1. TRANSITION STEPS IN THE ENERGY SECTOR
ION LUNGU
PRESIDENT OF ANRE

2. gradual introduction of competition in generation and supply;
KEY PRINCIPLES OF THE ROMANIAN ENERGY POLICY
creating an electricity market based on transparency, fairness and non-discrimination;
establishing a regulator to regulate monopolies (where they remain), and to foster competition;
unbundling the activities of generation, transmission, distribution and supply;
gradual introduction of competition in generation and supply;
licensing the new market participants;
non-discriminatory, regulated access for third parties to the electricity network

3. GENERAL RULES FOR THE ORGANIZATION OF THE ELECTRICITY SECTOR
Electricity Law 318/2003
Government Decisions regarding the restructuring of electricity sector

4. CONSUMERS - 8537476 INSTALLED POWER GENERATION 17.9GW
RESERVE MARGIN 2003 = 46,9 %
(Available capacity – Peak demand/Available capacity)
GENERATORS PARTICIPATION TO ELECTRICITY GENERATION IN 2003
TYPE OF FUELS USED FOR
ELECTRICITY GENERATION IN 2003
Total overhead transmission lines – km
Substations – 76; Power transformers - 207
CONSUMERS
Total distribution lines – km
Substations – 1296

5. EVOLUTION OF ELECTRICITY GENERATION

6. CONEL RENEL RENEL Government Decision no. 365/1998
FROM AN INTEGRATED MONOPOLY TO A COMPETITIVE ELECTRICITY MARKET (1)
Government Decision no. 365/1998
RENEL
RENEL
Nuclearelectrica
Govora
Romag
CONEL
Electrica
Hidroelectrica
Termoelectrica

7. CONEL Government Decision no. 627/2000
FROM AN INTEGRATED MONOPOLY TO A COMPETITIVE ELECTRICITY MARKET (2)
Government Decision no. 627/2000
Nuclearelectrica
Govora
Romag
CONEL
Electrica
Hidroelectrica
Termoelectrica
Nuclearelectrica
Govora
Romag
Electrica
Hidroelectrica
Termoelectrica
Transelectrica
OPCOM

8. FROM AN INTEGRATED MONOPOLY TO A COMPETITIVE ELECTRICITY MARKET (3)
7 Thermal producers T1 T2 T3 T4 T5 T6 T7
Hidroelectrica
Hydro Producer
Nuclearelectrica
Nuclear producer
Almost 20 municipal CoGen
producers and IPP’s, other producers
RENEL
Transelectrica
Transmission and system operator
Market operator
D_S1
D_S2
D_S3
D_S8
8 Distribution and supply companies
(two of them will be privatized in the second quarter of 2004)
S53 S9
S10
S11
45 Suppliers

9. ACCESS TO THE NETWORK - REGULATED
The restructuring process and the development of the regulatory framework followed the European Directive provisions:
GENERATION - the construction of new capacities for electricity generation, cogeneration, transmission and distribution and the refurbishment of the existing ones are subject to authorisation
TRANSMISSION SYSTEM OPERATOR
function fulfilled by CN Transelectrica SA, member of UCTE from May 2003
MARKET OPERATOR
function fulfilled by CN Transelectrica SA’ subsidiary SC OPCOM SA
DISTRIBUTION SYSTEM OPERATOR
function fulfilled by the 8 distribution and supply companies created following the restructuring of SC Electrica SA
MARKET OPENING – 40%
ACCESS TO THE NETWORK - REGULATED

10. TRANSMISSION SYSTEM OPERATOR
May 8, 2003 – UCTE membership
Fully unbundling - independent TSO company ( legal, management, ownership)
Neutral toward electricity market arrangements (not allowed to be involved in electricity business)
Technical Grid Code in line with UCTE Operation Handbook
- full responsibility for the Power System security of Supply
- no major incidents since unbundling (2000); facing very tough operational conditions in 2003 (severe drawn, NPP outage)
Cross border capacity over 15 % - complying with Barcelona target

11. PRIVATIZATION OF THE ENERGY SECTOR - the most important target
of the Romanian Government
ELECTRICITY DISTRIBUTION
Electrica Dobrogea and Electrica Banat
Finalization of the negotiation and signature of the contract:
end of June 2004
Electrica Moldova and Oltenia
Receiving letters of interest from investors: 31 May 2004
Short listing of the investors: 30 June 2004
Continuation of the privatization for 4 distribution companies
N.B. Transparency of the process based on the by the public tender procedures
Basic principles, the investors have to comply:
Full compliance with EU Directives
Non discriminatory access to the grid based on regulated tariffs
Investors will operate based on clear regulatory framework published by A.N.R.E.
Opening of the market is mandatory
Legal unbundling of the supply from distribution by 2007

