Background

The Continental European electricity market is developing from an integrated 
monopoly business to a competitive market. A segment of electricity users now 
have the right to choose their supplier from a range of marketers. The 
emergence of new marketers and generators has created the demand for price 
risk management solutions and has encouraged the development of a traded 
wholesale market. Following the adoption of the EU Electricity Directive in 
December 1996, member states were obliged to transpose the directive into 
national legislation opening electricity markets to competition by February 
1999.

The directive sets out a three-tiered approach to the liberalisation of 
electricity supply markets. Stage one entered into effect on 19 February 
1997, and calls for the opening of 22% of national markets, based on the 
average community share of electricity consumed by end customers using more 
than 40 GWh per year. The degree of opening will increase over six years by 
lowering the community consumption threshold to 20 GWh in 2000 (27% market 
opening) and to 9 GWh in 2003 (32-33% market opening). Distributor access is 
a matter for each member state. The implementation of a new directive, 
expected in 2002, will improve the conditions for a liberalized market.

At present, the level of compliance with the directive varies between member 
states. The EU countries farthest along the process of liberalisation are 
Germany, Austria, Spain and the Netherlands. Switzerland, although it is not 
an EU member state, is integral to market developments. France, although 
having chosen to comply with the minimum requirements of the directive, has 
proven to open up their market more than expected.    

Current Market

EDF is the dominant electricity producer in France, the largest power 
producer in the world with 475TWh generated in 2000,  and the largest 
exporter in Europe (net exports reached 71 TWh in 2000).  Power generation in 
France is mainly nuclear (70%), but also hydro (20%), while conventional 
thermal generation represents 10%. EDF is a vertically integrated company 
with services and products in generation (92%), supply (?%), transmission and 
distribution (95%). Finally, this historical supplier is a State Entity; the 
French State owns EDF,s capital.  A few Independent Power Producers (IPP) are 
also active in the market, such as Snet (6.4TWh, coal-fired), and CNR (16TWh, 
hydro). Other smaller IPPs are commercially active but most must sell their 
production to EDF under a regulated tariff. 

More than 100 distribution companies are active through a concession regime 
in their local distribution area. Few, however, are of a significant size 
(less than a dozen have sales of over 400 GWhs), or have eligible customers 
in their concession areas.

The French System Operator (RTE) was created on 1 July 2000 and is a 
sub-division of EDF, although it is unbundled in terms of management and 
accounting. A postage stamp tariff has been implemented under the 
transitional regime, which varies according to the voltage used and is based 
on a matrix (Summer/Winter, Peak/Off-Peak). Users have to contract for their 
maximum transmission capacity. Imbalances are settled under a published 
tariff, which introduces high charges for imbalances beyond a 10% tolerance 
level and 5MW. 

A three-year framework contract (e.g., by way of a Master Agreement with a 
minimum term of three years) is required for eligible customers, but 
eligibles are free to deal for shorter maturity transactions within such a 
three-year contractual framework.  

Although the criteria for eligibility is per site, and eligible customers 
have to contract transmission for each site, RTE has created balancing 
responsibility contracts (contrats de Responsable d'Equilibre) which compels 
the aggregation of imbalance charges for different eligible sites within an 
equilibrium perimeter defined with RTE. Imbalances are settled under a 
published tariff which charges a heavy penalty for any imbalance beyond a 10% 
tolerance level or 5MW. 

Even though we are currently under a transitional regime in France, the 
ability to trade power already exists. Optimisation can be found through 
real-time arbitrage offered by the flexibility of the industrial process, the 
availability of market prices and optional structures. The establishment of 
balancing responsibility contracts has created the basic conditions for an 
effective power trading market in France, and this through the exchange of 
blocks from one perimeter to another. Blocs are only exchangeable on 
day-ahead bases but intra-day procedures are expected to be implemented. All 
transactions are currently based on bilateral physical contracts. 

The establishment of this framework has contributed to an increasing number 
of players for trading, imports, exports and transit; we are confident that 
the French power market will develop rapidly.     Enron Capital & Trade 
Resources Limited ("ECTRL") is a balancing responsible actor in France and 
closed the first physical power transaction in France early 2000, and was the 
very first new entrant to trade power (buy/sell) in France late 2000.    

