Trade at

Nord Pools Financial Market

Copyright Nord Pool ASA

Oslo Stockholm Fredericia - Helsinki
1 April, 2004

Nord Pools Financial Market

Content

Introduction.......................................................................................................................... 3

1. History of Nord Pools Financial Market .................................................................... 4

1.1. Timeline...................................................................................................................................................................4

1.2. Financial Market Overview.......................................................................................................................................6

2. The Financial Market at Nord Pool ............................................................................. 7

2.1. Futures Contracts.....................................................................................................................................................8

2.2. Forward Contracts .................................................................................................................................................10

2.3. Contracts for Difference (CfD)...............................................................................................................................12

2.4. Option Contracts ....................................................................................................................................................14

2.5 Electricity certificates .............................................................................................................................................16

3. Trading in Nord Pools Financial Market.................................................................. 17

3.1. Daily routines ........................................................................................................................................................18

3.2. PowerCLICK Exchange trading system ..................................................................................................................18

3.3. Trading via Telephone ...........................................................................................................................................20

4. Traded Volume Growth............................................................................................. 21

Trade at Nord Pools Financial Market 2

Introduction

This report on Nord Pools financial market is intended for introductory-level training at
organisations involved in electric power markets and as a guide for the general public.

The report is part of a four-part series prepared by the Corporate Communications department
of Nord Pool the Nordic Power Exchange. These reports provide an overview of the Nordic
power system, the Nordic power markets infrastructure, key concepts in the restructured
Nordic power market, the spot and financial markets, types of electricity contracts, clearing
services, trading activities and members.

The report series and contents are summarised below:

The Nordic Power Market

A short presentation of the power syste m
Roles and responsibilities of key companies, such as grid owners, system operators, the
Nordic Power Exchange and its participants
Transition from national power markets to a unified Nordic power market
Wholesale and retail power markets
Trading activities and prices at Nord Pools markets and in OTC and bilateral markets

Trade at the Nordic Spot Market (Nord Pool Spot AS)

Discussion of the spot market auction trade concept
Daily trading activity a timeline from bidding to financial settlement of traded spot
contracts
Establishing area prices to handle grid capacity bottlenecks
Settlement and pricing of imbalances

Trade at Nord Pools Financial Market

Product description of financial electricity contracts (futures, forward, CfDs, options and
Electricity certificates)
Electronic trading system and trade via the financial desk
Trading procedure
Financial settlement
Summary of risk management, collateral and clearing routines
Market information

Clearing Services Offered by Nord Pool Clearing ASA

- Interfa ce between trading and clearing
Roles and responsibilities of settlement banks, clearing members, and Nord Pool
Clearing
Cash flow in clearing
Determination of collateral
Risk management and market monitoring
Structure of agreements between parties involved

Copies of this report are available from Nord Pool, or they can be downloaded
from Nord Pools website: www.nordpool.com

Trade at Nord Pools Financial Market 3

1. History of Nord Pools Financial Market

Deregulation of the Nordic power market began in Norway when the countrys energy act,
aimed at restructuring and liberalising power market trade, went into effect on 1 January 1991.
Nord Pool (then Statnett Marked AS) established a forward market in 1993; this market used an
auction trade system, with physical delivery of the traded power contracts.

After a testing period focused on

the preferences of participants,
the forward market was MW

established, with three products Peak Power (75 hours per week)
with physical delivery at Off- peak Power
maturity. (93 hours per week)

The traded products initially

comprised base load contracts,
peak load contracts, and off- Base Power (168 hours per week)
peak load contracts, all with a
time horizon of up to six months.
Mon. Tues. Wed. Thurs. Fri. Sat. Sun.

All three contract types listed for

trade covered a single calendar
week, or blocks that comprised
four weeks. As the maturity date approached, block forwards were split into weeks, in
accordance with product specifications.

1.1. Timeline

As the Nordic power market developed, experience showed that the forward power contracts
concept needed to change to increase liquidity and promote trade. Nord Pools financial market
concept evolved as follows:

In the period 1993-1994, peak load contracts and off-peak load contracts were removed
from exchange trading, due to low activity and in order to concentrate trading liquidity into
base load contracts.