12. POWER GENERATION
Promotion of two green field projects by private equity participation with a total capacity of about 500 MW
- Selection of the investors: June 2004
Promotion of the privatization on the lignite based on energy complexes:
- Turceni – negotiation with the 5 candidates and selection of the qualified bidder till the end of 2004;
- Rovinari and Craiova Isalnita – selection of the consultant till the end of September 2004
Hydro power generation: Equity participation in more than 100 small hydropower generation with a total production of 300 – 400 GWh. Process has started for the first group
Privatization will continue based on a monthly fixed schedule till the end of 2004

13. 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.

14. THE MAIN FUNCTIONS OF ANRE AS A REGULATORY BODY
Issue and withdraw authorizations and licenses
Regulate the access to the T & D grids
Draw up the pricing methodology and set the tariffs and prices for the activities with monopoly characteristic
Issue technical and commercial regulations, supervise the functioning of market mechanisms
Pre-contractual disputes resolution
Protect the interests of investors and energy end-users

15. ORDERS AND DECISIONS ISSUED BETWEEN 1999-2003
Orders and decisions on:
Year
Total
1999
2000
2001
2002
2003 1
Licenses, permits and authorisations 7
156
262
243
157
825 2
Commercial regulations 19 50 28 23
139 3
Resolution of pre-contractual disputes - 32 83 38
181 4
Prices and tariffs
509
821
567
199
2100 5
Technical regulations 10 11 42 6
Other regulations regarding the electricity and heat sector and the in-house organisation of ANRE 44
121 92
104
113
474 84
879
1284
984
530
3761
-There were cases when several licenses or authorisations were granted, withdrawn or modified through a decision.
- The number of orders and decisions diminished in 2002 due to the take over by ANRSC of a part of ANRE activity.

16. THE MAIN SECTOR REGULATIONS ISSUED BY ANRE
Wholesale Electricity Market Commercial Code
Network Codes (Grid Code, Distribution Code)
Metering Codes
Technical and commercial regulations
Tariffs methodologies
Authorizations and licenses
Rules regarding the connection to the networks
based on the Romanian legislation and the Aquis Communautaire for the electricity sector provisions

17. The objectivity and transparency of the regulatory process is ensured by:
permanent consultations with the parties involved by means of surveys, public and bilateral discussions as well as through mediation meetings to accommodate divergent viewpoints,
the ANRE’s orders and decisions may be appealed in Court
within 30 days from the notification of the parties or, if of general interest, from the date of their publication in the Romanian Official Monitor
the annual reports regarding ANRE’s activity and budget
the regulator’s code of ethics

18. AUTHORIZATIONS AND LICENSES
authorisations:
22 establishment authorizations and 5 operation permits
365 operation authorizations
No.
Type of license
1999
2000
2001
2002
2003
Electricity
Heat 1
Generation 3 - 10 48 4 95 19 37 7 2
Transmission 6
Dispatch&
Market operation
Ancillary services 5
Distribution 23 33 14
Supply 49 13 91 30 31 18
TOTAL
126 20
220 59 83

19. WHOLESALE TRADING ARRANGEMENTS
Generating
Companies
Eligible
Consumers
TRANSELECTRICA
Transmission System
Operator
Electricity
Suppliers
Captive Consumers
Import/Export
Import/
Export
LEGEND:
Power Purchasing Contracts
Transmission & System Services Contracts
Ancillary Services Purchasing Contracts
Power Purchasing over the Spot
Market
Distribution Contracts
ELECTRICA
Distribution
& Supply
The
Spot Market
(OPCOM)

20. TRADING ARANGEMENTS ON:
CAPTIVE MARKET
COMPETITIVE MARKET
Portfolio contracts for the sale and purchase of electricity, with set quantities and regulated prices
Long term must run/PPA contract for the sale and purchase of electricity, with regulated prices (Nuclearelectrica)
Framework contracts for electricity purchase from independent power producers and autoproducers
Framework transmission contracts, ancillary service provision contracts and market administration
Framework distribution contracts
Framework supply contracts.
Bilateral contracts for the sale and purchase of electricity between the market participants, with negotiated quantities and prices
The day-ahead market to ensure a balance between contracted quantities and actual consumption.

