2. The information in this presentation has been collated by ELEXON and while all due care has been taken to ensure the accuracy of this information, ELEXON accepts no responsibility for errors. Market Integration: England, Wales and Scotland Brian Saunders The information in this presentation has been collated by ELEXON and while all due care has been taken to ensure the accuracy of this information, ELEXON accepts no responsibility for errors.

3. Contents ELEXON and NETA The BSC is not NETA How is it supposed to work? How has it worked? –Prices, volumes, changes Impact on/of the market Security of Supply NETA to BETTA There are two T’s in BETTA

4. Overview of the E&W Electricity Market Place Transmission and SO Private Monopoly No generation – open access Can trade for system balancing Shallow Connection Charges Mild Zonal UoS Charges Self Despatch Partial separation of SO/TO coming RPI –x Control Generation Private Fully competitive Some Vertical Integration of Generation and Supply Diverse mix for now No price controls Supply Private Fully competitive No “Host Supplier” (legally) Fragmented competitive services No price controls Distribution 12 Private Monopolies No Supply or Generation (but can be owned by VI companies) Open access Facing major change if distributed generation grows RPI-x Control

5. BSC ELEXON’s Role in NETA New Electricity Trading Arrangements (E&W) ELEXON & Panel Contracts Trading Exchanges Risk Management

6. Problems of the Pool One price Mechanism Manipulable Compulsory Production set the price Demand Took the price Barrier Also inherently difficult to change

7. Exchanges 2 Exchanges – UKPX & APX –Typical Exchange Volumes *Contracts* Volume Standardise Contract Form – GTMA Bilateral Volume in BM – 2% SO can buy forward

8. Settlement Settlement Process Contract NotificationsMeter Readings Accepted Bids and Offers And PX data Cashout Prices - SSP/SBP Accepted Bids & Offers Energy Imbalance Cashout System Operator ChargesSpread of Surplus (Don’t forget competition for 22 million customers)

9. Transmission & Cross Border UoS Charging -Slightly zonal -Developing TTR Interconnectors-Auction for Capacity -Trade at entry Connection-Shallow

10. Why? The design intent of the BSC Replace the Pool Encourage bi-lateral trading Enable competition for Balancing Services Allocate costs of imbalance Responsive governance Get out of the way!

11. Imbalance Cash out prices

12. Wholesale Prices

14. Volumes Imbalance volume ~2% Total notified contracts 3 times physical consumption Number of notifications 4.7 million * since Go live * As at 09/06/03

15. Flexible?! 143 Proposed Modifications to the BSC 114 decisions made, 12 withdrawn Many already implemented

16. Impact on the Market Low wholesale generation prices, but rising (NETA plus ) Some consolidation Vertical integration Industrial and commercial customers happy Doubts about pass through to domestic customers – more work on change of supplier in hand

17. Impact of the Market BSC and NETA coped well with corporate failures and administration Credit arrangements well tested - robust but complex - Cash or LoC only; Credit Rating not accepted Security of Supply?

18. Security of Supply This was examined carefully by a report to Government and by a recent White Paper by Government Security of Supply (generation) has been left to the market Government and Regulator have statutory responsibilities Some mothballing – No major permanent closures yet. SO caution

19. NETA to BETTA Working so well it is being rolled out to include Scotland There are two T’s in BETTA British Electricity Trading and Transmission Arrangements

20. The Big Change System and Transmission Operation England and Wales TO GB System Operator Scotland TO NGC Scottish Power Scottish and Southern How deep?

21. GB Settlement? BSC to GB BSC Extension of geographic scope Consequential changes only Still a significant piece of work for ELEXON

22. Summary NETA has worked and delivered its design intent Recent reviews have identified no major changes Flexible governance has enabled beneficial change – more to come Roll out to GB – transmission issues still outstanding BUT THE LIGHTS HAD BETTER STAY ON!