Future Developments

France's size and geographical position will make it a natural hub for 
trading on the Continent. It is Europe's second largest electricity market, 
with net consumption (including industrial on-site consumption) totalling 
over 400 TWh in 1999. The increase of physical trading, envisaged capacity 
release by EDF, and creation of future market mechanism will contribute to 
the further development of the market.

Both a balancing market and a spot exchange market are expected to be 
implemented by end 2001. Players in the balancing market will propose put and 
call options, exercised by RTE according to its own portfolio of contacts 
(producer, consumer) and providing it with physical balancing capacity. The 
balancing market will also show referenced market prices for balancing 
services.
 
Some of the spot market volume is expected to be operated by ParisBourse. 
However, due to the dominant position of EDF, the limited number of active 
IPPs, existing restrictions for trading for authorised producers in France, 
and the lack of transparency with regard to current rules for allocation of 
cross-border capacity and attribution of congestion costs, we believe that 
the conditions for the creation of an effective spot power market in France 
are not yet fully met. 

Recently, the European Commission has asked EDF to auction 6,000MW of virtual 
capacity through VPP auctions starting in September 2001, representing about 
30% of the market for French eligible industrials This will further 
contribute to increase liquidity. 

Regulatory Environment

The goal of Directive 96/92/EC concerning the internal market in electricity 
is to obtain a cheaper but secure electricity supply by introducing and 
gradually expanding competition while maintaining industry competitiveness in 
the face of price decreases. France has transposed the directive, however 
certain imperfection with regards to non-discriminatory access and the level 
of liberalisation still exist. 

The French Electricity law was passed on 10 February 2000, a year later  than 
required by the EU, establishing a transitional regime for third party access 
(TPA). Several application decrees still have to be passed, including 
transportation tariffs on the electric grid to eligible customers. The 
current threshold for eligibility is 16GWh (net of auto-consumption) per year 
and per site, and represents about 600 eligible clients and 1,200 sites. 
Eligibility for distribution companies is currently limited to the eligible 
consumption of customers located in their concession areas. The French power 
market is effectively open to some competition, and about 60 eligible 
industrials have so far switched totally or partly from the historical 
supplier. The eligibility threshold will be reduced to 9GWh per site by 
direct application of the EU Directive by Feb. 2003, as the French government 
declined a quicker opening of the power market.

The two main authorities, which oversee the industry, are the CRE (Commission 
de Regulation de l'Electricit,) is the official regulatory body and the 
ministry of industry. The CRE is responsible to insure that RTE provides for 
non-discriminatory access on to the grid and will be issuing transportation 
tariffs.  The Ministry is responsible for providing generation licenses for 
IPPs and for determining eligibility issues.       

RTE is implementing new capacity allocation procedures on the UK, Italy and 
Spain interconnectors. On the remaining borders, capacity is currently 
allocated on a first-come-first served basis rule, and congestion fees are 
levied at the margin, which favours long-term contracts and historical 
players. In addition, there is currently some lack of transparency with 
regards to RTE real-time data on the capacity available/used for exports and 
imports. However an intra-day market is now effective for transits, imports 
and exports.  The first come first serve allocation rule on border capacity 
is likely to be changed by end 2001. In addition, the CRE is likely to 
request RTE to release additional data in the months to come.   

New IPPs have to be authorised through auctions or through direct decision of 
the Ministry of Industry, the main route for authorisation. Authorised IPPs 
in France are limited by Decree to buying for resale to eligible customers a 
maximum of buy for resale to eligible customers a volume equivalent to 20% of 
the installed capacity, including long term contracts. Although the 
interpretation of this law is unclear, a recent statement by M. Tuot, 
Director General of the CRE, implies that these restrictions only apply to 
French authorised producers and thus not to foreign-based energy companies or 
other non-producing entities. Thus, these restrictions do not apply to ECTRL, 
as we are not registered in France.  In addition, French IPPs are free to 
sell and export their production.

Eligible customers, who are physically connected to the Grid, have to 
contract for transmission vis-.-vis RTE (Contrat Made). Traders, such as 
ECTRL, are not required to have such a transmission contract, as they do not 
consume the power they purchase. Only a balancing responsibility contract 
coupled with grid access contracts (import, export, and/or transit) are 
required by RTE.  

A new Decree is expected to be passed by Summer 2001, setting up new 
conditions for transmission, transits and exports under a permanent regime. 
Imports, which are allocated on a pro-rata basis, are free of transmission 
charges.  

