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Enron Mail |
Background
The Continental European electricity market is developing from an integrate= d=20 monopoly business to a competitive market. A segment of electricity users n= ow=20 have the right to choose their supplier from a range of marketers. The=20 emergence of new marketers and generators has created the demand for price= =20 risk management solutions and has encouraged the development of a traded=20 wholesale market. Following the adoption of the EU Electricity Directive in= =20 December 1996, member states were obliged to transpose the directive into= =20 national legislation opening electricity markets to competition by February= =20 1999. The directive sets out a three-tiered approach to the liberalisation of=20 electricity supply markets. Stage one entered into effect on 19 February=20 1997, and calls for the opening of 22% of national markets, based on the=20 average community share of electricity consumed by end customers using more= =20 than 40 GWh per year. The degree of opening will increase over six years by= =20 lowering the community consumption threshold to 20 GWh in 2000 (27% market= =20 opening) and to 9 GWh in 2003 (32-33% market opening). Distributor access i= s=20 a matter for each member state. The implementation of a new directive,=20 expected in 2002, will improve the conditions for a liberalized market. At present, the level of compliance with the directive varies between membe= r=20 states. The EU countries farthest along the process of liberalisation are= =20 Germany, Austria, Spain and the Netherlands. Switzerland, although it is no= t=20 an EU member state, is integral to market developments. France, although=20 having chosen to comply with the minimum requirements of the directive, has= =20 proven to open up their market more than expected. =20 Current Market EDF is the dominant electricity producer in France, the largest power=20 producer in the world with 475TWh generated in 2000, and the largest=20 exporter in Europe (net exports reached 71 TWh in 2000). Power generation = in=20 France is mainly nuclear (70%), but also hydro (20%), while conventional=20 thermal generation represents 10%. EDF is a vertically integrated company= =20 with services and products in generation (92%), supply (?%), transmission a= nd=20 distribution (95%). Finally, this historical supplier is a State Entity; th= e=20 French State owns EDF=01,s capital. A few Independent Power Producers (IPP= ) are=20 also active in the market, such as Snet (6.4TWh, coal-fired), and CNR (16TW= h,=20 hydro). Other smaller IPPs are commercially active but most must sell their= =20 production to EDF under a regulated tariff.=20 More than 100 distribution companies are active through a concession regime= =20 in their local distribution area. Few, however, are of a significant size= =20 (less than a dozen have sales of over 400 GWhs), or have eligible customers= =20 in their concession areas. The French System Operator (RTE) was created on 1 July 2000 and is a=20 sub-division of EDF, although it is unbundled in terms of management and=20 accounting. A postage stamp tariff has been implemented under the=20 transitional regime, which varies according to the voltage used and is base= d=20 on a matrix (Summer/Winter, Peak/Off-Peak). Users have to contract for thei= r=20 maximum transmission capacity. Imbalances are settled under a published=20 tariff, which introduces high charges for imbalances beyond a 10% tolerance= =20 level and 5MW.=20 A three-year framework contract (e.g., by way of a Master Agreement with a= =20 minimum term of three years) is required for eligible customers, but=20 eligibles are free to deal for shorter maturity transactions within such a= =20 three-year contractual framework. =20 Although the criteria for eligibility is per site, and eligible customers= =20 have to contract transmission for each site, RTE has created balancing=20 responsibility contracts (contrats de Responsable d'Equilibre) which compel= s=20 the aggregation of imbalance charges for different eligible sites within an= =20 equilibrium perimeter defined with RTE. Imbalances are settled under a=20 published tariff which charges a heavy penalty for any imbalance beyond a 1= 0%=20 tolerance level or 5MW.=20 Even though we are currently under a transitional regime in France, the=20 ability to trade power already exists. Optimisation can be found through=20 real-time arbitrage offered by the flexibility of the industrial process, t= he=20 availability of market prices and optional structures. The establishment of= =20 balancing responsibility contracts has created the basic conditions for an= =20 effective power trading market in France, and this through the exchange of= =20 blocks from one perimeter to another. Blocs are only exchangeable on=20 day-ahead bases but intra-day procedures are expected to be implemented. Al= l=20 transactions are currently based on bilateral physical contracts.