2006 APEX ConferenceSeoul, October 31, 2006

SESSION 4: Experiences in how to deal with market stress situations.

José Javier GonzálezMarket Operations Director

OMEL

INDICE

1. Recent trend of the primary energy sources and electricity prices in Europe.

2. International exchanges through the Spanish Market.

3. Market prices and regulated tariffs. VACIO

4. Regional Markets and European single electricity market. (6)

5. Coming back to markets prices trust. VACIO

ANEX

1. RECENT TREND OF THE PRIMARY ENERGY SOURCES AND ELECTRICITY PRICES

HIGH PRICES IN THE PRIMARY ENERGY MARKETS

The higher prices of primary energy sources such us, oil, gas and coal is the result of: High demand due to the economic growth of the Asian Economies.

The instability of some oil producing countries.

Existing constraints oil reserve extraction.

The CO2 emission markets produced prices around 25 Euros/Tn until April 2006 when prices jump to 15 Euros/Tn levels.

During 2005 prices on the electricity markets have been much higher than in 2004 and have started to reflect the higher prices of primary energy sources as well as the price increase of CO2 emission rights.

During 2006 electricity prices varied between very high levels during the first quarter to more moderated values until now.

CRUDE OIL PRICES

Source: B.P. report

CO2 EMISSIONS MARKET PRICES. NORD POOL

CO2 EMISSIONS MARKET PRICES. POWERNEXT

ENERGY OF SPOT EUROPEAN MARKETS01/01/03 - 23/10/06

0

100.000

200.000

300.000

400.000

500.000

600.000

700.000

800.000

900.000

1-Jan 24-Mar 14-Jun 4-Sep 25-Nov 15-Feb 7-May 28-Jul 18-Oct 8-Jan 31-Mar 21-Jun 11-Sep 2-Dec 22-Feb 15-May 5-Aug

Date

MWh

APX NORDPOOL EEX POWERNEXT OMEL GME

EUROPEX QUARTER AVERAGE PRICES1/1/2000 - 23/10/2006

0

10

20

30

40

50

60

70

80

90

1º

Qu

arte

r

2º

Qu

arte

r

3º

Qu

arte

r

4º

Qu

arte

r

1º

Qu

arte

r

2º

Qu

arte

r

3º

Qu

arte

r

4º

Qu

arte

r

1º

Qu

arte

r

2º

Qu

arte

r

3º

Qu

arte

r

4º

Qu

arte

r

1º

Qu

arte

r

2º

Qu

arte

r

3º

Qu

arte

r

4º

Qu

arte

r

1º

Qu

arte

r

2º

Qu

arte

r

3º

Qu

arte

r

4º

Qu

arte

r

1º

Qu

arte

r

2º

Qu

arte

r

3º

Qu

arte

r

4º

Qu

arte

r

1º

Qu

arte

r

2º

Qu

arte

r

3º

Qu

arte

r

4º

Qu

arte

r

Date

Eur/MWh

APX NORDPOOL EEX POWERNEXT OMEL GME

Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Year 2005 Year 2006

EUROPEX QUARTER AVERAGE PRICES1/10/2005 - 23/10/2006

0

10

20

30

40

50

60

70

80

904

º Q

uar

ter

1º

Qu

arte

r

2º

Qu

arte

r

3º

Qu

arte

r

4º

Qu

arte

r

Date

Eur/MWh

APX NORDPOOL EEX POWERNEXT OMEL GME

24 OCTOBER 2005 - 23 OCTOBER 2006

0

2

4

6

8

10

12

14

16

18

20

22

24/1

0/05

07/1

1/05

21/1

1/05

05/1

2/05

19/1

2/05

02/0

1/06

16/0

1/06

30/0

1/06

13/0

2/06

27/0

2/06

13/0

3/06

27/0

3/06

10/0

4/06

24/0

4/06

08/0

5/06

22/0

5/06

05/0

6/06

19/0

6/06

03/0

7/06

17/0

7/06

31/0

7/06

14/0

8/06

28/0

8/06

11/0

9/06

25/0

9/06

09/1

0/06

23/1

0/06

Date

cEur/kWh

0

100.000

200.000

300.000

400.000

500.000

600.000

700.000

800.000

900.000

1.000.000

1.100.000

MWh

Maximum hourly price

Average price

Minimum hourly price

Energy assimilated to bilateral contracts + Energy in matching result schedule

Energy executed + Assimilated to bilateral contracts + Energy in matching result schedule

