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Rules for Capacity Allocationby Explicit Auctions

withinCentral West Europe Region (CWE),Central South Europe Region (CSE)

and Switzerland

Workshop - ForumBrussels, September 26th 2011

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Introduction

• The origin of the project: the Memorandum of Understanding (MoU) signed May 19th 2010 due to CSE works for harmonising– Step 1: delegation to CASC with current rules for CSE and SNB (2011)– Step 2: harmonisation CWE/CSE/Switzerland (2012)

• What is behind the word “harmonization”? – Propose to participants a unique entrance for contracting with the

Joint Auction Operator (CASC) and provide them a similar way of functioning on all borders covered by a single Auction Rules (AR) document

– For 2012, the target is to compile this set of AR even if similar managements are not yet in place for all mechanisms/regions

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Existing Auctions Rules

• CWERules for Capacity Allocation by Explicit Auctions within Central West Europe Region (CWE Auction Rules) version 2.2

• CSEACCESS RULES TO FRANCE-ITALY, SWITZERLAND-ITALY, AUSTRIA-ITALY, SLOVENIA-ITALY, GREECE-ITALY INTERCONNECTIONS (Capacity Allocation Auction Rules) 2011 with Joint Auction Office

• Swiss – AustriaRules and Regulations for the Auctioning of Cross-Border Electricity Transfer Capacity on the Extra-High-Voltage Interconnectors between the Control Areas of APG and Switzerland by Austrian Power Grid AG (APG) and swissgrid ag (Swissgrid) Version 1.02

• Swiss – GermanyRules of EnBW Transportnetze AG (TNG), Amprion GmbH (Amprion), VKW-Netz AG (VKW NETZ), and swissgrid ag (swissgrid) Hereinafter jointly designated the “Auction Partners” for the Yearly, Monthly and Daily Auction of the Available Transfer Capacity in the cross-border electricity trading between the control blocks of Germany and Switzerland no version / no duration

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12 Borders covered by the new AR

• CWE borders: BE-FR, BE-NL, DE-FR, DE-NL,

• Italian borders: FR-IT, CH-IT, AT-IT, SI-IT, GR-IT

• Swiss Northern Borders:AT-CH, CH-DE

• New Border covered:CH-FROn going project for introducing

explicit auctions for the PTRs starting from 2012 as delivery period. This border is included in the new AR.

Dedicated forum: 8th November 2011

FR

DEBE

NL

IT

GR

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PlanningObjective: 1st Yearly Auctions performed beginning of

December 2011 with the new set of AR

Consultation: 13th of September to 4th of October (3 weeks)Comments may be sent to:

feedback.auctionrules@CASC.EU

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First Yearly Auctionson Dutch Borders

Due to the Dutch Grid code, first Yearly Auctions are scheduled between mid September and mid October, so under current CWE Auction Rules.

But Participants shall be aware that the allocated Capacities during these Auctions will be governed by the new set of Auction Rules when they come into force for the 2012 PTRs.

The draft Auction Rules under consultation are available for participating in these Auctions

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In case the new set of AR cannot be ready in time for governing the allocation of 2012 PTRs, the following solutions could be applied:•For CWE region and for the DE-CH and AT-CH Borders, the current sets of Auction Rules will apply;•For Italian Borders, a 2012 set of Auction Rules mainly based on 2011 Auction Rules will have to be approved;•For FR-CH border, a new set of Auction Rules will have to be issued (based on the Auction Rules under consultation) and approved.

Alternatives to be considered

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Main topics

• Auction Rules structure• Entitlements• Participation in Yearly/Monthly Auctions• Participation in Daily/CWE Shadow Auctions• Financial guarantees• Daily offered capacities lower than non-nominated LT PAs• Fall back procedures• UIOSI and Secondary Market: Transfer and Resale• Scheduling information remaining• Reduction in Held Capacities and Financial Compensation• Reduction in Exchange Programs and Financial Reimbursement• Liability clause / Force Majeure

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• The AR deals with the Allocation of PTRs– Only one Declaration of Acceptance (DoA) dealing with the

Allocation; no DoA for Nomination (DoAN) like currently in the Italian borders AR;

– The DoA will be signed by the Joint Auction Office and the Participant (all documents will have to be re-signed)

• The AR are issued for an unlimited period

• In order to give Participants a general overview, in the AR, remaining border specificities will be explained in the main part, no longer in the appendices and clarify the principles was one of our main goal.