Trade at Nord Pools Financial Market 4

 In 1994, the financial markets weekly auction trading system was replaced by a continuous
trading system, with bids written on a whiteboard on the trading floor. All bidding, price
quotation and execution of trades were carried out by phone between market participants
and the trading floor at Nord Pool.

To promote trading by new market participants and stimulate greater liquidity, the financial
contracts were changed from physical-delivery contracts to financial electricity contracts
with only cash settlement at maturity. The reference price for all financial contracts was the
system price of Nord Pools spot market. The time horizon of listed contracts was increased
in stages to three years.

On 1 January 1996, Sweden joined the markets organised by Nord Pool and the first
multinational exchange for trading of electrical power was formed.

In the fall of 1996, the PowerCLICK electronic trading system developed by Swedens OM
Group replaced the trading floors manual whiteboard.

Nord Pool introduced trade in financially settled forward power contracts in 1997. Because
non-exchange trade activity in forward contracts was very high, Nord Pool standardised the
forwards to conform them to the OTC market.

A similar potential was observed in the trading of option contracts. This lead to options
being launched as standardised products at Nord Pool in 1999.

In 2000, after completing unification of the four neighbouring Nordic countries into a
common power market, Contracts for Difference (CfD) were introduced as a new forward
product. Contracts for Difference were introduced to give market participants listed products
for hedging against possible price differentials between the Elspot System and individual
area prices.

In 2003, a new product structure was gradually introduced replacing blocks with months
and seasons with quarters, allowing Nord Pool contracts to be more compatible with
international standards.

In 2004, Nord Pool launched its first product related to renewable energy production. The
product will be listed as the Swedish green certificates (elcertificate). Nord Pool is the first
European commodity exchange to offer a standard exchange traded contract for green
certificates. On 1 May 2003, Sweden became the first Nordic country to introduce a system
for green certificates. The elcertificates are subject to quotas for Swedish consumers, with
the exception of certain heavy industries. The purpose of this program is to provide an
incentive for investments in renewable energy production.

All contracts with delivery period after 2006 will be listed in Euros rather than Norwegian
Crowns. This allows for easier cross-border trade and further standardisation with other
products and exchanges.

Trade at Nord Pools Financial Market 5

1.2. Financial Market Overview

At present the contract types traded on Nord Pools Financial Market comprise of both power
derivates and electricity certificates. The derivates are base load futures, forwards, options, and
Contracts for Difference. The reference price for these contracts is the System Price of the total
Nordic power market. The maximum trading time horizon is currently four years. There is no
physical delivery of financial market electricity contracts. Cash settlement is made throughout
the delivery period, starting at the due date of each contact.

The initial contract launched for the electricity certificates market is a spot contract with
physical delivery.

The Nord Pool group consists of Nord Pool ASA, running the financial market; Nord Pool Spot
AS, running the physical-delivery spot markets; and Nord Pool Clearing ASA, running the
electricity contract clearing services. Nord Pool Clearing, clears all contracts traded on the
Nordic Power Exchange. Nord Pool Clearing also clears contracts traded in the bilateral financial
markets that are registered for clearing an important service for the Nordic power markets.

Market projections indicate that trade in financial contracts will predominate in the developing
European market. The reference prices will be spot prices and indexes based on spot prices and
OTC prices.

Financial contracts are entered into

without regard to technical
conditions, such as grid congestion,
Physical trade
through Nord Pool access to capacity, and other
Buyer
technical restrictions.
100 MW
Seller
100 MW
Price hedging based on financial
contracts at power exchanges or in
the bilateral market, combined with
Nord Pool
physical procurement at national or
regional spot markets approximates
a hedge. A key tool in risk
management, this method of
Price
hedging has largely replaced
Elspot System
Seller pays Price traditional bilateral trade in physical-
buyer delivery contracts.
Buyer pays
Price hedging seller
settlement Financial contract price As power markets become more
tightly integrated, physical trading
Time

Trade at Nord Pools Financial Market 6

strategies become more difficult to carry out. A high level of trade activity in traditional physical
contracts would require rather complex monitoring of a large number of contracts across
different transmission system operator areas and of interconnections.