A network code is currently under discussion between market players and 
RTE.       

Market Conventions

A range of wholesale electricity products are currently traded in France.  
Peak and baseload day-ahead, week-ahead, monthly, quaterly, and yearly 
products are traded.  Peak products follow the German convention (12 hour 
peaks on weekdays, 08h00-20h00).  Contract sizes are typically 25MW or 50MW.

Gate closure for scheduling imports, exports and transits is 14h00 Paris 
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 application 
of the EU Directive, thus establishing regulated TPA for sites whose 
consumption is over 25 million cubic meters p.a. The eligibility threshold 
will be reduced to 15million cubic meters in 2003, and 5 million cubic meters 
in 2008. No gas law has been passed yet (forecasted for mid 2002), and it is 
expected that the transitional regime for gas in France will last until end 
2002. A zonal/distance-related tariff was published on 13 July 2000 by 
GdF-Transportation. A permanent entry/exit tariff structure is likely to be 
developed for 2003. Charges for imbalances are expensive and access to 
storage is restricted. GdF-Trading, however, has published conditions for 
balancing services. 
There is only one trading Hub for France located at the French/Belgian border 
(Blaregnies/TaisniSres). Due to the distance-related nature of the 
transportation tariff, competitive TPA is limited to eligible sites which are 
located not too far (less than about 250Km) from the French/Belgian border. 
The main imports into France are for high cal gas, and GdF has published the 
conditions for high cal/low cal gas swaps.
As there is not yet a gas law in France (a +Projet de Loi, was approved on 
17th May 2000) transposing the EU gas directive into domestic legislation, 
the Regulatory Commission has not been appointed to date, and the official 
regulatory body remains the Ministry of Industry.    
Although current conditions do not facilitate full requirement supply to 
customers from new entrants, it is already possible to optimise gas supply 
through import of blocs for part or full supply. ECTRL was the first new 
entrant to supply gas at the French border, and more recently into France. 
ECTRL's cumulative volume of gas trades so far totals 550 million cubic 
meters. 

The above represents only Enron's and its affiliates views' and, accordingly, 
neither Enron nor any of its affiliates is providing any advice to you in the 
above information.  You are not entitled to rely on any of the above 
information and you are advised to take such other independent advice, as you 
may deem necessary in respect of the matters referred to above.      


 -----Original Message-----
From:  Brod, Simon  
Sent: 25 May 2001 17:31
To: Gaillard, Bruno
Cc: de Gaulle, Pierre; Brun, Raphael; Davies, Philip; Duvauchelle, Antoine; 
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.  
Peak and baseload day-ahead, week-ahead, monthly, quaterly, and yearly 
products are traded.  Peak products follow the German convention (12 hour 
peaks on weekdays, 08h00-20h00).  Contract sizes are typically 25MW or 50MW.

Gate closure for scheduling imports, exports and transits is 14h00 Paris 
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 
Brod/LON/ECT@ECT, Philip Davies/Enron@EUEnronXGate, Antoine 
Duvauchelle/Enron@EUEnronXGate
cc: Ross Sankey/LON/ECT@ECT 

Subject: RE: Background Information France/Final Draft

Below please find a revised version of the document. One element that is 
still missing and that should be completed by the traders is the 
"conventions" by possibly adding gate closure information, peak vs. off-peak, 
and other relevant information.

Bruno

Updated May 2001.

Background

The Continental European electricity market is developing from an integrated 
monopoly business to a competitive market. A segment of electricity users now 
have the right to choose their supplier from a range of marketers. The 
emergence of new marketers and generators has created the demand for price 
risk management solutions and has encouraged the development of a traded 
wholesale market. Following the adoption of the EU Electricity Directive in 
December 1996, member states were obliged to transpose the directive into 
national legislation opening electricity markets to competition by February 
1999.

The directive sets out a three-tiered approach to the liberalisation of 
electricity supply markets. Stage one entered into effect on 19 February 
1997, and calls for the opening of 22% of national markets, based on the 
average community share of electricity consumed by end customers using more 
than 40 GWh per year. The degree of opening will increase over six years by 
lowering the community consumption threshold to 20 GWh in 2000 (27% market 
opening) and to 9 GWh in 2003 (32-33% market opening). Distributor access is 
a matter for each member state. The implementation of a new directive, 
expected in 2002, will improve the conditions for a liberalized market.