=20 The establishment of this framework has contributed to an increasing number= =20 of players for trading, imports, exports and transit; we are confident that= =20 the French power market will develop rapidly. Enron Capital & Trade=20 Resources Limited ("ECTRL") is a balancing responsible actor in France and= =20 closed the first physical power transaction in France early 2000, and was t= he=20 very first new entrant to trade power (buy/sell) in France late 2000. =20 Future Developments France's size and geographical position will make it a natural hub for=20 trading on the Continent. It is Europe's second largest electricity market,= =20 with net consumption (including industrial on-site consumption) totalling= =20 over 400 TWh in 1999. The increase of physical trading, envisaged capacity= =20 release by EDF, and creation of future market mechanism will contribute to= =20 the further development of the market. Both a balancing market and a spot exchange market are expected to be=20 implemented by end 2001. Players in the balancing market will propose put a= nd=20 call options, exercised by RTE according to its own portfolio of contacts= =20 (producer, consumer) and providing it with physical balancing capacity. The= =20 balancing market will also show referenced market prices for balancing=20 services. =20 Some of the spot market volume is expected to be operated by ParisBourse.= =20 However, due to the dominant position of EDF, the limited number of active= =20 IPPs, existing restrictions for trading for authorised producers in France,= =20 and the lack of transparency with regard to current rules for allocation of= =20 cross-border capacity and attribution of congestion costs, we believe that= =20 the conditions for the creation of an effective spot power market in France= =20 are not yet fully met.=20 Recently, the European Commission has asked EDF to auction 6,000MW of virtu= al=20 capacity through VPP auctions starting in September 2001, representing abou= t=20 30% of the market for French eligible industrials This will further=20 contribute to increase liquidity.=20 Regulatory Environment The goal of Directive 96/92/EC concerning the internal market in electricit= y=20 is to obtain a cheaper but secure electricity supply by introducing and=20 gradually expanding competition while maintaining industry competitiveness = in=20 the face of price decreases. France has transposed the directive, however= =20 certain imperfection with regards to non-discriminatory access and the leve= l=20 of liberalisation still exist.=20 The French Electricity law was passed on 10 February 2000, a year later th= an=20 required by the EU, establishing a transitional regime for third party acce= ss=20 (TPA). Several application decrees still have to be passed, including=20 transportation tariffs on the electric grid to eligible customers. The=20 current threshold for eligibility is 16GWh (net of auto-consumption) per ye= ar=20 and per site, and represents about 600 eligible clients and 1,200 sites.=20 Eligibility for distribution companies is currently limited to the eligible= =20 consumption of customers located in their concession areas. The French powe= r=20 market is effectively open to some competition, and about 60 eligible=20 industrials have so far switched totally or partly from the historical=20 supplier. The eligibility threshold will be reduced to 9GWh per site by=20 direct application of the EU Directive by Feb. 2003, as the French governme= nt=20 declined a quicker opening of the power market. The two main authorities, which oversee the industry, are the CRE (Commissi= on=20 de Regulation de l'Electricit,) is the official regulatory body and the=20 ministry of industry. The CRE is responsible to insure that RTE provides fo= r=20 non-discriminatory access on to the grid and will be issuing transportation= =20 tariffs. The Ministry is responsible for providing generation licenses for= =20 IPPs and for determining eligibility issues. =20 RTE is implementing new capacity allocation procedures on the UK, Italy and= =20 Spain interconnectors. On the remaining borders, capacity is currently=20 allocated on a first-come-first served basis rule, and congestion fees are= =20 levied at the margin, which favours long-term contracts and historical=20 players. In addition, there is currently some lack of transparency with=20 regards to RTE real-time data on the capacity available/used for exports an= d=20 imports. However an intra-day market is now effective for transits, imports= =20 and exports. The first come first serve allocation rule on border capacity= =20 is likely to be changed by end 2001. In addition, the CRE is likely to=20 request RTE to release additional data in the months to come. =20 New IPPs have to be authorised through auctions or through direct decision = of=20 the Ministry of Industry, the main route for authorisation. Authorised IPPs= =20 in France are limited by Decree to buying for resale to eligible customers = a=20 maximum of buy for resale to eligible customers a volume equivalent to 20% = of=20 the installed capacity, including long term contracts. Although the=20 interpretation of this law is unclear, a recent statement by M. Tuot,=20 Director General of the CRE, implies that these restrictions only apply to= =20 French authorised producers and thus not to foreign-based energy companies = or=20 other non-producing entities. Thus, these restrictions do not apply to ECTR= L,=20 as we are not registered in France. In addition, French IPPs are free to= =20 sell and export their production. Eligible customers, who are physically connected to the Grid, have to=20 contract for transmission vis-.-vis RTE (Contrat Made). Traders, such as=20 ECTRL, are not required to have such a transmission contract, as they do no= t=20 consume the power they purchase. Only a balancing responsibility contract= =20 coupled with grid access contracts (import, export, and/or transit) are=20 required by RTE. =20 A new Decree is expected to be passed by Summer 2001, setting up new=20 conditions for transmission, transits and exports under a permanent regime.