2. The Financial Market at Nord Pool

All financial power contracts are cash-settled. They have been designed to satisfy the needs of
various participants:

Generators, retailers and end-users who use the products as risk management tools.

Traders who profit from volatility in the power market, and contribute to high liquidity and
trade activity.

Prior to the introduction of financially settled forwards in 1997, the time horizon of the futures
market was about three years ahead in time. Most trading activity and liquidity were
concentrated in contracts at the near end of the time horizon. In the OTC market, however,
considerable trade in standardised season contracts and year contracts at the far end of the
time horizon was conducted.

Nord Pool adapted to the non-exchange trading patterns by launching forwards that were
standardised in the same manner as in the OTC market, and that offered a time horizon of up to
four years. The time horizon for futures contracts was reduced from three years to 8-12
months. Forward contracts were listed up to four years ahead.

At the beginning of 2003, Nord Pool began to make new changes to its product structure. The
futures horizon was shortened to 8-9 weeks ahead, where the remaining contracts up to four
years ahead are listed as forwards. The current product structure is undergoing a transitional
phase, with a mix of old and new products.

The market thus seems to prefer short-term futures close to due date and long-term forwards
at the far end of the time horizon. The main reason for this preference is the different margin
calls for futures and forward contracts. Financial settlement of futures includes daily mark-to-
market settlement, which requires a large amount of cash in pledged/non-pledged cash
accounts, especially for the long period contracts at the far end of the time horizon. Financial
settlement of forwards involves no daily mark-to-market settlement, and thus requires posting
cash collateral only during the delivery period, starting at the contracts due date .

Trade at Nord Pools Financial Market 7

2.1. Futures Contracts

Nord Pool lists for trading base load day and week futures contracts:

Day contracts, Base load, ENODxxxx-xx Period = 24 hours

Week contracts, Base load, ENOWxx-xx Period = 7 days

The ENO prefix that has been added to the contract ticker codes indicates commodity and
underlying market. E is for Electricity and NO for Nordic area.

As of fall 2003, the week contracts have been listed with 8 consecutive contracts, in a
continuous rolling cycle, as opposed to the current cycle that implies listing of weeks in groups
of 4 after split of a block contract. Simultaneously, the block futures contracts have been
replaced with forward month contracts.

Settlement of futures contracts involves both a daily mark-to-market settlement and a final spot
reference cash settlement, after the contract reaches its due date.

Mark-to-market settlement covers gains or losses

from day-to-day changes in the market price of
8-9 weeks
each contract.

Days Weeks
Final settlement, which begins at maturity, covers
the difference between

the last closing price of the futures contract and

the System Price in the delivery period.

Trade at Nord Pools Financial Market 8

 Futures Contract Settlement

Contract
Price

Trading Period Delivery Period

288
Market price Received during
285 final settlement

275 Received during

270
mark- to- market
270 System settlement Procurement cost
Price in the Spot Market
260
Net
procurement
One hour cost

Mark- to-Market Settlement Spot Ref. Cash Settlement Time

+10 +5 -5 +15 +3

In the illustration above, an Exchange Member/Clearing Member is assumed to have bought a

futures contract at a price of NOK 260/MWh. During the trading period, from the date the
contract was bought to the contracts due date, the market price for the contract increased to
NOK 285/MWh.

The price NOK 285/MWh is the final closing price prior to delivery. Daily mark-to-market
settlement during the trading period credited the member a total gain of NOK 25/MWh
(NOK 285-260). (The Exchange Member who sold the contract was debited NOK 25/MWh during
the trading period).

Throughout the final settlement period, which starts on the due date, the member is
credited/debited an amount equal to the difference between the spot market price and the
futures contracts final closing price.

For the specific single hour indicated in the figure, the member has received NOK 25/MWh in
daily mark-to-market settlement (during the contracts trading period) and a final settlement
amount of NOK (288-285)/MWh = NOK 3/MWh for a total profit of NOK 28/MWh.

If the Exchange Member/Clearing Member in the above example chose to procure the power
from the spot market rather than cash in the profit, his procurement cost in the spot market for
the specific hour is NOK 288/MWh. However, he has already received a profit of NOK 28/MWh in
the futures market. The total cost, with hedging in the futures market and physical procurement
in the spot market, is thus equal to the hedging price NOK 260/MWh.