At present, the level of compliance with the directive varies between member 
states. The EU countries farthest along the process of liberalisation are 
Germany, Austria, Spain and the Netherlands. Switzerland, although it is not 
an EU member state, is integral to market developments. France, although 
having chosen to comply with the minimum requirements of the directive, has 
proven to open up their market more than expected.    

Current Market

EDF is the dominant electricity producer in France, the largest power 
producer in the world with 475TWh generated in 2000,  and the largest 
exporter in Europe (net exports reached 71 TWh in 2000).  Power generation in 
France is mainly nuclear (70%), but also hydro (20%), while conventional 
thermal generation represents 10%. EDF is a vertically integrated company 
with services and products in generation (92%), supply (?%), transmission and 
distribution (95%). Finally, this historical supplier is a State Entity; the 
French State owns EDF,s capital.  A few Independent Power Producers (IPP) are 
also active in the market, such as Snet (6.4TWh, coal-fired), and CNR (16TWh, 
hydro). Other smaller IPPs are commercially active but most must sell their 
production to EDF under a regulated tariff. 

More than 100 distribution companies are active through a concession regime 
in their local distribution area. Few, however, are of a significant size 
(less than a dozen have sales of over 400 GWhs), or have eligible customers 
in their concession areas.

The French System Operator (RTE) was created on 1 July 2000 and is a 
sub-division of EDF, although it is unbundled in terms of management and 
accounting. A postage stamp tariff has been implemented under the 
transitional regime, which varies according to the voltage used and is based 
on a matrix (Summer/Winter, Peak/Off-Peak). Users have to contract for their 
maximum transmission capacity. Imbalances are settled under a published 
tariff, which introduces high charges for imbalances beyond a 10% tolerance 
level and 5MW. 

A three-year framework contract (e.g., by way of a Master Agreement with a 
minimum term of three years) is required for eligible customers, but 
eligibles are free to deal for shorter maturity transactions within such a 
three-year contractual framework.  

Although the criteria for eligibility is per site, and eligible customers 
have to contract transmission for each site, RTE has created balancing 
responsibility contracts (contrats de Responsable d'Equilibre) which compels 
the aggregation of imbalance charges for different eligible sites within an 
equilibrium perimeter defined with RTE. Imbalances are settled under a 
published tariff which charges a heavy penalty for any imbalance beyond a 10% 
tolerance level or 5MW. 

Even though we are currently under a transitional regime in France, the 
ability to trade power already exists. Optimisation can be found through 
real-time arbitrage offered by the flexibility of the industrial process, the 
availability of market prices and optional structures. The establishment of 
balancing responsibility contracts has created the basic conditions for an 
effective power trading market in France, and this through the exchange of 
blocks from one perimeter to another. Blocs are only exchangeable on 
day-ahead bases but intra-day procedures are expected to be implemented. All 
transactions are currently based on bilateral physical contracts. 

The establishment of this framework has contributed to an increasing number 
of players for trading, imports, exports and transit; we are confident that 
the French power market will develop rapidly.     Enron Capital & Trade 
Resources Limited ("ECTRL") is a balancing responsible actor in France and 
closed the first physical power transaction in France early 2000, and was the 
very first new entrant to trade power (buy/sell) in France late 2000.    

Future Developments
 << OLE Object: Picture (Metafile) >> 
France's size and geographical position will make it a natural hub for 
trading on the Continent. It is Europe's second largest electricity market, 
with net consumption (including industrial on-site consumption) totalling 
over 400 TWh in 1999. The increase of physical trading, envisaged capacity 
release by EDF, and creation of future market mechanism will contribute to 
the further development of the market.

Both a balancing market and a spot exchange market are expected to be 
implemented by end 2001. Players in the balancing market will propose put and 
call options, exercised by RTE according to its own portfolio of contacts 
(producer, consumer) and providing it with physical balancing capacity. The 
balancing market will also show referenced market prices for balancing 
services.
 
Some of the spot market volume is expected to be operated by ParisBourse. 
However, due to the dominant position of EDF, the limited number of active 
IPPs, existing restrictions for trading for authorised producers in France, 
and the lack of transparency with regard to current rules for allocation of 
cross-border capacity and attribution of congestion costs, we believe that 
the conditions for the creation of an effective spot power market in France 
are not yet fully met. 