= =20 Imports, which are allocated on a pro-rata basis, are free of transmission= =20 charges. =20 A network code is currently under discussion between market players and=20 RTE. =20 Market Conventions A range of wholesale electricity products are currently traded in France. = =20 Peak and baseload day-ahead, week-ahead, monthly, quaterly, and yearly=20 products are traded. Peak products follow the German convention (12 hour= =20 peaks on weekdays, 08h00-20h00). Contract sizes are typically 25MW or 50MW= . Gate closure for scheduling imports, exports and transits is 14h00 Paris=20 time. Gate closure for scheduling "echanges de blocs" is 16h00 Paris time. Other: The Gas Market A transitional regime was implemented on 10 August 2000 by direct applicati= on=20 of the EU Directive, thus establishing regulated TPA for sites whose=20 consumption is over 25 million cubic meters p.a. The eligibility threshold= =20 will be reduced to 15million cubic meters in 2003, and 5 million cubic mete= rs=20 in 2008. No gas law has been passed yet (forecasted for mid 2002), and it i= s=20 expected that the transitional regime for gas in France will last until end= =20 2002. A zonal/distance-related tariff was published on 13 July 2000 by=20 GdF-Transportation. A permanent entry/exit tariff structure is likely to be= =20 developed for 2003. Charges for imbalances are expensive and access to=20 storage is restricted. GdF-Trading, however, has published conditions for= =20 balancing services.=20 There is only one trading Hub for France located at the French/Belgian bord= er=20 (Blaregnies/TaisniSres). Due to the distance-related nature of the=20 transportation tariff, competitive TPA is limited to eligible sites which a= re=20 located not too far (less than about 250Km) from the French/Belgian border.= =20 The main imports into France are for high cal gas, and GdF has published th= e=20 conditions for high cal/low cal gas swaps. As there is not yet a gas law in France (a =01+Projet de Loi=01, was approv= ed on=20 17th May 2000) transposing the EU gas directive into domestic legislation,= =20 the Regulatory Commission has not been appointed to date, and the official= =20 regulatory body remains the Ministry of Industry. =20 Although current conditions do not facilitate full requirement supply to=20 customers from new entrants, it is already possible to optimise gas supply= =20 through import of blocs for part or full supply. ECTRL was the first new=20 entrant to supply gas at the French border, and more recently into France.= =20 ECTRL's cumulative volume of gas trades so far totals 550 million cubic=20 meters.=20 The above represents only Enron's and its affiliates views' and, accordingl= y,=20 neither Enron nor any of its affiliates is providing any advice to you in t= he=20 above information. You are not entitled to rely on any of the above=20 information and you are advised to take such other independent advice, as y= ou=20 may deem necessary in respect of the matters referred to above. =20 -----Original Message----- From: Brod, Simon =20 Sent: 25 May 2001 17:31 To: Gaillard, Bruno Cc: de Gaulle, Pierre; Brun, Raphael; Davies, Philip; Duvauchelle, Antoine;= =20 Sankey, Ross Subject: RE: Background Information France/Final Draft My suggested paragraph on market conventions: A range of wholesale electricity products are currently traded in France. = =20 Peak and baseload day-ahead, week-ahead, monthly, quaterly, and yearly=20 products are traded. Peak products follow the German convention (12 hour= =20 peaks on weekdays, 08h00-20h00). Contract sizes are typically 25MW or 50MW= . Gate closure for scheduling imports, exports and transits is 14h00 Paris=20 time. Gate closure for scheduling "echanges de blocs" is 16h00 Paris time. Simon From: Bruno Gaillard/Enron@EUEnronXGate on 25/05/2001 15:36 To: Pierre de Gaulle/LON/ECT@ECT, Raphael Brun/LON/ECT@ECT, Simon=20 Brod/LON/ECT@ECT, Philip Davies/Enron@EUEnronXGate, Antoine=20 Duvauchelle/Enron@EUEnronXGate cc: Ross Sankey/LON/ECT@ECT=20 Subject: RE: Background Information France/Final Draft Below please find a revised version of the document. One element that is=20 still missing and that should be completed by the traders is the=20 "conventions" by possibly adding gate closure information, peak vs. off-pea= k,=20 and other relevant information. Bruno Updated May 2001. Background The Continental European electricity market is developing from an integrate= d=20 monopoly business to a competitive market. A segment of electricity users n= ow=20 have the right to choose their supplier from a range of marketers. The=20 emergence of new marketers and generators has created the demand for price= =20 risk management solutions and has encouraged the development of a traded=20 wholesale market. Following the adoption of the EU Electricity Directive in= =20 December 1996, member states were obliged to transpose the directive into= =20 national legislation opening electricity markets to competition by February= =20 1999. The directive sets out a three-tiered approach to the liberalisation of=20 electricity supply markets. Stage one entered into effect on 19 February=20 1997, and calls for the opening of 22% of national markets, based on the=20 average community share of electricity consumed by end customers using more= =20 than 40 GWh per year. The degree of opening will increase over six years by= =20 lowering the community consumption threshold to 20 GWh in 2000 (27% market= =20 opening) and to 9 GWh in 2003 (32-33% market opening). Distributor access i= s=20 a matter for each member state. The implementation of a new directive,=20 expected in 2002, will improve the conditions for a liberalized market. At present, the level of compliance with the directive varies between membe= r=20 states. The EU countries farthest along the process of liberalisation are= =20 Germany, Austria, Spain and the Netherlands. Switzerland, although it is no= t=20 an EU member state, is integral to market developments. France, although=20 having chosen to comply with the minimum requirements of the directive, has= =20 proven to open up their market more than expected. =20 Current Market EDF is the dominant electricity producer in France, the largest power=20 producer in the world with 475TWh generated in 2000, and the largest=20 exporter in Europe (net exports reached 71 TWh in 2000). Power generation = in=20 France is mainly nuclear (70%), but also hydro (20%), while conventional=20 thermal generation represents 10%. EDF is a vertically integrated company= =20 with services and products in generation (92%), supply (?