21. Electricity market opening degree

23. CONTRACTS ON WHOLESALE ELECTRICITY MARKET – 2003

25. Transmission network is robust and well developed
REGULATED TRANSMISSION TARIFFS (1)
Transelectrica responsible for transmission and system operation service (TSO)
Transmission network is robust and well developed
No congestion due to sufficient transmission capacity and severe reduction of industrial consumption during the last decade

26. REGULATED TRANSMISSION TARIFFS (2)
14 zonal tariffs with two components:
injection component
extraction component
Transmission charge is USD 5.0/MWh on average and does not depend on the electric paths and distances
Nodal pricing
REI-DIMO network reduction technique
Based on SRMC including losses and congestion to establish efficient price signals

27. 5 different tariffs for the use of: 110 kV network MV network
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
Rate of return regulation

28. ELECTRICITY - AVERAGE PRICES PER ACTIVITIES

29. STRUCTURE OF ELECTRICITY AVERAGE PRICE TO END-USERS

31. AVERAGE ELECTRICITY TARIFFS (EXCLUDING TAXES)

32. Consumer protection
Ensured through:
License conditions requesting the holder to be responsible to provide dependable services
Monitoring of license holders by enforcing a standard content for the Annual Activity Report and Financial Reports submitted by companies to ANRE on a yearly basis
Market mechanisms to prohibit deceptive and anti-competitive market practices
Solving pre-contractual disputes in the sector and between suppliers and consumers
Monitoring compliance of suppliers with the guaranteed performance standards
Information and counseling for consumers in order to be able to make appropriate choices.

33. Imbalance volumes by company
EVOLUTIONS ON MEDIUM AND LONG TERM Bilateral contracts market with self-scheduling of generators, supplemented by a voluntary power exchange (day-ahead market) and a balancing market.
BILATERAL CONTRACTS
DAY AHEAD
ON THE DAY
SETTLEMENT
System Operator
Balancing Market MP P Q S G
Day Ahead Market
Simple Bids
Firm Volumes by Company
Simple bids by unit
Metered Volumes
Meter data
Imbalance volumes by company
Adjustments to Day Ahead schedule
BM Volumes
Market Operator
G- generators
S - suppliers
Physical Notifications by unit

34. Principle of the Day Ahead Market
Bilateral contracts
Principle of the Day Ahead Market
all generators and suppliers (consumers) submit bids for the amount of energy they are willing to produce (consume) for a certain price in each hour (trading participants may also submit export and import offers)
the market clearing price is set as the intersection between the supply and demand curve
bidding on portfolio/company basis
generators decide themselves how to allocate total production on individual generation units, physical notifications to System Operator
establishment of balance responsible parties

35. Principle of Balancing Market (BM)
TSO contracts reserves before day ahead (on a company basis)
the balancing market starts on the day ahead, following the acceptance of physical notifications by the TSO
the BM operates on a unit basis, producers have to offer all remaining capacities (price, quantity)
all accepted offers establish an obligation for the unit to deliver the corresponding type and amount of balancing energy

36. Technical interconnection capacity (ATC) established by TSO
Allocation of cross-border interconnection capacity
Technical interconnection capacity (ATC) established by TSO
Commercial allocation through auctions: yearly, monthly, daily
Use it or lose it principle.
The mechanism should be agreed with neighboring countries.

37. Physical notifications
Participants to the new trading platform
Market
Operator
Auction
Participants
Balancing
BRP
Settlement
Administrator
TSO
Trading
Scheduling
& imbalances
Ancillary
services
DAM
Cross-Border
capacities
Determine &
publish ATC
Offer
Operate
Settle
splitting
Physical notifications
(for DAM)
Submit physical
notifications
Pay for imbalances
Determine needs
Use for system
operation
Check and approve
and procure

38. Evolutions of transmission and distribution price control
Transmission price control
Revenue cap regulation in order to improve efficiency and increase incentives
Transmission connection service (i.e. connection charges) regulated as excluded service and not part of the caps
Transmission caps supplemented by quality monitoring
Distribution price control
Tariff-basket approach
Multi-variant network tariffs with multinomial parameters
Regulatory period’s length: 3 years
Building blocks approach
Real, risk-adjusted pre-tax WACC
Price control supplemented by quality regulation