Trade at Nord Pools Financial Market 9

2.2. Forward Contracts

Nord Pools forward contract structure is currently in a transition phase. The previous product
structure lists base load for three seasons: Winter 1, Summer, Winter 2; and Year forward
contracts:

Winter 1 (FWV1xx) base load Season contract in ye ar xx Period = 1 January - 30 April

Summer (FWSOxx) base load Season contract in year xx Period = 1 May - 30 September
Winter 2 (FWV2xx) base load Season contract in year xx Period = 1 October - 31 December
Year xx (FWYRxx) base load Year contract for Year xx Period = 1 January 31 December

Year contracts are split into

season contracts, in
1st year 2nd year 4th year
accordance with product
specification rules.
Seasons

Forward season contracts are

not subject to further Year

splitting.

The new product structure lists base load contracts for each calendar Month, Quarter and Year
contracts:

Month (ENOMmmm-yy) base load Month contract for calendar month mmm and year yy
Quarter (ENOQx-yy) base load Quarter contract for quarter x (3 calendar months) and year yy
Year (ENOYR-yy) base load Year contract for year yy Period = 1 January - 31 December

Month contracts are listed on a 6 month continuous rolling basis, and are not subject to
splitting. Quarter contracts will gradually replace seasons, and will first be listed in 2004. The
season contracts currently listed will not be de-listed. Quarters are split into month contracts.
Year contracts will be split into quarter contracts in accordance with product specification rules.
Year contracts for 2006 and on will have the new ticker code above.

In the trading period prior to the due date, there is no mark-to-market settlement. The mark-
to-market amount is accumulated as daily loss or profit, but not realised, throughout the trading
period.

Trade at Nord Pools Financial Market 10

Throughout the delivery period, starting
at the due date, cash is required in the
1st year 2nd year 4th y ear
Exchange Members / Clearing Members
pledged / non-pledged cash accounts,
and settlement throughout the delivery Months
period is carried out in the same way as
for futures. The non-pledged cash Quarters
account must be supported by a bank
guarantee.
Year

The example bellow illustrates the similarity between forwards and futures. The same data as
that used in the example for futures is assumed.

In the example, an Exchange Member/Clearing Member has purchased a forward at a price of

NOK 260/MWh. At the due date, the value has increased to NOK 285/MWh. During final
settlement for the hour specified in the figure, the member receives NOK (288-260)/MWh =
NOK 28/MWh. This amount is the total of the accumulated value NOK (285-260)/MWh from the
trading period (the pending settlement) and NOK (288-285)/MWh from the Spot Reference Cash
Settlement. The pending settlement will be realised in the delivery period.

Purchasing the contracts volume in the spot market costs NOK 288/MWh. The total cost of
hedging the power purchase through a forward contract followed by a spot market purchase is
equal to the hedging price, NOK 260/MWh.

Forward Contract Settlement

Contract
Price

Trading Period Delivery Period

288
Market price
285

275 Received during

270
final settlement
270 Procurement cost in
Pending Settlement System Price
the Spot Market
260
Net
procurement
One hour cost

Spot Ref. Cash Settlement Time

+3

Trade at Nord Pools Financial Market 11

2.3. Contracts for Difference (CfD)

The reference price for forward and futures contracts is the Nord Pool Spot AS System Price.
Actual physical-delivery purchase costs are determined by actual area prices. An area price
differs from the System Price when there are constraints in the transmission grid; CfDs allow
Exchange Members / Clearing Members to hedge against this area price risk.

A perfect hedge using forward or futures instruments is possible only in situations when there is
no transmission grid congestion in the market area, that is, area prices are equal to the System
Price. In 2003 the area prices were only equal 27,5 % of the time. Hedging in forwards or
futures therefore implies a basis risk equal to the difference between the area price at the
members physical location and the System Price.

Contracts for Difference were introduced to provide the possibility for a perfect hedge even
when the markets are split into one or more price areas. New forward contract types based on
the area prices would have been another way to accomplish this goal. However, this method
would have split the total liquidity among several products, and was rejected. A separate
product, Contracts for Difference (CfD), was therefore introduced.