%), transmission a= nd=20 distribution (95%). Finally, this historical supplier is a State Entity; th= e=20 French State owns EDF=01,s capital. A few Independent Power Producers (IPP= ) are=20 also active in the market, such as Snet (6.4TWh, coal-fired), and CNR (16TW= h,=20 hydro). Other smaller IPPs are commercially active but most must sell their= =20 production to EDF under a regulated tariff.=20 More than 100 distribution companies are active through a concession regime= =20 in their local distribution area. Few, however, are of a significant size= =20 (less than a dozen have sales of over 400 GWhs), or have eligible customers= =20 in their concession areas. The French System Operator (RTE) was created on 1 July 2000 and is a=20 sub-division of EDF, although it is unbundled in terms of management and=20 accounting. A postage stamp tariff has been implemented under the=20 transitional regime, which varies according to the voltage used and is base= d=20 on a matrix (Summer/Winter, Peak/Off-Peak). Users have to contract for thei= r=20 maximum transmission capacity. Imbalances are settled under a published=20 tariff, which introduces high charges for imbalances beyond a 10% tolerance= =20 level and 5MW.=20 A three-year framework contract (e.g., by way of a Master Agreement with a= =20 minimum term of three years) is required for eligible customers, but=20 eligibles are free to deal for shorter maturity transactions within such a= =20 three-year contractual framework. =20 Although the criteria for eligibility is per site, and eligible customers= =20 have to contract transmission for each site, RTE has created balancing=20 responsibility contracts (contrats de Responsable d'Equilibre) which compel= s=20 the aggregation of imbalance charges for different eligible sites within an= =20 equilibrium perimeter defined with RTE. Imbalances are settled under a=20 published tariff which charges a heavy penalty for any imbalance beyond a 1= 0%=20 tolerance level or 5MW.=20 Even though we are currently under a transitional regime in France, the=20 ability to trade power already exists. Optimisation can be found through=20 real-time arbitrage offered by the flexibility of the industrial process, t= he=20 availability of market prices and optional structures. The establishment of= =20 balancing responsibility contracts has created the basic conditions for an= =20 effective power trading market in France, and this through the exchange of= =20 blocks from one perimeter to another. Blocs are only exchangeable on=20 day-ahead bases but intra-day procedures are expected to be implemented. Al= l=20 transactions are currently based on bilateral physical contracts.=20 The establishment of this framework has contributed to an increasing number= =20 of players for trading, imports, exports and transit; we are confident that= =20 the French power market will develop rapidly. Enron Capital & Trade=20 Resources Limited ("ECTRL") is a balancing responsible actor in France and= =20 closed the first physical power transaction in France early 2000, and was t= he=20 very first new entrant to trade power (buy/sell) in France late 2000. =20 Future Developments << OLE Object: Picture (Metafile) <<=20 France's size and geographical position will make it a natural hub for=20 trading on the Continent. It is Europe's second largest electricity market,= =20 with net consumption (including industrial on-site consumption) totalling= =20 over 400 TWh in 1999. The increase of physical trading, envisaged capacity= =20 release by EDF, and creation of future market mechanism will contribute to= =20 the further development of the market. Both a balancing market and a spot exchange market are expected to be=20 implemented by end 2001. Players in the balancing market will propose put a= nd=20 call options, exercised by RTE according to its own portfolio of contacts= =20 (producer, consumer) and providing it with physical balancing capacity. The= =20 balancing market will also show referenced market prices for balancing=20 services. =20 Some of the spot market volume is expected to be operated by ParisBourse.= =20 However, due to the dominant position of EDF, the limited number of active= =20 IPPs, existing restrictions for trading for authorised producers in France,= =20 and the lack of transparency with regard to current rules for allocation of= =20 cross-border capacity and attribution of congestion costs, we believe that= =20 the conditions for the creation of an effective spot power market in France= =20 are not yet fully met.=20 Recently, the European Commission has asked EDF to auction 6,000MW of virtu= al=20 capacity through VPP auctions starting in September 2001, representing abou= t=20 30% of the market for French eligible industrials This will further=20 contribute to increase liquidity.