Recently, the European Commission has asked EDF to auction 6,000MW of virtual 
capacity through VPP auctions starting in September 2001, representing about 
30% of the market for French eligible industrials This will further 
contribute to increase liquidity. 

Regulatory Environment
 << OLE Object: Picture (Metafile) >> 
The goal of Directive 96/92/EC concerning the internal market in electricity 
is to obtain a cheaper but secure electricity supply by introducing and 
gradually expanding competition while maintaining industry competitiveness in 
the face of price decreases. France has transposed the directive, however 
certain imperfection with regards to non-discriminatory access and the level 
of liberalisation still exist. 

The French Electricity law was passed on 10 February 2000, a year later  than 
required by the EU, establishing a transitional regime for third party access 
(TPA). Several application decrees still have to be passed, including 
transportation tariffs on the electric grid to eligible customers. The 
current threshold for eligibility is 16GWh (net of auto-consumption) per year 
and per site, and represents about 600 eligible clients and 1,200 sites. 
Eligibility for distribution companies is currently limited to the eligible 
consumption of customers located in their concession areas. The French power 
market is effectively open to some competition, and about 60 eligible 
industrials have so far switched totally or partly from the historical 
supplier. The eligibility threshold will be reduced to 9GWh per site by 
direct application of the EU Directive by Feb. 2003, as the French government 
declined a quicker opening of the power market.

The two main authorities, which oversee the industry, are the CRE (Commission 
de Regulation de l'Electricit,) is the official regulatory body and the 
ministry of industry. The CRE is responsible to insure that RTE provides for 
non-discriminatory access on to the grid and will be issuing transportation 
tariffs.  The Ministry is responsible for providing generation licenses for 
IPPs and for determining eligibility issues.       

RTE is implementing new capacity allocation procedures on the UK, Italy and 
Spain interconnectors. On the remaining borders, capacity is currently 
allocated on a first-come-first served basis rule, and congestion fees are 
levied at the margin, which favours long-term contracts and historical 
players. In addition, there is currently some lack of transparency with 
regards to RTE real-time data on the capacity available/used for exports and 
imports. However an intra-day market is now effective for transits, imports 
and exports.  The first come first serve allocation rule on border capacity 
is likely to be changed by end 2001. In addition, the CRE is likely to 
request RTE to release additional data in the months to come.   

New IPPs have to be authorised through auctions or through direct decision of 
the Ministry of Industry, the main route for authorisation. Authorised IPPs 
in France are limited by Decree to buying for resale to eligible customers a 
maximum of buy for resale to eligible customers a volume equivalent to 20% of 
the installed capacity, including long term contracts. Although the 
interpretation of this law is unclear, a recent statement by M. Tuot, 
Director General of the CRE, implies that these restrictions only apply to 
French authorised producers and thus not to foreign-based energy companies or 
other non-producing entities. Thus, these restrictions do not apply to ECTRL, 
as we are not registered in France.  In addition, French IPPs are free to 
sell and export their production.

Eligible customers, who are physically connected to the Grid, have to 
contract for transmission vis-.-vis RTE (Contrat Made). Traders, such as 
ECTRL, are not required to have such a transmission contract, as they do not 
consume the power they purchase. Only a balancing responsibility contract 
coupled with grid access contracts (import, export, and/or transit) are 
required by RTE.  

A new Decree is expected to be passed by Summer 2001, setting up new 
conditions for transmission, transits and exports under a permanent regime. 
Imports, which are allocated on a pro-rata basis, are free of transmission 
charges.  

A network code is currently under discussion between market players and 
RTE.       

Market Conventions

Traders: Need to Add: gate closer information and on-peak off peak hours plus 
whatever relevant conventions.