Energy in matching result schedule

Average price in the daily market Period Price 24/10/2005 23/10/2006 5,524 cEur/kWh

Actual(MW)

En Mercado %

CCGT 15.375 100,0

COGENERACIÓN 5.773 45,2

ENERGÍA EÓLICA 10.880 96,7

Potencia instalada actualmente en CCGT, Cogeneración y Energía Eólica

2. INTERNATIONAL EXCHANGES THROUGH THE SPANISH MARKET

IMPORTS FROM PORTUGALFROM JANUARY 1998 TO 23 OCTOBER 2006 (GWh)

0

50

100

150

200

250

300

350

400

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Organized market Bilaterals

Year 1998 Year 1999 Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Year 2005 Year 2006

EXPORTS TO PORTUGALFROM JANUARY 1998 TO 23 OCTOBER 2006 (GWh)

0

100

200

300

400

500

600

700

800

900

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Organized market Bilaterals

Year 1998 Year 1999 Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Year 2005 Year 2006

IMPORTS FROM FRANCEFROM JANUARY 1998 TO 23 OCTOBER 2006 (GWh)

0

100

200

300

400

500

600

700

800

900

1.000

1.100

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

REE-EDF Contract Organized market Bilaterals

Year 1998 Year 1999 Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Year 2005 Year 2006

EXPORTS TO FRANCEFROM JANUARY 1998 TO 23 OCTOBER 2006 (GWh)

0

50

100

150

200

250

300

350

400

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Nov

Jan

Mar

May Ju

l

Sep

Organized market Bilaterals

Year 1998 Year 1999 Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Year 2005 Year 2006

EUROPEX AVERAGE PRICES01/09/06 - 23/10/06

0

20

40

60

80

100

120

140

160

180

200

1-Sep 5-Sep 9-Sep 13-Sep 17-Sep 21-Sep 25-Sep 29-Sep 3-Oct 7-Oct 11-Oct 15-Oct 19-Oct 23-Oct

Date

Eur/MWh

APX NORDPOOL EEX POWERNEXT OMEL GME

INTERCHANGE CAPACITY WITH FRANCE AND ENERGY MATCHED

IN THE MARKETS AND EXECUTED IN BILATERAL CONTRACTS

APRIL 2006 - 22 OCTOBER 2006

-2000,0

-1500,0

-1000,0

-500,0

0,0

500,0

1000,0

1500,0

2000,0

01/0

4/20

06

08/0

4/20

06

15/0

4/20

06

22/0

4/20

06

29/0

4/20

06

06/0

5/20

06

13/0

5/20

06

20/0

5/20

06

27/0

5/20

06

03/0

6/20

06

10/0

6/20

06

17/0

6/20

06

24/0

6/20

06

01/0

7/20

06

08/0

7/20

06

15/0

7/20

06

22/0

7/20

06

29/0

7/20

06

05/0

8/20

06

12/0

8/20

06

19/0

8/20

06

26/0

8/20

06

02/0

9/20

06

09/0

9/20

06

16/0

9/20

06

23/0

9/20

06

30/0

9/20

06

07/1

0/20

06

14/1

0/20

06

21/1

0/20

06

Days

MW

h

Import capacity not used Export capacity not used Import Export

EXPORT

IMPORT

INTERCHANGE CAPACITY WITH PORTUGAL AND ENERGY MATCHED

IN THE MARKETS AND EXECUTED IN BILATERAL CONTRACTS

APRIL 2006 - 22 OCTOBER 2006

-2500

-2000

-1500

-1000

-500

0

500

1000

1500

2000

2500

01/0

4/20

06

08/0

4/20

06

15/0

4/20

06

22/0

4/20

06

29/0

4/20

06

06/0

5/20

06

13/0

5/20

06

20/0

5/20

06

27/0

5/20

06

03/0

6/20

06

10/0

6/20

06

17/0

6/20

06

24/0

6/20

06

01/0

7/20

06

08/0

7/20

06

15/0

7/20

06

22/0

7/20

06

29/0

7/20

06

05/0

8/20

06

12/0

8/20

06

19/0

8/20

06

26/0

8/20

06

02/0

9/20

06

09/0

9/20

06

16/0

9/20

06

23/0

9/20

06

30/0

9/20

06

07/1

0/20

06

14/1

0/20

06

21/1

0/20

06

Days

MW

h

Import capacity not used Export capacity not used Import Export

EXPORT

IMPORT

MAIN FACTORS INFLUENCING INTERNATIONAL TRADE: SPANISH – FRENCH INTERCONNECTION

International exchanges respond to the price differences between the markets.