=20 Regulatory Environment << OLE Object: Picture (Metafile) <<=20 The goal of Directive 96/92/EC concerning the internal market in electricit= y=20 is to obtain a cheaper but secure electricity supply by introducing and=20 gradually expanding competition while maintaining industry competitiveness = in=20 the face of price decreases. France has transposed the directive, however= =20 certain imperfection with regards to non-discriminatory access and the leve= l=20 of liberalisation still exist.=20 The French Electricity law was passed on 10 February 2000, a year later th= an=20 required by the EU, establishing a transitional regime for third party acce= ss=20 (TPA). Several application decrees still have to be passed, including=20 transportation tariffs on the electric grid to eligible customers. The=20 current threshold for eligibility is 16GWh (net of auto-consumption) per ye= ar=20 and per site, and represents about 600 eligible clients and 1,200 sites.=20 Eligibility for distribution companies is currently limited to the eligible= =20 consumption of customers located in their concession areas. The French powe= r=20 market is effectively open to some competition, and about 60 eligible=20 industrials have so far switched totally or partly from the historical=20 supplier. The eligibility threshold will be reduced to 9GWh per site by=20 direct application of the EU Directive by Feb. 2003, as the French governme= nt=20 declined a quicker opening of the power market. The two main authorities, which oversee the industry, are the CRE (Commissi= on=20 de Regulation de l'Electricit,) is the official regulatory body and the=20 ministry of industry. The CRE is responsible to insure that RTE provides fo= r=20 non-discriminatory access on to the grid and will be issuing transportation= =20 tariffs. The Ministry is responsible for providing generation licenses for= =20 IPPs and for determining eligibility issues. =20 RTE is implementing new capacity allocation procedures on the UK, Italy and= =20 Spain interconnectors. On the remaining borders, capacity is currently=20 allocated on a first-come-first served basis rule, and congestion fees are= =20 levied at the margin, which favours long-term contracts and historical=20 players. In addition, there is currently some lack of transparency with=20 regards to RTE real-time data on the capacity available/used for exports an= d=20 imports. However an intra-day market is now effective for transits, imports= =20 and exports. The first come first serve allocation rule on border capacity= =20 is likely to be changed by end 2001. In addition, the CRE is likely to=20 request RTE to release additional data in the months to come. =20 New IPPs have to be authorised through auctions or through direct decision = of=20 the Ministry of Industry, the main route for authorisation. Authorised IPPs= =20 in France are limited by Decree to buying for resale to eligible customers = a=20 maximum of buy for resale to eligible customers a volume equivalent to 20% = of=20 the installed capacity, including long term contracts. Although the=20 interpretation of this law is unclear, a recent statement by M. Tuot,=20 Director General of the CRE, implies that these restrictions only apply to= =20 French authorised producers and thus not to foreign-based energy companies = or=20 other non-producing entities. Thus, these restrictions do not apply to ECTR= L,=20 as we are not registered in France. In addition, French IPPs are free to= =20 sell and export their production. Eligible customers, who are physically connected to the Grid, have to=20 contract for transmission vis-.-vis RTE (Contrat Made). Traders, such as=20 ECTRL, are not required to have such a transmission contract, as they do no= t=20 consume the power they purchase. Only a balancing responsibility contract= =20 coupled with grid access contracts (import, export, and/or transit) are=20 required by RTE. =20 A new Decree is expected to be passed by Summer 2001, setting up new=20 conditions for transmission, transits and exports under a permanent regime.= =20 Imports, which are allocated on a pro-rata basis, are free of transmission= =20 charges. =20 A network code is currently under discussion between market players and=20 RTE. =20 Market Conventions Traders: Need to Add: gate closer information and on-peak off peak hours pl= us=20 whatever relevant conventions. Other: The Gas Market A transitional regime was implemented on 10 August 2000 by direct applicati= on=20 of the EU Directive, thus establishing regulated TPA for sites whose=20 consumption is over 25 million cubic meters p.a. The eligibility threshold= =20 will be reduced to 15million cubic meters in 2003, and 5 million cubic mete= rs=20 in 2008. No gas law has been passed yet (forecasted for mid 2002), and it i= s=20 expected that the transitional regime for gas in France will last until end= =20 2002. A zonal/distance-related tariff was published on 13 July 2000 by=20 GdF-Transportation. A permanent entry/exit tariff structure is likely to be= =20 developed for 2003. Charges for imbalances are expensive and access to=20 storage is restricted. GdF-Trading, however, has published conditions for= =20 balancing services.=20 There is only one trading Hub for France located at the French/Belgian bord= er=20 (Blaregnies/TaisniSres). Due to the distance-related nature of the=20 transportation tariff, competitive TPA is limited to eligible sites which a= re=20 located not too far (less than about 250Km) from the French/Belgian border.