Other: The Gas Market

A transitional regime was implemented on 10 August 2000 by direct application 
of the EU Directive, thus establishing regulated TPA for sites whose 
consumption is over 25 million cubic meters p.a. The eligibility threshold 
will be reduced to 15million cubic meters in 2003, and 5 million cubic meters 
in 2008. No gas law has been passed yet (forecasted for mid 2002), and it is 
expected that the transitional regime for gas in France will last until end 
2002. A zonal/distance-related tariff was published on 13 July 2000 by 
GdF-Transportation. A permanent entry/exit tariff structure is likely to be 
developed for 2003. Charges for imbalances are expensive and access to 
storage is restricted. GdF-Trading, however, has published conditions for 
balancing services. 
There is only one trading Hub for France located at the French/Belgian border 
(Blaregnies/TaisniSres). Due to the distance-related nature of the 
transportation tariff, competitive TPA is limited to eligible sites which are 
located not too far (less than about 250Km) from the French/Belgian border. 
The main imports into France are for high cal gas, and GdF has published the 
conditions for high cal/low cal gas swaps.
As there is not yet a gas law in France (a +Projet de Loi, was approved on 
17th May 2000) transposing the EU gas directive into domestic legislation, 
the Regulatory Commission has not been appointed to date, and the official 
regulatory body remains the Ministry of Industry.    
Although current conditions do not facilitate full requirement supply to 
customers from new entrants, it is already possible to optimise gas supply 
through import of blocs for part or full supply. ECTRL was the first new 
entrant to supply gas at the French border, and more recently into France. 
ECTRL's cumulative volume of gas trades so far totals 550 million cubic 
meters. 

The above represents only Enron's and its affiliates views' and, accordingly, 
neither Enron nor any of its affiliates is providing any advice to you in the 
above information.  You are not entitled to rely on any of the above 
information and you are advised to take such other independent advice, as you 
may deem necessary in respect of the matters referred to above.      



 -----Original Message-----
From:  de Gaulle, Pierre  
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 
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 
Brungs/Enron@EUEnronXGate
cc:  

Subject: RE: Background Information France/Final Draft


i have no further comments from an EOL perspective

justin
 -----Original Message-----
From:  Elliott, Mark  
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 
Justin as you will see as Justin is charge of Legal for EOL and will also 
have to approve it.  With regards to the slides, could you give me a hard 
copy - I can't seem to open them on my system.

Kind regards

Mark

 -----Original Message-----
From:  de Gaulle, Pierre  
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 
would have to approve it (Any other approval needed?). Please note that this 
draft has been seen and amended by Raphael, Simon, Philip and Bruno.

Thanks

Pierre
  
---------------------- Forwarded by Pierre De Gaulle/LON/ECT on 22/05/2001 
12:22 ---------------------------
From: Jennifer Oliver/Enron@EUEnronXGate on 22/05/2001 11:10
To: Pierre de Gaulle/LON/ECT@ECT
cc:  

Subject: RE: Background Information France/Final Draft

Pierre,

Has French Power Legal approved the final draft below? If not, please could 
they review before I submit this to the EnronOnline approval process. Also, 
please let me know any other approvals you have receieved so far. This will 
help determine who still needs to review. 

Thanks,
Jennifer 

 -----Original Message-----
From:  de Gaulle, Pierre  
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 
also find two slides about France, which can be included in the Continental 
Gas Trading presentation.

I would like to appear in the background as the main commercial contact 
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 >> 
   
---------------------- Forwarded by Pierre De Gaulle/LON/ECT on 21/05/2001 
18:00 ---------------------------

 << OLE Object: Picture (Device Independent Bitmap) >> 
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 
Davies/LON/ECT@ECT 

Subject: Re: Background Information France/EOL/Draft 2   << OLE Object: 
StdOleLink >> 

See red and strikethrough comments below



---------------------- Forwarded by Pierre De Gaulle/LON/ECT on 20/05/2001 
16:09 ---------------------------

 << OLE Object: Picture (Device Independent Bitmap) >> 
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 
Brun/LON/ECT@ECT, Simon Brod/LON/ECT@ECT 

Subject: Background Information France

Please find a draft of the marketing background information about the French 
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. 
EdF, who was the monopolistic producer, is the largest power producer in the 
world with 475TWh generated in 2000, thanks to nuclear production. The 
historical supplier, who is at the same time the largest exporter of power in 
Europe (net exports reached 71TWh in 2000), is a direct emanation from the 
French State, who owns EdF capital. Power generation in France is mainly 
nuclear (70%), but also hydro (20%), while conventional thermal generation 
represents 10%. EdF owns 92% of power generation, and 95% of distribution. 

