributions paid by sector companies.

5. ANRE The main sector regulations issued by ANRE Wholesale Electricity Market Commercial Code (revised version) Network Codes (Grid Code – revised version, Distribution Code) Metering Codes Technical and commercial regulations Tariffs methodologies Authorizations and licenses Rules regarding the connection to the networks Performance standards Secure and non - discriminatory regulatory framework

6. ANRE INSTALLED POWER GENERATION 18.3 GW CONSUMERS - 8537422 Total overhead transmission lines – 9000 km Substations – 78; Power transformers - 138 RESERVE MARGIN 2004 = 48,9 % (Available capacity – Peak demand/Available capacity) TYPE OF FUELS USED FOR ELECTRICITY GENERATION IN 2005 GENERATORS PARTICIPATION TO ELECTRICITY GENERATION IN 2005 Total distribution lines – 310127 km Substations – 1296

7. ANRE Main steps of the reform 1. Restructuring vertical unbundling of generation, transmission, distribution/supply activities horizontal splitting of generation and retail supply 2. Competition wholesale market and retail competition new entry into generation and retail supply allowed 3. Regulation establishment of an independent regulator provision of the third party access to the grid incentive regulation of transmission and distribution networks 4. Ownership allowing new private market players privatizing the existing publicly owned businesses

8. ANRE Present structure of the electricity sector Transmission and system operator Market operator 8 Distribution and supply companies 12 Industrial platform distributors 104 Suppliers 14 municipal CoGen producers and other IPP and selfproducers Hydro producer Nuclear producer 7 Major thermal producers RENEL S104 S1S1S10S11 Transelectrica TSO OPCOM – Market operator Nuclearelectrica Hidroelectrica RoCrDeElBTeTeTuGa D_1D_2D_12 TrNBaOlMuSTrSMoDoMuN ENEL Spa April 28 2005 E.ON April 04, 2005 CEZ April 05, 2005

9. ANRE Authorizations and licenses Rules for granting licenses and authorizations in the electricity sector approved by GD 540/2004, published in Romanian Official Gazette 399/2004

10. ANRE UCTE and ETSO member Fully unbundling - independent TSO company Technical Grid Code in line with UCTE Operation Handbook - full responsibility for the Power System Security of Supply - no major incidents since unbundling (2000) Transmission system operator 10.10.2004 – Resynchronization of the two UCTE zones 09.11.2004 – Romanian TSO member of ETSO

11. ANRE Evolution of the electricity market opening degree

12. ANRE The wholesale electricity market Bilateral Contracts Centralised Market

13. ANRE Trading platforms on the wholesale electricity market (1) Bilateral Contracts Market regulated contracts - between producers and 8 DISCOs (suppliers of captive consumers) negotiated contracts – between market participants Bilateral Contracts Centralised Market - starting with December 2005

14. ANRE Centralised Markets: – DAM (voluntary) – Balancing (mandatory) –Ancillary System Services (mandatory) –Cross Border Capacities (explicit auctions) Priority productions Renewable energy: supply quota & green certificates market Cogeneration: capacity payments Trading platforms on the wholesale electricity market (2) To support investments the development of a capacity market is envisaged

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16. Day-ahead electricity market reform The Integration of the Romanian Electricity Market into the European Electricity Market Mandatory Voluntary Day-ahead Market Bids per Dispatchable Unit Day–ahead Market Portfolio bids Unilateral Bidding Bilateral Bidding Centralized Scheduling Self scheduling Cogeneration will continue to be prioritized in the market, based on specific bid validation

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18. OPCOM Day-Ahead Market July 2005-December 2006 Registred participants: 65 Average number of active participants: 30 Maximum number of active participants: 38 Average price [RON/MWh]: 125,51 Average price [EURO/MWh]: 34,94 Electricity traded volume [MWh]: 1.717.891,411 Average electricity traded volume: 388,927 MWh/h DAM trading cota: 6,72% Average prices December 2005 on European Marketplaces Source: OPCOM

19. ANRE Regional Power Exchange OMEL EEX PowerNext GME NORDPOOL APX-Group Borzen EXAA OPCOM PPX OTE Source: OPCOM

20. ANRE Support schemes for priority production Green certificates trading: -bilateral or - centralized market organized by the market operator (operational from November 2005) Max and min limitation for green certificates values set up by ANRE: -minimum value 24 Euro / MWh, - maximum value 42 Euro / MWh Renewable sources Generators received green certificates Mandatory supply quota for suppliers November – December 2005 7241 green certificates traded on centralized market

