1

Auction Office establishment, antitrust issues and Project

Plan

IG Meeting, Vienna

January 30th 2008

2

State of Play

Antitrust and Merger Regulation

Scheduling Concept

Auction Rules

Service Level Agreement, Inter TSO agreement

Secondary Market

Curtailment

Revenue Distribution

Next steps

Agenda

3

Project Team Agreement

Business plan, budget and shareholder‘s loan ( )

Articles of association

Bank account

Staff recruiting (Project Team) /employment contracts / accountant service

Office ( )

Founding procedure, necessary TSOs‘ confirmations, proxy issue

Antitrust and Merger/Cartel regulation issues

Service Level Agreement (inter TSO contract), Auction Rules

Software (common coordinated capacity calculation and allocation)

Communication infrastructure and IT hardware

external data transfer (MLA)

Not yet startedStartedIn implementationCompleted

State of Play

4

Antitrust & Merger Regulation

The EC has denied TSOs request as it could not be proved that CAO will be a fully functioning company.

After legal consultants investigation:

Merger control rules for the setting up of a non-full function joint venture apply only in Poland and Germany.

In Hungary the National Competition Authority would, at times, deviate from the construction of the term of full-functionality as established by the EC. But this risk can be disregarded.

Therefore the following To-Dos occurred:

Draft notification paper (English) is under finalisation.

This paper will be a basis for the notification of all 8 TSOs to the German Bundeskartellamt (in German, under lead of E.ON Netz) and to the Polish antimonopol agency (in Polish, under lead of PSE-O).

Start of notification: February 2008, expected duration: 3-4 months

5

Due to flow-based allocation capacity transmission rights from i.e. Poland to Slovenia can be reserved by the traders

Scheduling concept necessary, that allows sink source scheduling

Scheduling experts of all TSOs have elaborated a new scheduling concept – so called decentralised scheduling concept:

The capacity transmission right owner only announces i.e. a “Poland out” and a “Slovenia in” schedule

Every CEE TSO will match with all CEE TSOs schedules

To install the new scheduling concept the scheduling IT systems of all CEE TSOs need to be adapted

Traders will have to enhance their IT systems, too

Scheduling Concept

6

Regulators requested daft Auction Rules and draft Service Level Agreement until end of February 2008.

Auction Rules (AR)

Basis document of existing AR will be taken as basis.

A comprehensive draft document has been already prepared and commented

Draft AR will be ready end of February.

Auction Rules

7

Service Level Agreement

Regulates/describes the services of the AO.

Technical issues:

Technical services, curtailment, scheduling, auction income sharing, allocation, invoicing, risk management, secondary market,..

Liabilities:

TSOs AO.

Fall backs

Service Level Agreement, Inter TSO agreement I/II

8

Inter TSO agreement

Regulates/describes the duties of the partners.

data exchange

scheduling (tasks and responsibilities)

auction income (keys, duration,…)

Both (draft) documents are ready end of February.

Service Level Agreement, Inter TSO agreement II/II

9

Secondary Market

Further Hybrid UIOLI principle for capacity compensation scheme :

UIOLI on D-1 level,

and Resale possibility (selling back of capacities to CAO) of the capacity at D-2 level. Progressive approach for offering max. possibilities to market participants (under the

regime to be applied) and keeping planning certainty for TSOs at a reasonable level!

Full path concept (only “same” PTRs can be transferred)

10

Curtailment

Different methods are under investigation.

After having first test results, calculated with on the agreed method, a refinement process will start.

Nevertheless, TSOs and consultants are of the same opinion, that curtailment methods based on optimization technique is the most appropriate one.

As the objective for such an optimized curtailment either market values or volumes can be chosen (under investigation).

We will seek further consultancy.

11

Revenue Distribution

The already performed qualitative evaluation has been improved (by harmonizing the common understanding of the meaning of certain distribution keys and criteria's).

Description of different revenue distribution keys almost completed.

Based on that keys the test calculations will be evaluated.

The most suitable auction income distribution keys have been forwarded to the consultants for their expert opinion.

Now, because of agreed capacity calculation concept also quantitative analysis will start during the next month!

For discussion and regulatory remarks: “real” coordinated regional capacity calculation and allocation approach enables better regional investment coordination; so pooling of auction income (some percentage) is worth to be thought about!

12

Next steps – technical issues

After HLM decisions of acceptance the MF methodology and prolongation of co-operation with consultant the road map was envisaged:

Preparation of workflow model for feasibility tests

Internal feasibility tests MF methodology and evaluation of interregional influences (centralized organization of technical parameter calculation)

Acceptance of tests

Tests with market participants

Update and approval of concept/process chain based on results of tests and consultation with Regulatory Body

13

Next steps – business issues

Draft of SLA Agreement in CEE – 02.2008

Draft of Allocation Rules – 02.2008

Notification to Antimonopoly Offices – in Germany (E.ON) and Poland (PSE-O) – 02/05.2008

Agreements with external TSOs – 05.2008

Office, People, Services (Banks etc) – 03-06.2008

14

Next steps - IT Tender

2008-01-08 Begin of 1st phase : European contract notice

2008-02-14 Legal deadline for expressions of interest (37 days)

2008-03-17 End of 1st phase (selection up to 10 bidders, after time of appeals)

2008-03-18 Begin of 2nd phase: Letter of invitation for an indicative tender to the

selected participants

2008-04-27 Legal deadline for expressions of interest (40 days)

 2008-05/06 TIME OF EVALUATION, NEGOTIATIONS, DECISION, APPEALS

2008-06-17 End of 2nd phase

2008-06-30 Signing contract with successful bidder

15

Next steps - IT Tender

CAO

TSO1

TSOEXT

TSO2

TSO3

TSO8

MP1

MP2

MP3

MPn

VENDORHARDWARE