A few Independent Power Producers (IPP) are also active in the market, such 
as Snet (6.4TWh, coal-fired), and CNR (16TWh, hydro). Other small IPPs sell 
their production to EdF under a regulated tariff. There has been significant 
development of cogeneration projects since 1997. There is now 3,500MW of 
installed capacity, thanks to the legal obligation for EdF to purchase power 
generated from cogeneration units at a preferable (is "preferable" the 
correct word??)   tariff. In the view of the transposition of  the EU 
Electricity Directive into French law, this purchase obligation ceased to 
apply for new large projects (over 12MW) from 1st Jan. 1999.
More than 100 distribution companies are active through a concession regime 
in their local distribution area. Few, however, are of a significant size 
(less than a dozen have sales of over 400 GWhs), or have eligible customers 
in their concession area.

2) Regulatory Environment

The French Electricity law was passed on 10 February 2000, implementing 
regulated third party access (TPA) in France under a transitional regime. The 
law was approved one year late, failing to meet the required EU deadline. 
Dozens  ["Dozens"  - I would replace this with "Several")  of application 
decrees still have to be passed, including tariffs to eligible industrials. 
The French power market is open to competition, however. About 60 eligible 
industrials have so far switched totally or partly from the historical 
supplier. Current threshold for eligibility is 16GWh (net of 
auto-consumption) per year and per site, representing about 600 eligible 
clients and 1,200 sites. The eligibility threshold will be reduced to 9GWh 
per site by direct application of the EU Directive in Feb. 2003, as the 
French government declined a quicker opening of the power market.

Eligibility of distribution companies is limited to the eligible consumption 
of customers located in their concession area.  
A three-year framework contract ( e.g., by way of a Master Agreement with a 
minimum term of three years) is required for eligible customers, but 
eligibles are free to deal for shorter maturity transactions within such a 
three year contractual framework.  

New IPPs have to be authorised through auctions or through direct decision 
from the Ministry of Industry, which is the main route for authorisation. 
Authorised IPPs in France are limited by Decree to trading buy for resale to 
eligible customers a volume equivalent to 20% of the installed capacity, 
including long term contracts. Trading is currently defined as the conditions 
of power purchase for resale to eligible customers. These Trading 
restrictions, however, do not apply to ECTRL, as we are not registered in 
France. IPPs are free to sell and export power.

The French System Operator (RTE) was created on 1 July 2000 and is a 
sub-division of EdF, although it is unbundled in terms of management and 
accounting. A postage stamp tariff was implemented under the transitional 
regime, which varies according to the voltage used,and which is based on a 
matrix (Summer/Winter, Peak/OffPeak). Users have to contract transmission up 
to the maximum capacity that they will use. RTE purchases excess capacity 
available through transmission contracts at fixed prices, which represents 
about half of the market price. Imbalances are settled under a published 
tariff, which introduces high charges for imbalances beyond a 10% tolerance 
level and 5MW. Although the criteria for eligibility is per site, and 
eligible customers have to contract transmission for each site, RTE has 
created programme responsible contracts (contrats de Responsable 
d'Equilibre), which allow the aggregation of imbalance charges for different 
eligible sites within an equilibrium perimeter defined with RTE.

Eligible customers, who are physically connected to the Grid, have to 
contract for transmission vis-.-vis RTE (Contrat Made). Traders, such as 
ECTRL, are not required to have such a transmission contract, as they do not 
consume the power they purchase. Only a programme responsible contract 
coupled with grid access contracts (import, export, and/or transit) are 
required by RTE.  

A new Decree is expected to be passed by Summer 2001, setting up new 
conditions for transmission, transits and exports under a permanent regime. 
It is likely that this new tariff will implement a 1/3 injection-2/3 delivery 
calculation factor. Imports, which are allocated on a pro-rata basis, are 
free of transmission charges.  

Programme responsible contracts have established the basis of trading in 
France through the exchange of blocs from one perimeter to another.  Enron 
Capital & Trade Resources Limited ("ECTRL")  is programme responsible in 
France. Cross border capacity is currently allocated on a first-come-first 
served basis rule by RTE, and congestion fees are levied at the margin, which 
favours long term contracts and does not give equal treatment to all players. 
In addition, there is currently some lack of transparency with regards to RTE 
real-time data on the capacity available/used for exports and imports. This 
allocation rule is likely to change by end 2001. In addition, the CRE is 
likely to request RTE to release additional data in the months to come.   

The CRE (Commission de Regulation de l'Electricite) is the offical regulatory 
body, which mainly covers TPA and tariff issues, while IPP licenses and 
eligibility issues are covered by the Ministry of Industry.       
       