21. ANRE Support schemes for priority production Cogeneration units Capacity payments for efficient qualified units Contracts between TSO and generators with efficient qualified units Contract prices: ancillary services tariffs

22. ANRE Technical requirements – Grid Code – ANRE Order 20/2004 – Official Gazette 828/2004 Distribution Code – ANRE Decision 101/2000 – Official Gazette 276/2000 Rules for connecting to the networks - GD 867/2003 – Official Gazette 559/2003 Tariffs for connection to the networks – – ANRE order 29 /2003 – Methodology for establishing the connection tariffs to the medium and low voltage networks – ANRE order 28 /2003 - Methodology for establishing refunds among consumers connected at different stages to the distribution networks – ANRE order 15/2004 and 32/2005 - regarding the approval of the connection tariffs for the medium and low voltage networks Regulated access to the transmission and distribution networks

23. ANRE Network tariffs Transmission and Distribution – regulated activities Applied regulation - incentive regulation Transmission : revenue cap; zonal Gs & Ls based on marginal costs Distribution : price cap (price basket)

24. ANRE Transmission tariffs revenue cap, CPI minus X formula; Xefficiency=1% from controllable OPEX (without depreciation); regulatory period 5 years, except for the first period which lasts for 3 years; Correction Factors: quantity, new investments, losses, congestion and quality.

25. ANRE Distribution tariffs price cap (price basket) regulatory period 5 years, except for the first period which lasts for 3 years efficiency increase of 1% applied only to OPEX correction factor on complying with the required minimum level of quality

26. ANRE The License Holder shall make sure of the fact that there is full independence at the management and operational level between: the distribution and supply to captive customers activities any other activity carried out (in the electricity sector or in other field) by the License Holder and by the affiliated and associated enterprises. Starting from the 01.01.2006, the License Holder shall also make sure that there is administrative unbundling between: the distribution activity and the activity of supply to captive customers Conditions of distribution license

27. ANRE Full pass through Regulated margin of 2.5% of the acquisition costs Semestrial ex-post adjustments NUT ensured by ANRE Captive end-user tariffs End-users average electricity price (without taxes) 74 Euro/MWh

28. ANRE Average end-users electricity prices 1997-2006 - without taxes -

29. ANRE Supply activity Electricity Labeling Obligation according to Directive 2003/54 Regulation for electricity labeling issued by ANRE - 2005 First labels issued in April 2005, corresponding to year 2004 acquisitions.

30. ANRE Privatization of Distribution Companies

31. ANRE Undergoing privatisations (1) "Muntenia Sud" - S.A. - 2006; Remaining three distribution/supply companies – 2006 - 2007; Complexul Energetic Turceni - S.A. – integrated electricity&mining; Complexul Energetic Rovinari - S.A. – integrated electricity&mining; Complexul Energetic Craiova - S.A. – integrated electricity&mining "green field" cogeneration capacities in Iernut, Palas, Bucuresti Sud power plants, as new IPPs Borzesti; TERMOSERV branches individually or together with the power plant; selling of "Termoelectrica shares to "Termoserv Galati" - S.A. and "Electrocentrale Galati" - S.A.; Selling of the MECs shares to "Termoelectrica Midia" - S.A.

32. ANRE Undergoing privatisations (2) SC "Hidroelectrica" - S.A. Bucuresti Private capital increase for finalising some hydro objectives under construction (public privat partnership). For microhydro power plants –new companies with mix capital (private and public); –other forms of partnership; –Sell of assets. "Transelectrica" - S.A. Bucuresti Sell of shares for branches/services; Sell of assets; New joint-venture companies.

33. ANRE Investments projects Pump-storage Power Plant Tarnita-Lapustesti Units 2 and 3 of Cernavoda Nuclear Power Plant 400 kV Interconnection Lines with Hungary and Serbia & Montenegro Black Sea DC link cable Reasons to enforce regional cooperation and trade : Increase communication, exchange of information, rules harmonization Promote opportunities for investment developments Generation cost savings Macroeconomic benefits

34. ANRE Thank you for your attention ! Romanian Electricity and Heat Regulatory Authority Phone: (+ 40 21) 311 22 44 Fax : (+ 40 21) 312 43 65 www.anre.ro