= =20 The main imports into France are for high cal gas, and GdF has published th= e=20 conditions for high cal/low cal gas swaps. As there is not yet a gas law in France (a =01+Projet de Loi=01, was approv= ed on=20 17th May 2000) transposing the EU gas directive into domestic legislation,= =20 the Regulatory Commission has not been appointed to date, and the official= =20 regulatory body remains the Ministry of Industry. =20 Although current conditions do not facilitate full requirement supply to=20 customers from new entrants, it is already possible to optimise gas supply= =20 through import of blocs for part or full supply. ECTRL was the first new=20 entrant to supply gas at the French border, and more recently into France.= =20 ECTRL's cumulative volume of gas trades so far totals 550 million cubic=20 meters.=20 The above represents only Enron's and its affiliates views' and, accordingl= y,=20 neither Enron nor any of its affiliates is providing any advice to you in t= he=20 above information. You are not entitled to rely on any of the above=20 information and you are advised to take such other independent advice, as y= ou=20 may deem necessary in respect of the matters referred to above. =20 -----Original Message----- From: de Gaulle, Pierre =20 Sent: 25 May 2001 12:22 To: Brun, Raphael; Brod, Simon; Gaillard, Bruno; Davies, Philip Cc: Sankey, Ross Subject: RE: Background Information France/Final Draft This is the final draft as approved by EOL legal and Mark Elliott. Any ultimate comments? Pierre ---------------------- Forwarded by Pierre De Gaulle/LON/ECT on 25/05/2001= =20 12:24 --------------------------- From: Justin Boyd/Enron@EUEnronXGate on 25/05/2001 12:16 To: Mark Elliott/Enron@EUEnronXGate, Pierre de Gaulle/LON/ECT@ECT, Ian=20 Brungs/Enron@EUEnronXGate cc: =20 Subject: RE: Background Information France/Final Draft i have no further comments from an EOL perspective justin -----Original Message----- From: Elliott, Mark =20 Sent: 25 May 2001 12:05 To: de Gaulle, Pierre; Boyd, Justin; Brungs, Ian Subject: FW: Background Information France/Final Draft Pierre, Re the main text - see my comments in blue below. I have passed this on to= =20 Justin as you will see as Justin is charge of Legal for EOL and will also= =20 have to approve it. With regards to the slides, could you give me a hard= =20 copy - I can't seem to open them on my system. Kind regards Mark -----Original Message----- From: de Gaulle, Pierre =20 Sent: 22 May 2001 12:26 To: Mark Elliott/LON/ECT@ENRON; Oliver, Jennifer Subject: RE: Background Information France/Final Draft Mark, Please find herewith the background info for EOL France. It seems that you= =20 would have to approve it (Any other approval needed?). Please note that thi= s=20 draft has been seen and amended by Raphael, Simon, Philip and Bruno. Thanks Pierre =20 ---------------------- Forwarded by Pierre De Gaulle/LON/ECT on 22/05/2001= =20 12:22 --------------------------- From: Jennifer Oliver/Enron@EUEnronXGate on 22/05/2001 11:10 To: Pierre de Gaulle/LON/ECT@ECT cc: =20 Subject: RE: Background Information France/Final Draft Pierre, Has French Power Legal approved the final draft below? If not, please could= =20 they review before I submit this to the EnronOnline approval process. Also,= =20 please let me know any other approvals you have receieved so far. This will= =20 help determine who still needs to review.=20 Thanks, Jennifer=20 -----Original Message----- From: de Gaulle, Pierre =20 Sent: 21 May 2001 18:04 To: Oliver, Jennifer; Goddard, Paul Subject: Re: Background Information France/Final Draft Please find the final draft of EOL Backgoung information for France. Please= =20 also find two slides about France, which can be included in the Continental= =20 Gas Trading presentation. I would like to appear in the background as the main commercial contact=20 point, as follows: Pierre de Gaulle Director France Tel: + 44 207 783 7742 Fax: + 44 207 783 8255 Mobile: + 44 777 19 01 565 Email: Pierre.de.Gaulle@enron.com Thanks Pierre << File: SlidesFrance.ppt <<=20 =20 ---------------------- Forwarded by Pierre De Gaulle/LON/ECT on 21/05/2001= =20 18:00 --------------------------- << OLE Object: Picture (Device Independent Bitmap) <<=20 Bruno Gaillard@ENRON 21/05/2001 17:51 To: Pierre de Gaulle/LON/ECT@ECT cc: Raphael Brun/LON/ECT@ECT, Simon Brod/LON/ECT@ECT, Philip=20 Davies/LON/ECT@ECT=20 Subject: Re: Background Information France/EOL/Draft 2 << OLE Object:=20 StdOleLink <<=20 See red and strikethrough comments below ---------------------- Forwarded by Pierre De Gaulle/LON/ECT on 20/05/2001= =20 16:09 --------------------------- << OLE Object: Picture (Device Independent Bitmap) <<=20 Pierre de Gaulle 14/05/2001 19:56 Sent by: Pierre De Gaulle To: Jennifer Oliver/EU/Enron@Enron, Paul Goddard/EU/Enron@Enron cc: Philip Davies/LON/ECT@ECT, Bruno Gaillard/EU/Enron@Enron, Raphael=20 Brun/LON/ECT@ECT, Simon Brod/LON/ECT@ECT=20 Subject: Background Information France Please find a draft of the marketing background information about the Frenc= h=20 power (and gas) markets for EOL. Your comments are appreciated. Thanks Pierre Updated May 2001. 1)Background France is the second largest country in Europe with 58 million inhabitants.= =20 EdF, who was the monopolistic producer, is the largest power producer in th= e=20 world with 475TWh generated in 2000, thanks to nuclear production. The=20 historical supplier, who is at the same time the largest exporter of power = in=20 Europe (net exports reached 71TWh in 2000), is a direct emanation from the= =20 French State, who owns EdF capital. Power generation in France is mainly=20 nuclear (70%), but also hydro (20%), while conventional thermal generation= =20 represents 10%. EdF owns 92% of power generation, and 95% of distribution.