Auction Rules structure

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Entitlement

Section III• Article 3.01/ Registration

• Specific roles: CWE Shadow Auction Only, Beneficiary of a Transfer

• Article 3.02/ Financial Guarantees• Article 3.03/ Entitlement

• Participation in Yearly and Monthly Auctions• Participation in Daily and CWE Shadow Auctions

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• Any entity will be entitled for all Yearly and Monthly auctions operated by the Joint Auction Office under the new set of AR if it is active on the Electricity Market in at least one control area (see list in the next slide)

Participation in Yearlyand Monthly Auctions

UIOSI, Transfer and Resale mechanisms can be used by Participants even if they cannot nominate the PTRs bought

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• a Participation Agreement for the Import/Export Rules with RTE, and/or

• an ARP Contract with ELIA, and/or • a Bilanzkreisvertrag with EnBW TNG, and/or• a Bilanzkreisvertrag with Tennet GmbH, and/or• a Bilanzkreisvertrag with AMPRION, and/or • a Balance Group Contract signed with Slovenian

Market Operator or signed a Contract for settlement of imbalances with the Balance Responsible Party in Slovenia, and/or

• a Balance Group Contract with Swissgrid.• a PV Contract with TenneT TSO BV, and/or• an Energy Transactions Contract with HTSO,

and/or. • a Contratto di Dispacciamento with TERNA,

and/or. • a Datenübermittlungsvertrags-Paar with APG

and a BGV-Vertrag with APCS which together result in a valid Genehmigungsbescheid from Energie-Control Austria.

FR

DEBE

NL

IT

GR

Participation in Yearlyand Monthly Auctions

An entity shall have at least:

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• An entity will be entitled for Daily or CWE Shadow Auctions if it respects specific requirements per border and even per direction

Participation in Dailyand CWE Shadow Auctions

This mechanism entitles only entities being able to use the PTRs allocated

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Participation in Dailyand CWE Shadow Auctions

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Financial Guarantees

Financial checking of the Business Account is now harmonized with only one specificity remaining for the Yearly product:

• 2/12th on most of the Country Borders except on AT-CH where the Yearly product is paid in one settlement.

Beneficiary of Transfer Role: no financial guarantees (Business Account) needed.

As a reminderMonthly Auctions: Valuation of obtained Capacities shall be covered in

the Business Account.Daily Auctions: full Bids valuation shall be covered in the Business

Account.

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Daily Offered Capacities lower than non-nominated Yearly and Monthly PA

Currently, in the Auction Rules:

On all Country Borders, except on CWE Market Coupling Borders, in this case, the non-nominated Yearly and Monthly Programming Authorization are curtailed on a pro-rata basis and the Participants will receive a financial compensation similar as a reduction of Held Capacities (100 or 110% of the original price of the

Capacity).

Disclaimer: On CWE Market Coupling Borders, this article is still under discussion between the TSOs and the Regulators regarding the necessity to introduce, on one or several Country Borders, a mechanism for hedging the financial risks of TSOs (including potential introduction of caps).

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Daily Offered Capacities lower than non-nominated Yearly and Monthly PA

Solutions under discussion among CWE TSOs and NRAs

Option 1: send PA later after coordinated NTC D-1 calculation?

Option 2: capping the UIOSI compensation?

Option 3: assure NTC D-1 ≥ PA through coordination and re-dispatching?Other options or a combination can be envisaged

Feedback from Market Participants is welcome during the Auction Rules consultation period

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CWE-CSE-Switzerland Auction Rules

Fallback modes principles

CWE Market coupling

IT-SI Market Coupling

Equal share

If applicable in terms of timing and only to Participants able to use the daily PTRs

Equal share

If applicable in terms of timing and only to Participants able to use the daily PTRs

Daily Auctions

CWE Shadow Auctions

Fallback mode

Fallback mode

Fallback mode

Fallback mode

Fallback modeFallback mode

Fallback mode

Fallback mode

Yearly & Monthly Auctions

Daily Auctions Fallback modeFallback mode

Fallback modeFallback modePostponement or bidding by fax

Postponement or bidding by fax

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UIOSI mechanism will be applied on all Country Borders.