Imports in valley hours. Congestion

Exports in plain and pick hours. Congestion

Imports and exports in the rest of the hours No congestion

The high prices in Spanish were not a consequence of lack of electrical interconnection capacity, but were due to a generalized price increase in all Europe.

3. MARKET PRICES AND REGULATED TARIFFS.

MARKET PRICES AND REGULATED TARIFFS (I)

Regulated tariffs in Spain. All consumers can choose between a contract with a supplier in

the free market or to continue with the contract with the traditional utility (distributor) at a regulated tariff.

A consumer can not come back to the regulated tariff in one year period.

The energy cost included in the regulated tariffs is 33,6 Euros MW/h.

This price was compatible with market prices during 2004.

This price is not compatible with market prices during 2005 and 2006.

MARKET PRICES AND REGULATED TARIFFS (II)

The Government thought that the market prices increases during 2005 and the beginning of 2006 were due to market power abuse.

A provisional sort of cup on market prices was established. The value will be revised prior to the end of 2006 based on market prices

The investigation on market power abuse has not a clear conclusion.

Evidences resulting from the actions taken in the period March-October 2006

Electricity prices trend in Spain continue to be as similar as before to central Europe prices trend.

Electricity prices level in Spain in the band of central Europe prices.

The energy negotiated in the market is lower; It has been transferred to bilateral and ancillary services where the cup mechanism is not applied.

4. REGIONAL MARKETS AND EUROPEAN SINGLE ELECTRICITY MARKET.

NEW EUROPEAN REGULATION

The Directive 2003/54/EC modifying Directive 96/92/EC on common rules for the internal market in electricity.

The Regulation 1228/2003 governing conditions for access to the network for cross-border exchanges in electricity.

The Decision 1229/2003/EC modifying 1254/96/EC that establishes a set of guidelines relating to trans-European energy sector networks.

NEW EUROPEAN REGULATION

The Decision 1229/2003/EC modifying 1254/96/EC that establishes a set of guidelines relating to trans-European energy sector networks.

“The aim of the proposal is to foster the interconnection, interoperability and development of trans-European energy networks in order to achieve a 10% interconnection capacity between Member States. The Barcelona European Council (March 2002) highlighted this objective as a priority for the achievement of electricity interconnection at the latest by 2005 in order to foster the effective and quick operation of the internal energy market”.

NEW EUROPEAN REGULATION (I)

The Directive 2003/54/EC modifying Directive 96/92/EC on common rules for the internal market in electricity.

Acceleration of the market deregulation calendar: 1 July 2004, all non-household customers may choose a supplier.

1 July 2007, all customers may choose a supplier.

Independence of transport and distribution management activities

Public service obligations.

Demand management.

REPORT ON PROGRES IN CREATING INTERNAL GAS AND ELECTRICITY MARKET (COMMUNICATIONS FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN

PARLIAMENT)

The most important persisting shortcoming is the lack of integration between national markets

Key indicators in this respect are the absence of price convergence across the E.U. and the low level of cross-border trade.

This is generally due to: The existence of barriers to entry. Inadequate use of existing infrastructure. Insufficient interconnection between member states.

Moreover, many national markets present a high degree of concentration of the industry, impeding the development of effective competition.

Sufficient cross-border competition has not yet developed to provide a fully effective constraining influence on the economic power of companies in each national market.

Source: European Commission. Report on progress in creating the internal gas and electricity market

5. COMING BACK TO MARKETS PRICES TRUST.

MARKET PRICES AND REGULATED TARIFFS (III)

The objectives announced by the governments are:

To establish a new tariff mechanism systems compatible with the market prices in the short run.

To establish a last resort tariff for small clients according to the European Union Directives.

To increase the Energy supplied outside regulated tariffs At least 50% at the end of 2007.

There is a debate about the justification for free assignment to the electricity producers of CO2 emission rights.