Endorsement Adrian Constantin RUSU Executive Director General

CNTEE TRANSELECTRICA No. 23187 / 31.05.2018

Endorsement

Adrian Constantin RUSU Executive Director General

Florin – Cristian Andreea – Georgiana Dan – Valeriu Georgeta Corina TATARU FLOREA ARDELEAN POPESCU Directorate Member Directorate Member Directorate Member Directorate Member

Report

Regarding affiliation of CNTEE Transelectrica SA To the shareholders of Joint Allocation Office SA - European Centre allocating the cross-border transmission capacities

I. Preamble The European power sector is undergoing a deep changing process. Emphasis is laid on the transition from a preponderantly national power sector development model to an integrated development one coordinated at European level, which should provide uniform continental development to enable its tailoring to national specificities and supervision of the European states’ legitimate interests. European energy and environmental policies have been instrumented by successive legislative packages approved Europe-wide, which rely on higher supply safety in terms of power consumption, higher energy efficiency, de-carbonising the energy generation mix by integration of renewable sources and application of efficient storage solutions. In this context the European Network Codes stipulate clear requirements regarding enhanced cooperation between Transmission & System Operators (TSO) in

Europe with a view to provide and manage an efficient transparent access to cross- border transmission networks, as well as in order to provide optimum safe qualitative operation of synchronously interconnected electric power systems, coordinated operation and proper technical development of the European electricity transmission network.

II. Legal framework II.1. European legislative framework

The legislative energy package III, through Regulation 714/2009 stipulates clear requirements regarding enhanced cooperation between Transmission & System Operators (TSO) in Europe in order to provide and manage an efficient transparent access to cross-border transmission networks, as well as to provide optimum safe qualitative operation of the synchronously interconnected electricity systems, coordinated operation and adequate technical development of the European electricity transmission grids. Regulation 714/2009 on the network access terms for cross-border electricity exchanges, cancelling Regulation (EC) 1228/2003, provides assignments both for ENTSO-E and for the European TSO-s in order to provide coordination of the network operation as follows:

Article 8 (3) ENTSO of electricity adopt: (a) Common network operation instruments in order to coordinate the network operation under normal and emergency conditions, including a common incident classification pattern and research plans;

Article 15 Transmission and System Operators: (1) Transmission and system operators apply coordinated mechanisms and exchange information in order to guarantee networks safety in the context of managed network congestion;

While also defining the coordination principles: Annex 1, Article 3.5 With a view to promote cross-border trade and efficient & fair competition the inter- TSO coordination within the regions set in item 3.2 includes all the process stages, from the calculation of capacities and allocation optimisation to the safe network operation, with clear distribution of responsibilities. Such coordination comprises in the main: (a) Using a joint transmission model that enables efficient management of inter- dependent physical loop flows and taking into account the differences between physical and commercial flows; (b) Allocating and nominating the capacities for efficient management of inter- dependent physical loop flows; (c) Identical obligations for capacity holders as regards provision of information for the forecasted capacity utilisation, meaning capacity nomination (for explicit bids);

(d) Identical time intervals and deadlines; (e) Identical structure for capacity allocation during different time intervals (for instance 1 day, 3 hours, 1 week etc.) and in terms of sold capacity blocks (amount of electricity expressed in MW, MWh etc.); (f) Coherent contractual framework with the market participants; (g) Flows check-up in order to provide compliance with the network safety requirements for purposes of operational planning and real time operation; (h) Keeping account books and settling congestion management activities;

In 2016 the European Energy Regulators Agency (ACER) issued decision 6 where Romania was designated as integrant part of interconnection capacity calculation regions Core and South Eastern Europe (SEE).

Later on Regulation (EU) 2016/1719 of the Commission of 26 September 2016 was approved, establishing the direction for capacity allocation on the long term market and providing tasks for EU’s TSO-s to set up the Single Allocation Platform of cross-border capacities, namely:

Article 48 – Establishment (1) All TSO-s make sure the single allocation platform is operational and complies with the functional requirements specified in article 49 within twelve months from the approval of the draft joint requirements and setting the single allocation platform. Competent regulatory authorities can extend this period upon request from a relevant TSO, on grounds of delays generated by public procurement procedures, but such period should not exceed six months.

II.2. National legal framework Romania’s national legislation allows such kind of affiliation by means of explicit provision in the Electricity and natural gas law 123/2012 (Article 36 (6) “The transmission and system operator can hold shares of trading companies established on the national territory or in other states, whose main business is the allocation of interconnection capacities and verification of network safety in the region, covering the territory of two or more states”).

III. Current situation

For the time being the long-term allocation of cross-border capacities is performed in coordinated manner with one’s own resources by the TSO-s operating interconnection lines; CNTEE Transelectrica SA has signed annual cooperation agreements with Hungary and Bulgaria for such allocation of interconnection capacities on the Romanian-Hungarian border (included in the CORE region) and the Romanian-Bulgarian frontier (included in the SEE region).

The document approving all national regulatory authorities from Europe already provides from 2019 onward the bids for the allocation of long-term capacities to be performed in coordinated manner by JAO, which was designated as Operator of the Single Allocation Platform (SAP).

