Powernext SA the French Power Exchange Three Years

Powernext SA, the French Power Exchange: Three Years Later… Jean-François Conil-Lacoste Chief Executive Officer Leipzig, 11 October 2004 APEx Conference – 11 -13 Oct. 2004 1

Overview Part 1. Goals and implementation of the liberalization process Part 2. Overview of the wholesale electricity markets Part 3. The structure of the French power market Part 4. Powernext SA : Products and results § Powernext organisation § Powernext Day-Ahead™ § Powernext Futures™ Part 5. Major challenges for the future APEx Conference – 11 -13 Oct. 2004 2

Part 1. Goals and implementation of the liberalization process LIBERALISATION (supplies) SERVICE [public] DEREGULATION ACCOUNTABILITY [actors] APEx Conference – 11 -13 Oct. 2004 REGULATION [market] 3

Part 1. Goals and implementation of the liberalization process Key dates in France February 2000: French electricity law, transposition of the 1996 electricity directive April 2000: creation of CRE, Commission de Régulation de l’Energie July 2000: creation of RTE, the French grid operator July 2001: creation of Powernext SA, the French power exchange November 2001: launch of Powernext Day-ahead January 2003: modification of the French electricity law, last obstacle to trading are waived July 2004: opening to non household customers APEx Conference – 11 -13 Oct. 2004 4

Part 2. Overview of the wholesale electricity markets Deregulation introduces new economic functions and the structuring of organized and bilateral wholesale markets The power value chain in a deregulated environment Wholesale market Integrated production EDF Independen t production RTE TSO Trading Powernext and brokers Final sale retail Distribution EDF + 170 distributors Final sale industry Domestic clients (30 millions, 300 TWh) Eligible customers (3 millions) CNR : 3000 MW SNET : 2500 MW VPP : 6000 MW Shem : 770 MW APEx Conference – 11 -13 Oct. 2004 5

Part 2. Overview of the wholesale electricity markets Size of the Switching estimates Size of the Legal physical for the calendar wholesale market year 2002 (large (estimation, in opening (%) (TWh) industrial users) TWh) Scandinavia 390 100% More than 50% 1900 Germany 490 100% 2500 France 440 68% 15% 250 to 500 UK 335 100% 15% 2000 Netherlands 105 100% 20% 300 Spain 205 100% 20% 150 to 200 Italy 300 78% 15% na Source : European Commission APEx Conference – 11 -13 Oct. 2004 6

Part 2. Overview of the wholesale electricity markets Organised wholesale markets Over the counter intermediated wholesale market Brokers … Eligible customers Retail market Suppliers § Producers § Traders Over the counter direct wholesale market Producers Traders … APEx Conference – 11 -13 Oct. 2004 7

Part 3. Structure of the French power market D-1 D=delivery Forwards, futures, options, and swaps: exchange and bilateral market « Day-ahead » : exchange and bilateral market Hour-ahead : Intraday (3 -hour delivery) Powernext Futures™ Launched on 18 June 2004 Powernext Day-Ahead™ Launched on 26 Nov. 2001 D-x APEx Conference – 11 -13 Oct. 2004 Balancing market (real time) : exchange and bilateral market Delivery on RTE grid for both Powernext Dayahead and Powernext Futures 8

Part 4. Powernext: corporate organisation and objectives Powernext is a non obligatory exchange which results of a private initiative Powernext is a financial institution HGRT § § stable and neutral shareholding with a capital of 10 M€ 24, 5 % 51, 0 % solid market model and IT systems Powernext brings a price reference § Short-term: adjustment and/or volume risk management Powernext Day-Ahead. TM § Long-term: price risk management – Powernext Futures. TM APEx Conference – 11 -13 Oct. 2004 9

