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Electricity

Legislative/Regulatory Framework

During 2006, the legislative/regulatory framework relating to the electricity business did not have a significant impact on Hera Trading's operations.

The changes to the electricity supply methods for dispatching by TERNA and the determination of the loss-of-balance fees (MSD) which occurred as a result of AEEG Resolution No. 165/06 will in fact only affect 2007, at the time of the commercial launch of the Teverola and Sparanise power stations.

Significant events

A trading desk was started up at experimental level in 2006, with the aim of assessing the real potential on the Italian market, notoriously lacking liquidity, but also and above all else, with the aim of increasing HERA TRADING's visibility with regards to OTC electricity prices.

Likewise, it was also necessary to develop the skills required for correctly representing the assets in the financial statements by means of application of the main IAS (Hedge Accounting, Fair Value and M2M).

In the name of and on behalf of Hera Comm, in July 2006 the renegotiation of the ATEL contract was completed, relating to the three-year period 2007-2009. The renegotiation concerned both the economic aspects and the nature of the contract.

So as to render it more compatible with the use in the sales portfolio, the decision was made to transform it from a contract for differences to a physical contract for sales to end customers.

In March 2006, a contract was finalized with EGL AG for the supply of electricity generated by the Sparanise power station owned by Hera Trading (15%). Subsequently, in December a contract was concluded between Hera Trading and SCR SpA for the supply to the latter of the electricity it is due (5%).

During the second half of 2006, the methods for regulating the production of the Teverola power station during the start-up phase were established with the partner RATIA ENERGIE AG and steps were taken to finalize the related contract with SET S.p.A. At the same time, the principles were also defined for regulating the production once the power station is fully on-stream, so as to achieve the finalization of the PPA contract during the first few months of 2007.

In December 2006, Hera Trading took steps to qualify itself as the operator responsible for balance (Balance Responsible Entity) vis--vis the RTE, so as to independently handle the physical supply of the French market, by means of the interconnection capacities on the Italy/France border acquired at the time of auction from TERNA and said RTE.