JAO shareholders’ structure includes 22 TSO-s as follws: 50Hertz Transmission GmbH - Germany, Amprion GmbH - Germany, Austrian Power Grid - Austria, CEPS – Czech Republic, ELES d.o.o. - Slovenia, EnerginetDK - Denmark, Croatian Transmission System Operator Ltd. (HOPS) - Croatia, MAVIR - Hungarian Transmission System Operator Company Ltd. - Hungary, PSE SA - Poland, Swissgrid AG - Switzerland, TenneT TSO - Netherlands, TenneT TSO GmbH - Germany, TransnetBW GmbH - Germany, SEPS - Slovakia, RTE - France, ELIA - Belgium, CREOS - Louxembourg, Statnett - Norway, Terna - Italy, Moyle - Northern Ireland, Eirgrid - Ireland, IPTO - Greece.

JAO’s governance model relies on an organisational structure with an Executive Director General, supervised by a board consisting of the chairman, appointed by Tennet, Germany and 7 members: APG - Austria, PSE - Poland, Swissgrid - Switzerland, Elia - Belgium, Terna - Italy, EnerginetDK - Denmark, RTE - France. CNTEE Transelectrica SA was invited by JAO in letter 21877/22.05.2018 to join its shareholders with a view to carry out its tasks for the implementation of European Regulation. The estimative amount that CNTEE Transelectrica SA will participate with into JAO’s shareholders will be of maximum 300,000 Euros, and the final one will be set after the end of the valuation process. Mention should be made when such valuation is completed the respective amount will be budgeted in the Revenue & Expense Budget of Transelectrica in the year of the affiliation.

IV. Justification

By applying Article 48 from Regulation (EU) 2016/1719, all EU’s TSO-s under coordination of ENTSO-E according to article 49 – ”Functional requirements” from Regulation (EU) 2016/1719, have elaborated the document ”All TSOs’ proposal for the establishment of a Single Allocation Platform (SAP) in accordance with Article 49 and for the cost sharing methodology in accordance with Article 59 of Commission Regulation (EU) 2016/1719 establishing a Guideline on Forward Capacity Allocation”, which was submitted for approval to all National Regulatory Authorities of Europe whereby JAO was designated as the SAP operator.

When all European National Regulatory Authorities have approved the document ”All TSOs’ proposal for the establishment of a Single Allocation Platform (SAP) in accordance with Article 49 and for the cost sharing methodology in accordance with Article 59 of Commission Regulation (EU) 2016/1719 establishing a Guideline on Forward Capacity Allocation” ANRE Order 72 of 11 October 2017 was issued, approving the document entitled ”All TSOs’ proposal for the establishment of a Single Allocation Platform (SAP) in accordance with Article 49 and for the cost sharing methodology in accordance with Article 59 of Commission Regulation (EU) 2016/1719 establishing a Guideline on Forward Capacity Allocation”.

Besides the main activity of long-term allocation of cross-border capacities JAO has also developed other activities / instruments derived from European regulations such as: short-term allocations of cross-border capacities, shadow allocation of capacity for the coupled markets, settlement activities for the coupled market, documents archiving and project management. By extending the activity portfolio a strong point was instituted in JAO because TSO-s can benefit jointly of the IT instruments and JAO’s knowledge, thus each TSO does no longer need developing individually instruments and resources for these activities, while also providing development and operation cost cutting of such activities / instruments. As regards the affiliation of CNTEE Transelectrica SA to the two capacity calculation regions CORE and SEE, mention should be made the great majority of European TSO-s, except for the TSO-s of Bulgaria and Romania, are shareholder members of JAO, and they benefit at leas of one of the services from the portfolio of JAO SA. For the time being CNTEE Transelectrica SA benefits of the document archiving and project management activities, which are performed Europe-wide or regionally (CORE or SEE), due to the application of EU Regulations. Participating to JAO’s shareholders CNTEE Transelectrica SA will join the great family of European TSO-s in setting up joint governance structures, thus the interests of CNTEE Transelectrica SA and of the Romanian power system are directly represented in pan-European organisations. The affiliation of CNTEE Transelectrica SA to the shareholders of JAO SA does not entail risks of incompliance with the requirements provided in Romania’s national legislation with respect to the independent position of CNTEE Transelectrica SA in its capacity of national Transmission and System Operator, nor with the Electricity and natural gas law 123/2012, or with the general terms associated to the TSO licence approved by ANRE Order 104/2014 and ANRE Order 164/2015 certifying the company as Transmission and System Operator in accordance with the provisions of the Electricity and natural gas law 123/2012.

V. Company proposals

Taking into account the presentation above we submit to the approval of the Shareholders’ General Assembly according to Article 14 para 3, let (b) from the Articles of Association of CNTEE Transelectrica SA the following: 1. The affiliation of CNTEE Transelectrica SA to JAO SA (European Joint Allocation Office). 2. Mandating the Directorate of CNTEE Transelectrica SA to carry out all legal formalities and documents for the company’s participation into the share capital of JAO SA.

ENDORSED,

Radu Stefan CERNOV Director, DJC

Elaborated

Cristina STOIAN Gheorghe VISAN Director, DESF Director, DPE