3) Business Opportunity

Although we are currently under a transitional regime in France, the ability 
to trade power already exists. Optimisation can be found through real-time 
arbitrage between the flexibility of the industrial process, market prices 
and optional structures. The establishment of programme responsible contracts 
has created the basic conditions for an effective power trading market in 
France. ECTRL closed the first physical power transaction in France early 
2000, and was the very first new entrant to trade power (buy/sell) in France 
late 2000.  

An intraday market is now effective for transits, imports and exports, and is 
expected to soon be extended to exchange of blocs in France. 
Liquidity has been dramatically increasing (although the market remains 
dominated by the historical player) thanks to RTE capacity auctions for 
(auction has not been implemented on Spanish side yet) [QUERY: do we need 
this bit in brackets??  What does it add??  Can't we just delete it??  Or is 
it a note and someone has to write some better text here??  It just does not 
read correctly in English owing to its place in the sentence at present] UK, 
Italy and Spain interconnectors, RTE tenders for HV Grid losses, industrials 
switching, and new players coming into the market. In addition, the European 
Commission has determined that EdF will auction 6,000MW of virtual capacity 
through VPP and PPA auctions in September 2001, representing about 30% of the 
market for French eligible industrials This will further contribute to 
increase liquidity. 
A network code is currently under discussion between market players and 
RTE.       

4) Future Development 

It is forecasted that both balancing market and spot exchange market will be 
implemented by end 2001. Players in the balancing market will propose put and 
call options, which will be exercised by RTE according to its own portfolio 
of contacts (producer,consumer), thus providing RTE with physical balancing 
capacity. The balancing market will also show referenced market prices for 
balancing services. 

The Some of the spot market volume is expected to be run by ParisBourse. 
However, due to the dominant position of EdF, the limited number of active 
IPPs, existing restrictions for trading for authorised producers in France, 
and the lack of transparency with regard to current rules for allocation of 
cross-border capacity and attribution of congestion costs, we believe that 
the conditions for the creation of an effective spot power market in France 
are not yet fully met. ECTRL has actively been lobbying in order to have fair 
and transparent rules implemented for every player in the market and has 
actively contributed for a spot market to take place.

However, thanks to an increasing number of players in France for trading, 
imports, exports and transit, we are confident that the French power market 
will develop rapidly.         

5) The Gas Market Situation

A transitional regime was implemented on 10 August 2000 by direct application 
of the EU Directive, thus establishing regulated TPA for sites whose 
consumption is over 25 million cubic meters p.a. The eligibility threshold 
will be reduced to 15million cubic meters in 2003, and 5 million cubic meters 
in 2008. No gas law has been passed yet (forecasted mid 2002), and its is 
expected that the transitional regime for gas in France will last until end 
2002. A zonal/distance-related tariff was disclosed published on 13 July 2000 
by GdF-Transportation. A permanent entry/exit tariff structure is likely to 
be developed for 2003.  Charges  for imbalances are expensive, and access to 
storage is restricted. GdF-Trading, however, has published conditions for 
balancing services. 
There is only one trading Hub for France located at the French/Belgian border 
(Blaregnies/TaisniSres). Due to the distance-related nature of the 
transportation tariff, competitive TPA is limited to eligible sites which are 
located not too far (less than about 250Km) from the French/Belgian border. 
The main imports into France are for high cal gas, and GdF has published the 
conditions for high cal/low cal gas swaps.
As there is not yet a  [new??] gas law in France ( a Projet de Loi was 
approved on 17th May 2000) transposing the EU Gas Directive into domestic 
legislation, the Regulatory Commission has not been appointed to-date , and 
the official regulatory body remains the Ministry of Industry.    
Although current conditions do not facilitate full requirement supply to 
customers from new entrants, it is already possible to optimise gas supply 
through import of blocs for part or full supply. ECTRL was the first new 
entrant to supply gas at the French border, and more recently into France. 
ECTRL's cumulative volume of gas trades so far totals 550 million cubic 
meters. 


The above represents only Enron's and its affiliates views' and, accordingly, 
neither Enron nor any of its affiliates is providing any advice to you in the 
above information.  You are not entitled to rely on any of the above 
information and you are advised to take such other independent advice as you 
may deem necessary in respect of the matters referred to above.