= =20 A few Independent Power Producers (IPP) are also active in the market, such= =20 as Snet (6.4TWh, coal-fired), and CNR (16TWh, hydro). Other small IPPs sell= =20 their production to EdF under a regulated tariff. There has been significan= t=20 development of cogeneration projects since 1997. There is now 3,500MW of=20 installed capacity, thanks to the legal obligation for EdF to purchase powe= r=20 generated from cogeneration units at a preferable (is "preferable" the=20 correct word??) tariff. In the view of the transposition of the EU=20 Electricity Directive into French law, this purchase obligation ceased to= =20 apply for new large projects (over 12MW) from 1st Jan. 1999. More than 100 distribution companies are active through a concession regime= =20 in their local distribution area. Few, however, are of a significant size= =20 (less than a dozen have sales of over 400 GWhs), or have eligible customers= =20 in their concession area. 2) Regulatory Environment The French Electricity law was passed on 10 February 2000, implementing=20 regulated third party access (TPA) in France under a transitional regime. T= he=20 law was approved one year late, failing to meet the required EU deadline.= =20 Dozens ["Dozens" - I would replace this with "Several") of application= =20 decrees still have to be passed, including tariffs to eligible industrials.= =20 The French power market is open to competition, however. About 60 eligible= =20 industrials have so far switched totally or partly from the historical=20 supplier. Current threshold for eligibility is 16GWh (net of=20 auto-consumption) per year and per site, representing about 600 eligible=20 clients and 1,200 sites. The eligibility threshold will be reduced to 9GWh= =20 per site by direct application of the EU Directive in Feb. 2003, as the=20 French government declined a quicker opening of the power market. Eligibility of distribution companies is limited to the eligible consumptio= n=20 of customers located in their concession area. =20 A three-year framework contract ( e.g., by way of a Master Agreement with a= =20 minimum term of three years) is required for eligible customers, but=20 eligibles are free to deal for shorter maturity transactions within such a= =20 three year contractual framework. =20 New IPPs have to be authorised through auctions or through direct decision= =20 from the Ministry of Industry, which is the main route for authorisation.= =20 Authorised IPPs in France are limited by Decree to trading buy for resale t= o=20 eligible customers a volume equivalent to 20% of the installed capacity,=20 including long term contracts. Trading is currently defined as the conditio= ns=20 of power purchase for resale to eligible customers. These Trading=20 restrictions, however, do not apply to ECTRL, as we are not registered in= =20 France. IPPs are free to sell and export power. The French System Operator (RTE) was created on 1 July 2000 and is a=20 sub-division of EdF, although it is unbundled in terms of management and=20 accounting. A postage stamp tariff was implemented under the transitional= =20 regime, which varies according to the voltage used,and which is based on a= =20 matrix (Summer/Winter, Peak/OffPeak). Users have to contract transmission u= p=20 to the maximum capacity that they will use. RTE purchases excess capacity= =20 available through transmission contracts at fixed prices, which represents= =20 about half of the market price. Imbalances are settled under a published=20 tariff, which introduces high charges for imbalances beyond a 10% tolerance= =20 level and 5MW. Although the criteria for eligibility is per site, and=20 eligible customers have to contract transmission for each site, RTE has=20 created programme responsible contracts (contrats de Responsable=20 d'Equilibre), which allow the aggregation of imbalance charges for differen= t=20 eligible sites within an equilibrium perimeter defined with RTE. Eligible customers, who are physically connected to the Grid, have to=20 contract for transmission vis-.-vis RTE (Contrat Made). Traders, such as=20 ECTRL, are not required to have such a transmission contract, as they do no= t=20 consume the power they purchase. Only a programme responsible contract=20 coupled with grid access contracts (import, export, and/or transit) are=20 required by RTE. =20 A new Decree is expected to be passed by Summer 2001, setting up new=20 conditions for transmission, transits and exports under a permanent regime.= =20 It is likely that this new tariff will implement a 1/3 injection-2/3 delive= ry=20 calculation factor. Imports, which are allocated on a pro-rata basis, are= =20 free of transmission charges. =20 Programme responsible contracts have established the basis of trading in=20 France through the exchange of blocs from one perimeter to another. Enron= =20 Capital & Trade Resources Limited ("ECTRL") is programme responsible in=20 France. Cross border capacity is currently allocated on a first-come-first= =20 served basis rule by RTE, and congestion fees are levied at the margin, whi= ch=20 favours long term contracts and does not give equal treatment to all player= s.