A DVANCED A LLOCATION S TARTS W ITH U S ! CAO P ROGRESS REPORT 21 ST IG M EETING 26 J ANUARY 2010

A GENDA  Interim Solution Auctions  Results of External Dry-run Phases  Response to Issues Raised by Market Participants  Progress of Internal Dry-run Phases CAO Freising GmbH2

I NTERIM S OLUTION A UCTIONS CAO Freising GmbH3

I NTERIM P HASE S TATUS  CAO has started its operation supporting the interim phase of capacity allocation in 2009: Introduction of one point of registration for the auction procedures for the CEE region Common point bringing information about auction procedures and its results Taking over the role of the auction office for 5TSOs, supported by CEPS with run of the allocation IT (includes full registration process and financial settlement) Yearly auction for 2010 and monthly auctions for Jan. and Feb successfully organized CAO Freising GmbH4

I NTERIM P HASE S TATUS  CAO fulfilled all contracted deadlines  Experience achieved: Operational staff trained for future regional process Relationship with market participants established also on working level Provision of services after the implementation phase (i.e. since beginning of the year 2010) require minimum efforts and is going smoothly CAO Freising GmbH5

R ESULTS OF E XTERNAL D RY - RUN P HASES CAO Freising GmbH6

E XTERNAL D RY - RUN P HASES  Phase I organized in period goal − IT solution and its functionalities introduction − testing of bidding strategy (i.e. auction algorithm application)  Phase II organized in period goal − introduction of IT solution adjustment − testing of auction algorithm application after publication of detailed auction algorithm specification CAO Freising GmbH7

E XTERNAL D RY - RUN P HASES  Phase III planned to be started in January 2010 goal − testing of bidding strategy with completed parameterization of the technical parameters calculation process − analysis of available capacities (comparison to NTC) postponed due to not finalized internal analysis phase CAO Freising GmbH8

P ARTICIPANTS OF D RY -R UN CAO Freising GmbH9 Number of Dry-run participants

S UMMARY OF P HASE I EVALUATION (I/III)  Even influenced by low level of available capacities few issues detected learning effect of bidders (2 auctions with equal parameters per day) − increase of prices respectively increase of requested volumes in second auction of the day direct bids vs. neighbor to neighbor bids − as shown on picture source-sink bids lead to decrease of market participants risks (higher efficiency of allocation) CAO Freising GmbH10

S UMMARY OF P HASE I EVALUATION (II/III) Comparison of auction prices of external dry run Phase I – direct bids vs. neighbour-to-neighbour bids Source: CONSENTEC 11CAO Freising GmbH

S UMMARY OF P HASE I EVALUATION (III/III)  Critical effect of bidding behaviour unrealistic bidding (extremely high bids or very low amount of requested capacity) has mainly two consequences − dry run results must not be interpreted as a realistic estimate of future real outcome of the FBA − any potential improvement of the technical parameters calculation process parameterization should not be assessed on the basis of the External Dry Run data, because the effects due to the bid structure mask the influence of technical aspects The CAO and the CEE TSOs are performing separate analyses for this purpose. CAO Freising GmbH12

R ESPONSE TO I SSUES R AISED BY M ARKET P ARTICIPANTS CAO Freising GmbH13

I SSUES R AISED BY M ARKET P ARTICIPANTS (I/IV)  Availability of information on scheduling TSOs supported by CAO published requested information in agreed time A workshop was organized on in Munich (Germany), for market participants in order to discuss and explain the published specifications. After the workshop TSOs supported by CAO published amended information on individual market rules changes as requested during the workshop – including XML files examples and contact details of TSOs scheduling experts. CAO Freising GmbH14

I SSUES R AISED BY M ARKET P ARTICIPANTS (II/IV)  Availability of information on CAO IT interfaces CAO published specification of CAO IT interfaces on (i.e. in agreed time) A workshop was organized on in Munich (Germany), for market participants in order to discuss and explain the published specification. After the workshop CAO published answers to issues raised at the workshop under Frequently Asked Question (FAQ) on the web page. CAO nevertheless agrees that more detailed documentation of the interfaces would be useful for market participant and undertakes the task of improving it. CAO Freising GmbH15

I SSUES R AISED BY M ARKET P ARTICIPANTS (III/IV)  Effects of CAO IT development CAO-IT and its interfaces are based on software already presented on some other regional auction offices across Europe. CAO did, and will in the future, follow the good practice implemented in CEE regional auction offices and abroad. This way the changes for market participant will have less affected and the adoption will be eased. CAO-IT is a growing system and will stay that way in the future. However this doesn’t mean that the functionalities will change without informing, testing and clear description to market participant. CAO will establish a management process of tracking change and offering test with purpose of adaption of changes. Manual processing of the data is not necessary. CAO offer possibility of bilateral test procedures to be organized according to agreed schedule with individual market participants. CAO Freising GmbH16

I SSUES R AISED BY M ARKET P ARTICIPANTS (IV/IV)  Auction Rules Auction Rules have been provided to market participants via national regulatory authorities for consultation process. Results of consultation process delivered to CAO and CEE TSOs are subject of evaluation and will be subject of the discussion with regulatory authorities. CAO Freising GmbH17

P ROGRESS OF I NTERNAL D RY - RUN P HASES CAO Freising GmbH18

S TATUS OF IT I MPLEMENTATION  During the internal dry-run process and efficiency analysis supported by Consentec TSOs and CAO identified need of some adjustments/corrections in process of Technical Parameters Calculation. Final Acceptance of IT is planed for February 2010 Few updates to be implemented after the acceptance Source of potential additional updates – requirements for changes in auction rules CAO Freising GmbH19

E FFICIENCY A NALYSIS  As identified also by market participants during the first phase of the external dry-run low level of available capacities was detected in first technical parameters calculations  CAO and TSOs with support of Consentec made analysis of this problem Adjustment of process of CGM creation Complications in process parameterization Unequal risk level applied by individual TSOs CAO Freising GmbH20

Thank you for your attention! A DVANCED A LLOCATION S TARTS W ITH U S ! CAO Freising GmbH21