Part 4. Powernext: market model Powernext manages a market § centralized and transparent insuring liquidity and non-discriminatory access § supervised by a structuring regulation resting on market rules and a strong presence of regulation authorities (AMF, CRE) Law Sphere of activity Regulatory Bodies Financial Law 1. Trading 2. Clearing 3. Product specifications CECEI: Comité des Etablissements de Crédit et des Entreprises d'Investissement AMF: Autorité des Marchés Financiers French Electricity Law (2000 and 2003) • Membership • Delivery CRE: Commission de Régulation de l'Energie DIDEME: Direction de la Demande et des Marchés Energétiques § § and insures the safety of transactions. § RTE (French TSO) insures physical engagements LCH. Clearnet guarantees the financial commitments and systematic risks APEx Conference – 11 -13 Oct. 2004 10

Part 4. Powernext Day-Ahead. TM : members Powernext® counts 47 members among producers, suppliers, industrials, distributors and traders. However, the individual market share of the most active member stays below 11% APEx Conference – 11 -13 Oct. 2004 11

Part 4. Powernext Day-Ahead. TM: volumes More than 9 000 MWh in 2004 (already higher than 2003 volumes) APEx Conference – 11 -13 Oct. 2004 12

Part 4. Powernext Day-Ahead. TM: a reference Outside and unpredictable factors create a need for adjustment the following day amounting to 10% of the total consumption. Powernext Day-Ahead™ is a tool to manage this risk. Powernext Day-Ahead™ is considered as a short-term reference in France with : § a strong correlation between Powernext prices and power consumption on the French hub APEx Conference – 11 -13 Oct. 2004 13

Part 4. Powernext Day-Ahead. TM : prices § a strong correlation between Powernext prices and the weather APEx Conference – 11 -13 Oct. 2004 14

Part 4. Powernext Day-Ahead. TM: market resilience Powernext Day Ahead™ strongly improved market resilience since the beginning NB : The resiliency index is defined as the average of absolute market clearing price variations caused by an additional price-inelastic bid on each of the hours of the period. The resiliency index is calculated on the aggregated bid & ask curves composed of single bids and accepted block orders. APEx Conference – 11 -13 Oct. 2004 15

Part 4. Powernext Futures. TM: overview A future contract is a standardized agreement to sell or buy on an exchange a specific amount of electricity at a particular price on a stipulated period The aims of Powernext Futures™ are the following : § Proposing to members the appropriate contracts to manage their risk exposure to French electricity price fluctuations. § Creating indisputable reference prices on the forward curve Powernext offers the following futures with physical delivery : 3 monthly contracts 4 quarterly contracts 2 yearly contracts APEx Conference – 11 -13 Oct. 2004 16

Part 4. Powernext Futures. TM : dynamic management of the consumption Daily balancing Consumption Visibility: purchase Calendar 2004 600 500 400 300 200 100 J F M Flexibility: purchase monthly and quarterly contracts APEx Conference – 11 -13 Oct. 2004 A M J J A S O N D Time Consumption forecast 17

Part 4. Powernext Futures. TM : market model TRADING MEMBER NOVATION TRANSFORMATION POSTING CLEARER POSITION MANAGEMENT Continuous trading Internet access: Trayport system LCH. Clearnet is the CCP (central counterparty) of all trades Secures the market through a system of margins and deposits DELIVERY NOMINATION Delivery in compliance with RTE requirements BALANCE RESPONSIBLE APEx Conference – 11 -13 Oct. 2004 18

Part 5. Major challenges for the future Consolidate the launch of Powernext Futures™ market with physical delivery (potential transition towards a cash settlement market) Contribute to the market opening to all professionals in July 2004 making them more price-sensitive will make Powernext’s role as generator of short, medium and long term reference indexes even more crucial Interconnections: a crucial first step towards a single market § Feasibility study for the implementation of market-based mechanisms in order to manage congestions on the Belgian, Spanish and Italian borders in close coordination with national TSOs and regulators Other energies and products are considered such as natural gas, greenhouse gas emissions and weather derivatives APEx Conference – 11 -13 Oct. 2004 19

Contacts Website : www. powernext. fr Telephone : +33 1 73 03 96 00 Fax : +33 1 73 03 96 01 E-mail : information@powernext. fr APEx Conference – 11 -13 Oct. 2004 20