I will assume that you can retrieve e-mail by now.  Below is a recent 
development, as you have asked to be kept apprised.  It is the draft, still 
subject to comment, on how to allocate transmission import capacity into 
Italy for 2001.  Important, as it is our main (nearly only) source of 
physical power to satisfy deals we have originated.  What appears below is 
Alfredo's summary.  Recognise that English is not his first language 
(probably his fourth), so it is a bit difficult to follow first time 
through.   mcs
---------------------- Forwarded by Mark Schroeder/LON/ECT on 15/08/2000 
18:07 ---------------------------


Alfredo Huertas
15/08/2000 16:58
To: Riccardo Bortolotti/LON/ECT@ECT, Marco Lantieri/LON/ECT@ECT, Paul 
Mead/LON/ECT@ECT, Marco De Angeli/LON/ECT@ECT, Peter Heydecker/LON/ECT@ECT, 
Paul Mead/LON/ECT@ECT
cc: Mark Schroeder/LON/ECT@ECT, Joe Gold/LON/ECT@ECT 

Subject: New import capacity rules in Italy


The new delibera by the Authority outlines the methodology for the allocation 
of import capacity in 2001. Full details should be necessarily developed in 
full by the TSO by 30 Sept 2000. Find below, an apetizer for tomorrow's 
conference call.

Main features

1. The Delibera asks the TSO to reach a compromise with neighbouring TSOs in 
order to render the allocation "firm" and "deep", that is, to ensure that  
agents who obtain import capacity into Italy receive a transparent and 
non-discriminatory treatment by these foreign TSOs. In case of disagreement, 
the  Italian TSO will proceed autonomously with its own allocation (which is 
the current status).

3. Allocation procedure: iterative auction. Clearing price "seems" to be 
Pay-As-You-Bid, but the drafting is not conclusive.

4. No Letter of Credit or Declaration of Neighbouring TSOs, or Supply 
Contract with end-customer required to agents participating in the auction. 
This has  been replaced by  a Letter of Intention per consumption point 
(which expresses interest for the capacity requested).  

5. 80 (20) percent of ATC for 2001 to be allocated annually (monthly). Bids 
before 30 Sept 2000 (90 days before the start of each month). Bidding block 
is 10  MW, at non-decreasing prices.

6. Antitrust thresholds: 20 percent of ATC per border and per agent, 10 
percent of total ATC per agent. The thresholds are applicable both to the 
amount  requested, and/or the amount allocated. 

Main concerns

1. Any substantial progress with respect to the 2000 situation depends on the 
ability of the Italian TSOs to fulfill its mandate of reaching a 
co-ordinated   allocation with neighbouring TSOs. The Delibera does not 
provide any idea on how the Italian TSO may exercise its leverage to find a 
successful solution  (eg, making co-ordination more profitable for foreign 
TSOs? Curtailing the level of import capacity in case of disagreement such 
that foreign TSOs wheel  less volumes/possibly make less money? Is money the 
issue or perhaps, leaving us outside the game?)

2. The alternative in case of disagreement (that is, unilateral allocation of 
50 percent of the ATC) makes no sense. If there is not an agreement (as it   
happened in 2000), allocating only 50 percent unilaterally does not solve 
anything. Actually, it could make things worse by removing some pressure by  
agents who got allocated 100 percent of the capacity on the Italian side, 
over foreign TSOs (as happened this year). As drafted, the Delibera makes 
the  Italian TSO to accept whatever allocation the foreign TSOs decide for 
their 50 percent, without requesting a reciprocal treatment for the 50 
percent capacity  allocated by the Italian TSO!!! This could have been an 
interesting "carrot" for the Swiss if properly articulated.

3. The details of the auction procedure contain several loopholes and 
inconsistencies. Some clarification will be needed by the Autorita, and we 
will need to  send asap a list of all unclear definitions. 

4. Only one letter of intention as in 4 above per consumption point. This 
means the consumer gets tied up with a single supplier before the allocation 
takes  place.

5. Spot purchases by TSO still opaque. In some circumstances, this is being 
favourable to us, so let's consider if we want to say anything here.

6. Lack of any reference to secondary trading of capacity. Not prohibited, 
but not proposed or explicitly outlined.

7. The "Pay-as-you-Bid" criteria makes less attractive Paul/Marco's proposed 
deal structure with ELES for sales into Italy.

More tomorrow,

a.