Launch of the Fifth CESUR Auction for Procurement of Electricity Contracts in Spain

06 May 2008

NERA Economic Consulting, in its role as Auction Manager, has announced the launch of the fifth CESUR auction for electricity supply to customers in peninsular Spain and Portugal (supply of last resort), which will be held on Tuesday, 17 June 2008. CESUR auctions complete the range of possibilities for the distribution companies in Spain and Portugal to acquire energy for those electricity consumers who have not chosen a competitive retailer.

Four CESUR auctions (June, September, and December 2007, and March 2008) have already been held, managed by NERA and under the supervision of the Comisión Nacional de Energía (CNE). Each CESUR auction allowed distributors to buy, at competitive prices, between 6.500 MW and 7,000 MW of base load, representing about 30% to 40% of total regulated sales. The products have been defined as one or two base load products, with three-month and six-month delivery periods.

The success of prior auctions and the CNE's endorsement that all auctions were "objective, transparent, and non-discriminatory" have led to a progressive increase in the number of selling agents, with 26 participants slated for the March 2008 auction. Similarly to the previous auctions, the fifth CESUR auction will use a multiple-round descending clock auction format. Under this format, generally used for the supply of high energy volumes, the Auction Manager names a price at the beginning of every round and bidders submit the quantities they want to sell at that price. The auction is called a descending clock auction because prices "tick down" throughout the auction, starting high and being reduced gradually at every round until the aggregated supply bid is just sufficient to meet the load to be procured.

The amount to be purchased in the June auction has not yet been determined. However, the Auction Administrator has confirmed that there will be a simultaneous auction of two products: a three-month base load product and a six-month base load product, both with a Delivery Period within the second half of 2008. The Secretaría General de Energía (SGE) will announce the characteristics of this fifth auction, including the rank of energy amounts to be purchased, later on in the process.

Agents entitled to participate in the CESUR auctions are electric power producers (both under ordinary and special regime), resellers, external agents, and qualified consumers. In order to participate in the auction, market agents must fulfill the prequalification and qualification requirements. The prequalification process is now open to all those interested agents who did not prequalify for the previous auctions. The deadline to prequalify for the June auction is 16 May 2008. The Prequalification Guide is available at the auction website at www.subasta-cesur.eu. All prequalified agents are allowed to submit comments to the draft auction rules, which are also available at the same website.

The legal framework of the CESUR auctions is the Spanish Ministerial Order ITC/400/2007. The acquisition cost of the contracts resulting from the auction is part of the authorized costs of the distribution companies. The utilities' exposure to spot market prices fluctuations is reduced thanks to CESUR auctions, to the benefit of consumers. In the future, the prices of the contracts acquired in these auctions shall be used to determine the tariffs for the supply of last resort.

NERA Economic Consulting (www.nera.com), founded in 1961 as National Economic Research Associates, is a unit of the Oliver Wyman Group, an MMC company.

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