To create a perfect hedge that includes the basis risk when area prices are not equal to the
System Price, a three-step process using CfDs must be followed:

1. Hedge the required volume using forward contracts.

2. Hedge any price difference for the same period and volume through CfDs.
3. Accomplish physical procurement by trade in the spot market area of the members
location.

Nord Pool ASA provides trading in CfDs for the following area price differentials:

CfD name and reference area CfD definition

Norway P = Oslo area price minus System Price
Sweden P = Stockholm area price minus System Price
Finland P = Helsinki area price minus System Price
Denmark West P = Aarhus area price minus System Price
Denmark East P = Copenhagen area price minus System Price

Trade at Nord Pools Financial Market 12

A CfD is a forward contract with reference to the difference between the Area Price and the Nord
Pool Spot System Price. The market price of a CfD during the trading period reflects the
markets prediction of the price difference during the delivery period.

The market price of a CfD can be positive or negative or zero. CfDs trade at positive prices
when the market expects a specific area price to be higher than the System Price, (that is, the
selected market area is in a net import situation). CfDs will trade at negative prices if the
market anticipates an area price below the System Price (the market area is in a net export
situation).

Contract for Differences

Contract
Price
Trade Period Delivery Period
20
Market Price
16
Received
13 during final
10 Total price
Price
9 difference
difference
7 Net CfD
hedging costs
0
Time
One randomly
selected hour
Final Settlement

In this example, an Exchange Member/Clearing Member purchased a CfD at a price of

NOK 7/MWh and no forward market hedge of the power volume was made. During the trading
period, the market price of the CfD increased to NOK 16/MWh. For the randomly selected hour
during the delivery period shown in the illustration, the member receives NOK (20-7)/MWh =
NOK 13/MWh. Spot market purchase cost over the System Price for the specified hour is
NOK 20/MWh. However, the members net cost is equal to the hedging cost NOK 7/MWh.

The next two examples illustrate

a perfect hedge using CfDs and Spot Price<Are Price Spot Area Price
forward contracts. Here, the
Exchange Member has carried 290
out the two steps required to Received during CfD
settlement
make a perfect hedge of area 285
(5)
prices. He has purchased a Procurement Received during System Price

forward contract (at a cost of costs in Spot Forward settlement

Forward + CfD
(290) (15)
NOK 260/MWh) to hedge the hedging cost
Net (260+10=270)
Nordic Power Exchange spot procurement
market price, and a CfD (at a costs
(270)
cost of NOK 10/MWh) to hedge

Trade at Nord Pools Financial Market 13

any area price differential. Total hedging costs are NOK 270/MWh.

The financial results of using CfD hedging can be illustrated in a comparison of two delivery
hours. In one case, the System Price is less than the area price, while in the second example
the System Price is higher than the area price.

In the chart above, the area price for the selected hour is NOK 290/MWh. The System Price is
NOK 285/MWh.

In the forward settlement during the delivery period, the member receives NOK 15/MWh, and in
the CfD settlement, NOK 5/MWh.

Net procurement cost is NOK 270, which equals the initial hedging costs of the forward, plus the
CfD. In the chart above, the System Price for the selected hour is NOK 287/MWh. The area price
is NOK 280/MWh.
In the forward
settlement, during
System Price > Area Price
the delivery period,
the member receives
System NOK 17/MWh, and in
Spot Area Price
Price
the CfD settlement
287 he is charged
Paid in CfD settlement NOK 7/MWh. Again,
(7)
280 the net procurement
Received in forward settlement
Forward + CfD (17) cost is NOK 270,
hedging cost Procurement which equals the
(260+10=270) Net costs in Spot
procurement (280) initial hedging costs
costs
of the forward and
(270)
the CfD.

2.4. Option Contracts

An option is a right to buy or sell an underlying contract at a predetermined price at a

predefined date in the future. Options, combined with forwards and futures, offer valuable
strategies for managing the risk associated with power trade.

Option contracts to buy are termed call options, and option contracts to sell are termed put
options. Thus, the holder of a call has the right to buy the underlying contract, and the holder of
a put has the right to sell.

Trade at Nord Pools Financial Market 14

The option contracts at Nord Pool are European-style, i.e., they can only be exercised at the
exercise date. The following definitions apply.

