Endesa S.a. · BME:ELE
Endesa — Investor Day (June 2006)
26 slides from Endesa's investor day presentation, Jun 8, 2006
Slide 1: Regulation in Spain: situation and outlook
Regulation in Spain: situation and outlook - Investor Relations Days - Palma de Mallorca, June 2006
Slide 2: Summary
Summary In recent months, positive headway has been made on regulation, primarily the creation of a stable model for the island and non-mainland electrical systems (SEIEs), and breaking the cap on tariffs that has been in place since the end of 2002. The regulatory process is underway again and furt
Slide 3: Summary
Summary In recent months, positive headway has been made on regulation, primarily the creation of a stable model for the island and non-mainland electrical systems ( SEIEs), and breaking the cap on tariffs that has been in place since the end of 2002. The regulatory process is underway again and fur
Slide 4: The 2005-09 Business Plan included very conservative forecasts
The 2005-09 Business Plan included very conservative forecasts “Endesa: Stronger business, greater value”. October 3, 2005 Spain: conservative regulatory assumptions Distribution Return on network expansion investments vs. current revenue model based on demand growth and efficiency factor (impact on
Slide 5: Since then, major headway has been made in the sector
Since then, major headway has been made in the sector 4.48% nominal growth Overall 7.7% effect (lower nuclear moratorium charge and others*) 2006 tariff Implications Elimination of 2% limit on tariff increases Generation deficit Recognition of entire deficit Market confirmed as reference point for v
Slide 6: There will be other immediate progress
There will be other immediate progress 2006 tariff Further 1.5-2% tariff increase in June Implications Progress toward sufficient tariff Generation deficit Recognised and securitised Elimination of deficit-related risk Distribution Methodology established to recognise costs and investments Increased
Slide 7: The other big regulatory change in recent months is RDL 3/2006
The other big regulatory change in recent months is RDL 3/2006 The decree modifies how the wholesale market works Its final impact will depend on several pending issues … Day-ahead market Distributor and generator sales/purchases are netted and treated as a bilateral contract Provisional price for t
Slide 8: The impact of RDL 3/2006 on Endesa to March
The impact of RDL 3/2006 on Endesa to March 31 is € 164 million Provisional impact on 1Q06. Euros, mn January - February (non-recurring ) Deduction of the value of the emission rights allocated for this period* March (recurring as long as the RDL is in place ) 5,943 2,609 445** 2,889 Generation (GWh
Slide 9: Summary
Summary In recent months, positive headway has been made on regulation, primarily the creation of a stable model for the island and non-mainland electrical systems (SEIEs), and breaking the cap on tariffs that has been in place since the end of 2002. The regulatory process is underway again and furt
Slide 10: Areas to be developed to achieve a fully deregulated market
Areas to be developed to achieve a fully deregulated market Energy must be priced in line with market conditions 1. Sufficient and additive tariff D eregulated activities Liquid, competitive marginal market Similar to other European markets Regulated activities Stable regulatory regime that encourag
Slide 11: Current tariffs do not reflect market conditions
Current tariffs do not reflect market conditions Energy price implicit in the tariff does not correspond to market values Tariffs have been updated with total disregard for rising costs 2005 Tariff Real 38.2 62.4 +63% 2006 Tariff 42,35 Tariffs in Spain are lower than in most European countries Tarif
Slide 12: The pool currently needs several reforms to guarantee its proper functioning
The pool currently needs several reforms to guarantee its proper functioning General scheme Measures under discussion Mechanisms to reduce the tariff deficit Eliminate the impact of internalization of the value of emission allowances on generators’ income Recognize energy purchases by distributors a
Slide 13: Eliminate the impact of internalization of emission allowances (1/5)
Eliminate the impact of internalization of the value of emission allowances on generators ’ income (1/5) Price Margin before CO 2 Before CO 2 … The price received by all technologies is P 0 , which coincides with the marginal cost of the last technology P 0 Hydro RE Nuclear Coal CCGT Capacity
