ANRE

Romanian Electricity Sector Evolutions of the Regulatory Framework

Nicolae OprişPresident of ANRE

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)

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, DSO’s 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.

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.

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

ANREINSTALLED POWER GENERATION 18.3 GW

CONSUMERS - 8537422

Total overhead transmission lines – 9000 kmSubstations – 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 kmSubstations – 1296

ANRE Main steps of the reform

1. Restructuring• vertical unbundling of generation, transmission, distribution/supply activities• horizontal splitting of generation and retail supply2. Competition• wholesale market and retail competition• new entry into generation and retail supply allowed3. Regulation• establishment of an independent regulator• provision of the third party access to the grid• incentive regulation of transmission and distribution networks4. Ownership• allowing new private market players• privatizing the existing publicly owned businesses

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

S104S1 S10 S11

Transelectrica TSO

OPCOM – Market operator

Nuclearelectrica

Hidroelectrica

Ro Cr De ElB TeTu Ga

D_1 D_2 D_12

TrNBa Ol MuS

TrSMoDo MuN

ENEL SpaApril 28 2005

E.ONApril 04, 2005

CEZApril 05, 2005

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

ANRE

UCTE and ETSO member Fully unbundling - independent TSO companyTechnical 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

ANRE Evolution of the electricity market opening degree

ANRE

The wholesale electricity market

Bilateral Contracts Centralised Market

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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

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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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ANRE 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

ANRE

ANRE

OPCOM Day-Ahead MarketJuly 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]: 1.717.891,411Average electricity traded volume: 388,927 MWh/h

DAM trading cota: 6,72%

Average prices December 2005 on European Marketplaces

Source: OPCOM

ANRE Regional Power Exchange

OMEL

EEX

PowerNext

GME

NORD

POOL

APX-Group

BorzenEXAA

OPCOM

PPX

OTE

Source: OPCOM

ANRE Support schemes for priority production

0

.70

%

0.7%

2.2

0%

1.4%

3.74

%

2.2

%

5.26

%

2.9%

5.7

8%

3.6

%

8.3

0%

4.3%

8.3

0%

8.30

%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

2005 2006 2007 2008 2009 2010 2011 2012

HG 1829 modificata

HG 1829

• 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

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

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

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)

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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.

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

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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

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• 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

ANRE

Average Electricity Prices 1997 - 2006

- Without Taxes -

1.6

4.6

4.2

4.54.4

3.8 3.8

3.1

3.83.7

3.3

4.54.7

4.1

4.7 4.8

5.6

4.7

5.2

4.94.7

5.6

5.2

5.7 5.7

6.06.1

7.0

7.4 7.4

7,3

2.9

3.7

3.8

5.0

4.24.2

127

1410

1760

23102428

2540

2722

1787

1607

1019

618

499

387

403

640 861

951

365 365

2097

1631

2672

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

EU

Rct

/kW

h

50

550

1050

1550

2050

2550

3050

3550

4050

4550

lei

/ kW

h

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Average end-users electricity prices

1997-2006

- without taxes -

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.

ANRE Privatization of Distribution Companies

Privatisation degree (programmed)

Electrica’s branches

Current privatisation situation

Strategic investor

% of total shares

% of initial shares

Cash injection through equity increasing

The value of transaction (Mil. Euro)

1 Electrica Banat

Signed agreement

ENEL SpA 51% 24.62% Yes

2 Electrica Dobrogea

Signed agreement

ENEL SpA 51% 24.62% Yes

112

3 Electrica Moldova

Transaction approved by government

E.ON Energie A.G. 51% 24.62% Yes 100

4 Electrica Oltenia

Transaction approved by government

CEZ, a.s. 51% 24.62% Yes 151

5 Electrica Muntenia Nord

Shortlist notice was published on PHARE website

- - - -

6 Electrica Muntenia Sud

Privatisation strategy was issued by government Privatisation announce was published, offers were received

67.5% 50% Yes -

7 Electrica Transilvania Nord

Shortlist notice was published on PHARE website

- - - -

8 Electrica Transilvania Sud

Shortlist notice was published on PHARE website

- - - -

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 IPP’s• 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 MEC’s shares to "Termoelectrica Midia" - S.A.

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.

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

ANRE

Thank you for your attention !

Romanian Electricity and Heat Regulatory Authority

Phone: (+ 40 21) 311 22 44Fax : (+ 40 21) 312 43 65www.anre.ro