=20 In addition, there is currently some lack of transparency with regards to R= TE=20 real-time data on the capacity available/used for exports and imports. This= =20 allocation rule is likely to change by end 2001. In addition, the CRE is=20 likely to request RTE to release additional data in the months to come. = =20 The CRE (Commission de Regulation de l'Electricite) is the offical regulato= ry=20 body, which mainly covers TPA and tariff issues, while IPP licenses and=20 eligibility issues are covered by the Ministry of Industry. =20 =20 3) Business Opportunity Although we are currently under a transitional regime in France, the abilit= y=20 to trade power already exists. Optimisation can be found through real-time= =20 arbitrage between the flexibility of the industrial process, market prices= =20 and optional structures. The establishment of programme responsible contrac= ts=20 has created the basic conditions for an effective power trading market in= =20 France. ECTRL closed the first physical power transaction in France early= =20 2000, and was the very first new entrant to trade power (buy/sell) in Franc= e=20 late 2000. =20 An intraday market is now effective for transits, imports and exports, and = is=20 expected to soon be extended to exchange of blocs in France.=20 Liquidity has been dramatically increasing (although the market remains=20 dominated by the historical player) thanks to RTE capacity auctions for=20 (auction has not been implemented on Spanish side yet) [QUERY: do we need= =20 this bit in brackets?? What does it add?? Can't we just delete it?? Or i= s=20 it a note and someone has to write some better text here?? It just does no= t=20 read correctly in English owing to its place in the sentence at present] UK= ,=20 Italy and Spain interconnectors, RTE tenders for HV Grid losses, industrial= s=20 switching, and new players coming into the market. In addition, the Europea= n=20 Commission has determined that EdF will auction 6,000MW of virtual capacity= =20 through VPP and PPA auctions in September 2001, representing about 30% of t= he=20 market for French eligible industrials This will further contribute to=20 increase liquidity.=20 A network code is currently under discussion between market players and=20 RTE. =20 4) Future Development=20 It is forecasted that both balancing market and spot exchange market will b= e=20 implemented by end 2001. Players in the balancing market will propose put a= nd=20 call options, which will be exercised by RTE according to its own portfolio= =20 of contacts (producer,consumer), thus providing RTE with physical balancing= =20 capacity. The balancing market will also show referenced market prices for= =20 balancing services.=20 The Some of the spot market volume is expected to be run by ParisBourse.=20 However, due to the dominant position of EdF, the limited number of active= =20 IPPs, existing restrictions for trading for authorised producers in France,= =20 and the lack of transparency with regard to current rules for allocation of= =20 cross-border capacity and attribution of congestion costs, we believe that= =20 the conditions for the creation of an effective spot power market in France= =20 are not yet fully met. ECTRL has actively been lobbying in order to have fa= ir=20 and transparent rules implemented for every player in the market and has=20 actively contributed for a spot market to take place. However, thanks to an increasing number of players in France for trading,= =20 imports, exports and transit, we are confident that the French power market= =20 will develop rapidly. =20 5) The Gas Market Situation A transitional regime was implemented on 10 August 2000 by direct applicati= on=20 of the EU Directive, thus establishing regulated TPA for sites whose=20 consumption is over 25 million cubic meters p.a. The eligibility threshold= =20 will be reduced to 15million cubic meters in 2003, and 5 million cubic mete= rs=20 in 2008. No gas law has been passed yet (forecasted mid 2002), and its is= =20 expected that the transitional regime for gas in France will last until end= =20 2002. A zonal/distance-related tariff was disclosed published on 13 July 20= 00=20 by GdF-Transportation. A permanent entry/exit tariff structure is likely to= =20 be developed for 2003. Charges for imbalances are expensive, and access t= o=20 storage is restricted. GdF-Trading, however, has published conditions for= =20 balancing services.=20 There is only one trading Hub for France located at the French/Belgian bord= er=20 (Blaregnies/TaisniSres). Due to the distance-related nature of the=20 transportation tariff, competitive TPA is limited to eligible sites which a= re=20 located not too far (less than about 250Km) from the French/Belgian border.= =20 The main imports into France are for high cal gas, and GdF has published th= e=20 conditions for high cal/low cal gas swaps. As there is not yet a [new??] gas law in France ( a Projet de Loi was=20 approved on 17th May 2000) transposing the EU Gas Directive into domestic= =20 legislation, the Regulatory Commission has not been appointed to-date , and= =20 the official regulatory body remains the Ministry of Industry. =20 Although current conditions do not facilitate full requirement supply to=20 customers from new entrants, it is already possible to optimise gas supply= =20 through import of blocs for part or full supply. ECTRL was the first new=20 entrant to supply gas at the French border, and more recently into France.= =20 ECTRL's cumulative volume of gas trades so far totals 550 million cubic=20 meters.=20 The above represents only Enron's and its affiliates views' and, accordingl= y,=20 neither Enron nor any of its affiliates is providing any advice to you in t= he=20 above information. You are not entitled to rely on any of the above=20 information and you are advised to take such other independent advice as yo= u=20 may deem necessary in respect of the matters referred to above. =20
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