Underlying contracts: These are season forward contracts (to change to quarter forward
contracts) and year forward contracts. When an option series expires,
new series are listed, in accordance with product specification rules.

Exercise day: This is the day the right to buy/sell the underlying contract is executed.
Exercise day is set as the third Thursday in the month before the
delivery period of the underlying contract starts, as defined in the
options product specifications. The holder of an option can only exercise
his right on exercise day.

Exercise price : This is the predefined price, or strike, of the underlying contract. Nord
Pool sets five strikes when an options series is initially listed for trade.
Strikes are based on the closing prices of the underlying forwards. The
spread intervals between the five strikes are defined in the option
product specifications.

New exercise prices are automatically generated when the traded price
or the closing price of an underlying forward is at or below (above) the
second lowest (highest) exercise price.

The premium: The option premium is quoted in Norwegian kroner, NOK/MWh.

The premium is settled the day after the option is traded. The size of an
option contract is calculated by multiplying the number of MW by the
number of hours in the underlying contract.

Listing of new series: New option series are listed for trade on the first trading day after the
exercise day of the previous contract series.

Profit Profit

Forward price

Forward price

Premium Premium

Purchased Call Purchased Put

Profit Profit

Premium Premium
Forward price

Forward price

Written C all Written Put

Trade at Nord Pools Financial Market 15

On the exercise day, options have four basic profit and loss curves. Potential profits and losses
for each option strategy depend on the price of the underlying forward contracts, exercise
prices, and the premium paid.

In the case of a purchased option, the risk of loss is limited to the premium paid and the
potential profit is unlimited. The contrary applies to written options; i.e. the risk of loss is
unlimited while the potential profit is the premium received.

A purchased call option can be compared to an insurance against increases in the forward price
of power. A buyer can use call options to insure that his fixed price of future power will not
exceed certain levels, while at the same time enjoying a fall in power prices should it occur.

A purchased put option could be used by a producer to insure future sale of power. It could also
be used to insure against volume risk, for example in a dry seasons, where high prices coincide
with low volumes, causing a reduction in profits.

A variety of options strategies are used for price hedging. Because of their flexibility, options are
useful to both hedgers and traders. An Exchange Member seeking trading profit, rather than
price hedging, might combine a put and a call in positions known as a straddle or a strangle, if
prices are expected to move sharply up or down.

An option can be described as in-the-money if it would result in a profit if exercised

immediately (i.e., the underlying forward price is above (below) the strike price for a call (put)
option). An option which would result in loss of premium is out of the money while it is at the
money if the underlying forward price is equal to the strike price. The profitability of an in-the-
money purchased call option is similar to the profit potential of holding a long position in the
underlying instrument. Out-of-the-money puts or calls offer potential profits, if they move as
anticipated past at-the-money value into an in-the-money position.

2.5 Electricity certificates

3 March 2004, Nord Pool initially launched a spot contract that is integrated with other financial
products. Trading is done directly electronically or indirectly by phone on PowerClick. The
product being launched is a spot product with physical delivery three days after the trading
date. Quotations are in SEK and the contract will be referred to as Elcert (ticker code ECS). The
minimum traded contract volume will be 100 Elcert. The market is open for trading five days a
week between 10:00 a.m. and 2:00 p.m. The trading days for elcertificates follow Nord Pools
financial market.

Trade at Nord Pools Financial Market 16

3. Trading in Nord Pools Financial Market

Futures and forwards contracts, options, CfDs, and electricity certificates are traded
continuously, as in other advanced commodity markets. Nord Pool operates an electronic
trading system, PowerCLICK Exchange, where Exchange Members can trade in the following
ways:

Electronically by using PowerCLICK Trade application installed in the traders premises. This
can either be connected via fixed telecom lines, or via a secure VPN channel over Internet.

Via telephone to the financial desk at Nord Pool, where orders are placed in the trading
system on behalf of the member

Trading thorough Fixed line VPN Internet

telephone PowerCLICK PowerCLICK

Internet

Financial
desk

PowerCLICK Exchange
Electronic matching of trades

Trade at Nord Pools Financial Market 17

3.1. Daily routines

The derivatives market opens is open between 8:00 and 15:30, Norwegian local time, and the
electricity certificates market is open between 10:00 and 14:00.