Explicit resale to Daily Auctions will no longer exist on CH-DE and CH-AT Borders.

UIOSI

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Transfer mechanism of Yearly/Monthly Capacities between Participants is harmonized

The Capacity to be transferred shall be first paid by the Transferor or blocked on its Business Account and the Beneficiary shall accept the Transfer.

Resale of Yearly Capacities to a Monthly Auction remains as today

On CWE Country Borders, the resale is feasible as soon as the Yearly Capacity is allocated (after the end of the contestation period).On all the other Country Borders, the resale is feasible only if the yearly capacity allocated is paid or blocked on the Business Account.

Secondary Market

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• The AR only deal with Capacity Trader (CT) Role• However, depending on mechanism in place on each border,

the Participant can designate a Nomination Agent in some countries for scheduling.

• If this designation mechanism is performed by CASC, the Nomination agent will also receive the Programming Authorization by CASC.

• This is the only information remaining in the AR related to the scheduling like currently in the CWE AR.

• Other information like deadlines for scheduling or the way matching will be performed by TSOs are or will be described in local nomination rules.

Scheduling informationremaining in the AR

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Scheduling informationremaining in the AR

Example:

Nomination Agent 1Nomination Agent 2Nomination Agent BNomination Agent 1

Nomination Agenton exporting side

Nomination Agenton importing side

Participant AParticipant A

Nomination Agent ANomination Agent N

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Scheduling informationremaining in the AR

This table is a clarification of mechanisms that are already in place today!For Yearly and Monthly Capacities:

For Daily Capacities:

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CWE Borders, FR–CH in both directions and FR>IT:•For reasons linked to the Safety of the Power System or in the event of Force Majeure, the Held Capacities can be Reduced until the sending of Programming Authorizations.•After sending and except in case of Force Majeure, the Programming Authorizations are firm for Nominating with the concerned TSOs.

On all the other Borders (CH-IT, AT-IT, AT-CH, CH-DE, SI-IT, GR-IT and IT>FR):•For reasons linked to the Safety of the Power System or in the event of a Force Majeure, the Held Capacities can be reduced, until the deadline for the Nomination with the concerned TSOs (limited to a number of equivalent days on Italian borders for reasons linked to the Safety of the Power System ).

Reduction in Held Capacitiesand financial compensations

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Changes in the Compensation schemes

BE-NL Border> the compensation scheme currently in place on FR-BE Border will apply

Market spread with a cap on the spread prices and a cap related to the Auction revenues collected during the concerned month (1/12 of the Yearly Auctions and Monthly Auctions).

DE-FR and DE-NL Borders> TSOs committed to harmonise CWE compensation by using the same compensation scheme as on FR-BE Border and BE-NL Border

Reduction in Held Capacitiesand financial compensations

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Compensation schemes will be re-examined at the latest when CWE Flow Based MC is introduced in order to be in line with the Framework Guidelines CACM and eventually with the Network Code

Topic to consider:Time factors» Curtailment announced before a reasonable lead-time defined by

NRAs» Curtailments of long duration

Outlook: CWE Future compensation scheme for reduction of held capacities

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Changes in the Compensation schemes

In case of Force Majeure and on all Country Borders:

• Exchange Programs can be reduced;

• and the capacities corresponding to the concerned Exchange Programs are reimbursed at the original price.

Reduction in Exchange Programsand financial compensations

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Liability clause has been harmonized based on the Italian Borders Auction Rules principles.

Force Majeure definition has been modified in order to comply with Framework Guidelines on CACM.

Liability Article / Force Majeure

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Conclusion

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Harmonized features• A unique contract for participating in all explicit allocations on 12

borders covering 2 regions• Same wording / concepts for all these borders• Nomination aspects excluded from HAR (separation of nomination agent and CT

role)

• Entitlement • Financial guarantees Modification of compensation scheme toward Market Spread on BE-

NL, DE-NL and DE-FR borders. UIOSI (now also on CH borders instead of UIOLI) • Many technical differences from Participants point of view are

reduced (publication of auction specifications, number of maximal bids, contestation period, settlement, etc.)

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• Thank you for your participation