1 12 th Implementation Group Meeting 26 th March 2009 Establishing a SAO in the CS Region

2 Background During the last IG meeting, Regulators asked TSOs to work on improving the original SAO project in a direction that would allow to reach an agreement among all involved TSOs, and suggested to adopt: 1)Step wise approach on the involved borders in the region: if an agreement on interconnections not yet involved can not be found at this stage, a compromise could be found on progressive involvement of other interconnections; 2)Stepwise approach on the interregional dimension of the project, in the light of the discussion with CNE’s representative.

3 Background During the last SC meeting of Pentalateral Working Table, on 23° January: the perimeter of activities and the availability to adopt a stepwise approach were confirmed; It was agreed to make a market test on the existing IT tools in order to evaluate the IT tool more suitable for the first step, while for the second step, the possibility to evolve or change the IT tool could be evaluated in the future; It was agreed to send the following to Regulators : “TSOs are working in order to establish a more flexible and simple Entity such as an Association than the original SAO project. The perimeter of activities of the new Entity should start with the Italian borders and will be open to include other borders. We are confident to be able to present this proposal at next IG meeting” I° step: simple and flexible entity performing the auction only for the interconnection capacity of Italian border II° step: Evolution of the simple entity towards a SAO company which could manage the capacity allocation also for the other border

4 First Step In the definition of the more flexible and simple Entity, different options have been proposed: Registered Association of TSOs (proposed by Terna) Sociétè simple (proposed by swissgrid) Cooperation agreement (proposed by RTE) Necessity for additional legal analysis Terna, swissgrid and RTE have performed the legal analysis for the proposed option (referred to the law applicable in the country of the TSO who performed the analysis) The results were discussed among TSOs. In the following slides a summary of the analysis is reported.

5 First Step - Registered Association (Italian Law) Description Registered Association is a non profit making association of TSOs involved in Auctions on the Italian borders (such as ENTSO-E) evolving from the existing Working Table “Interconnection Management at the Italian Borders ” The registered office could be established in Italy, with the association governed by the provisions of Italian law A Registered Association provides limited liability to its Members and hence complete separation of the Association’s budgets from the Member’s. Each TSO would be a founding Member of the Association. Necessary fulfillments Articles of Association (AoA), By-Law, Registration, EC notification Governance The Italian Civil Code requires Associations to establish a representative and a governing body, though not detailing specific requirements. The likely structure could be: Assembly- Board-task forces-auction office Decision making process Great flexibility on Association’s decision making process is given to founding Parties by the Italian Law Contractual framework Service Level Agreement Operational aspects Permanent auction office entrusted with the day-to-day activity for the allocation of interconnection capacity

6 Board Commercial TF Auction Office Managing body of the Association 1 Member per TSO Executive working groups With the exception of NTC definition Permanent Office entrusted with the day-to-day activity for the allocation of interconnection capacity. TSOs Assembly General leading body of the Association 1 Member per TSO First Step - Registered Association Single Auction Association

7 First Step – Sociètè simple (Swiss Law) Description The Simple Partnership is the simplest form of the partnerships (a contractual relationship between two or more persons (natural and/or juridical) to attain a joint purpose (profitable or non-profitable) with joint endeavors or means The Simple partnership has no legal personality All partners are entitled to participate in the management to the extent that it has not been delegated exclusively to one or more partners or to third parties Joint and several liabilities of the partners if not contractually limited Necessary fulfillments Registration: likely if the aim is geared too much towards commercial purposes and the turnover of the simple partnership is very high EC notification: it seems that there is no obligation

8 First Step – Sociètè simple (Swiss Law) Governance Not being a legal entity (but merely a contractual combination of two or more persons), the Simple Partnership is not structured into bodies (organs) but it has large freedom with respect to e.g. organizational issues Decision making process Flexibility in the definition of decision making process: Contractual framework Inter-TSO agreement Service Level Agreement Operational aspects Not yet defined

9 Auction Office Managing body 1 Member per TSO, could be as todays Steering Commitee Executive working group Permanent Office and Team entrusted with the day-to-day activity for the allocation of interconnection capacity. TSOs Governance Société Simple Board Working Group

10 First Step – Cooperation agreement (French Law) Description The Cooperation Agreement (CA): would be written under French Law and is governed by common law of the contracts may serve any legal purpose (commercial and/or non-commercial) the principle of the contractual freedom predominates the writing of this agreement each TSO would participate in the writing of the CA Necessary fulfillments No formalities needs to be observed to write the Cooperation Agreement but, generally, this type of agreement shall contain the following clauses: a preamble stating the intent of the Parties, which will strengthen the good faith obligation; the definition of the object of the Agreement, with rights and obligations of the Parties; a management clause which sets up the decision-making structure; a clause underlining the fact that each Party keeps its own identity a settlement of disputes clause EC notification: it seems that there is no obligation

11 First Step – Cooperation agreement (French Law) Governance The current decisional structure would be maintained: Decisional body : The Steering Committee, in which all the TSOs would appoint one representative Commercial Task Force: The CTF, in which all the TSOs would have one (or more) representative, would continue to manage the current tasks (e.g Auction Rules). Auction Office : The team could be composed of human resources from each voluntary TSO and would be managed by the TSO operating the Auctions. This TSO would be mandated to operate the Auctions on behalf of the TSOs on all Italian Borders. These activities are considered as confidential, so specific premises would be used. Decision making process Great flexibility on decision making process is given to the Parties to the Cooperation Agreement, given that the contractual freedom is the principle. Contractual framework - Cooperation agreement inter-TSO signed by all the TSOs involved in the project. -Service Level Agreement signed by the TSO operating the Auctions on behalf of all the TSOs on Italian Border and the TSOs delegating these tasks. The SLA will define the scope of the tasks, obligations and liability of the Parties. Operational aspects Only Capacity allocation, not clearing/settlement and claims handling will be managed by the Auction office. The staff entrusted with the day-to-day activity of the Auction Office could be made of the already skilled human resources of each TSO according the availability of each TSO

12 Steering Committee Commercial TF Auction Office Managing body 1 Member per TSO Executive working group Permanent Office and Team entrusted with the day-to-day activity for the allocation of interconnection capacity. TSOs Governance Cooperation Agreement By mandate

13 No consensus was reached on one of the three alternatives Registered Association Is similar to the SAO Co and therefore requires the same fulfillments to be established. This solution guarantees limited liability and the day to day activity is clearly appointed to a legal Entity. Yet, it has to be analyzed better if the purpose restriction (non profit) of the legal form may be problematic Société Simple This solution seems to be simple but is complex in the definition of all necessary agreements (liability, day to day process). Cooperation Agreement Similar to the Société Simple. Considering this issue, the delegation of the tasks to a TSO which is a legal entity would simplify the contractual structure. Results of discussions on the three alternatives