Slide 14: Eliminate the impact of internalization of emission allowances (2/5)
Eliminate the impact of internalization of the value of emission allowances on generators ’ income (2/5) Increase in income for all technologies as a result of the internalization of the value of emission allowances After introducing emissions trading … Emitting technologies internalise the value of
Slide 15: Eliminate the impact of internalization of emission allowances (3/5)
Eliminate the impact of internalization of the value of emission allowances on generators ’ income (3/5) Maximum possible deduction Price Cost of CO 2 emissions Free NAP allowances To remove the effect of internalization … P 1 …it is not possible to deduct an amount greater than the impact of CO 2 o
Slide 16: Eliminate the impact of internalization of emission allowances (4/5)
Eliminate the impact of internalization of the value of emission allowances on generators ’ income (4/5) Price Emissions trading increases margin only for non-emitting technologies and emitters with free emission rights Cost of CO2 emissions Free NAP allowances If a mechanism to remove the effect of
Slide 17: Eliminate the impact of internalization of emission allowances (5/5)
Eliminate the impact of internalization of the value of emission allowances on generators ’ income (5/5) Reimbursement of free allowances would be discriminatory Does not eliminate the extraordinary margins for non-emitting technologies It is neutral on CCGT and penalizes coal units Coste emisión CO
Slide 18: Encourage the forward market
Encourage the forward market Content Necessary steps Design an organised forward market The forward market is the main trading mechanism in developed markets Standardised with other European markets (physical delivery, continuous trading, etc.) Distributors would buy in the forward market Virtual ca
Slide 19: Large customers adapt to market
Large customers adapt to market Components of a possible solution Description Large customers contribute more than Euro 1.2 billion to the deficit A market-based solution, using long term contracts, is needed Shift to market Sale of services to the SO Definition of long-term systems Description All
Slide 20: Distribution remuneration in Spain is much lower than in other European countries
Distribution remuneration in Spain is much lower than in other European countries Comparison of distribution remuneration in various European countries – Spain: base 100 € / GW € / MWh € / cust . € / km € / km2 Spain Portugal Greece Italy Ireland Average Germany Denmark UK Holland France Austria Bel
Slide 21: Distribution: a remuneration system similar to the non-mainland systems is desirable
Distribution: a remuneration system similar to the non-mainland systems is desirable Costes Descripci ó n Existing network Remuneration of investment O&M Other costs Based on book values: Return = fixed assets (net value) x (10-year bond + 3%) Depreciation = fixed assets (gross value)/life Maintenan
Slide 22: Premiums for renewables adapted to new market conditions
Premiums for renewables adapted to new market conditions Current situation Steps to be taken 16% yearly growth in installed capacity since 2000 20% of production and 25% of generation costs in 2005 (contribution to tariff deficit: more than 800 M€) Current premium is constant and was established whe
Slide 23: Summary
Summary In recent months, positive headway has been made on regulation, primarily the creation of a stable model for the island and non-mainland electrical systems (SEIEs), and breaking the cap on tariffs that has been in place since the end of 2002. The regulatory process is underway again and furt
Slide 24: Regulatory progress suggests a framework more positive than the 2005-09 Business Plan
Regulatory progress strongly suggests that the regulatory framework will be more positive than forecasted in the 2005-09 Business Plan Business Plan 2005-09 Current outlook Tariff increases Wholesale market Non-mainland Distribution Virtual contracts at €36/MWh for hydro and nuclear energy Coverage
Slide 25: Disclaimer
Disclaimer This presentation contains certain “forward-looking statements” regarding anticipated financial and operating results and statistics and other future events. These statements are not guarantees of future performance and are subject to material risks, uncertainties, changes and other facto
Slide 26: Signatures
Regulation in Spain: situation and outlook - Investor Relations Days - Palma de Mallorca, June 2006 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. END