An Exchange Members orders are binding until the end of the trading day, or until the member
has changed or cancelled them and received a confirmation receipt.

Once the market has closed for the day, written trade confirmations are made available for
Exchange Members. For derivatives 17:30 is the deadline for Filing Complaints for Exchange
Trades, and correspondingly 15:45 for electricity certificates.

Closing prices for financial derivatives contracts, used for settlement and margin calculations,
are determined at a random time within the last 10 minutes of the trading day. The precise time
is selected by a random number generator to avoid any potential closing price manipulation.
Nord Pool distributes closing prices to the market as soon as possible after the market closes at
15:30.

The closing price of a financial derivatives contract is calculated as the last trading price if the
traded price is within the buy and sell spread, or bid and offer price, at the randomly selected
time. For contracts outside the spread, or contracts that have not been traded, the closing price
is defined as the average of the bid and offer, as specified by the rulebook for the financial
electricity market.

3.2. PowerCLICK Exchange trading system

The heart of the electronic trading at the financial market at Nord Pool is the PowerCLICK
Exchange trading system. It is a system for continuous electronic trading of power contracts. It
is a high performance trading system, build to handle more than 1 000 deals and 10 000 orders
pr minute.

The PowerCLICK allows generators, distributors, consumers, and traders of electricity with an
electronic connection to participate directly on the exchange. The system handles electricity
Future, Forward, CfDs, Option contracts and electricity certificates.

Trade at Nord Pools Financial Market 18

3.2.1. PowerCLICK Trade application

The PowerCLICK Trade is the front end application available to members of the exchange, and is
an effective component of the PowerCLICK Exchange System. However members are also free
to use third-party or internally developed trading applications.

By using PowerCLICK Trade, market participants can quickly and simply display information,
enter orders and execute trades. The PowerCLICK Trade is a powerful trading application that
provides full order management and execution capabilities. The application has a Windows
based format and is very easy to use, allowing users to:

Post orders
Change posted orders
Cancel posted orders
Trade on orders posted by other Exchange Members
Price Ticker
Handling mass o rder quotations
Linking up the PowerCLICK to spreadsheets

Through the electronic system, the Exchange Member always has access to updated locally
available information. Examples of such information include:

Best buy and sell price, as well as order depth

Last traded price, as well as highest and lowest price distributed during the day
The total volume behind the individual prices
Intra day graphs displaying price and volume movements throughout the trading day.
Overview of the orders posted to the market by the Exchange Member, and an overview of
trade conducted by the Exchange Member during the trading day

Exchange Members connected to the electronic trading system also have access to telephone
trade if they, for example, wish to make an inquiry about a price or enter a combination trade.

PowerCLICK Trade is continuously updated and enhanced to keep pace with the rapidly
changing requirements of energy markets.

Trade at Nord Pools Financial Market 19

3.2.2 PowerCLICK Connectivity

A fixed line connection to PowerCLICK is the fastest and most reliable way to connect to the
Exchange.

Using virtual private network (VPN) encryption technology, a secure link to the PowerCLICK
Exchange can be established via the Internet. PowerCLICKs VPN link-up is an alternative to
leased-line connection between Nordic Power Exchange members and Nord Pool.

Key benefits of VPN connectivity are lower connection costs and reduced lead time to new
PowerCLICK customers ability to trade. Connecting to a local ISP (Internet Service Provider) is
cheaper than subscribing to a long-distance leased line; further, the wait for leased line
installation is avoided. New PowerCLICK VPN accounts will normally be up and running, and
ready to trade directly on the exchange, within one week after an application request.

PowerCLIC K accessed over Internet can either be used as the main connection or as a backup
connection towards Nord Pool.

Tests conducted by OM and Nord Pool have confirmed that a VPN PowerCLICK link is as fast as
todays fixed-lines solution, even at high system loads. That said, Internet communications are
subject to interruptions that are impossible to anticipate or diagnose, and throughput and
response times cannot be guaranteed.

3.3. Trading via Telephone

Exchange Members can place buy and sale orders by telephone to the financial desk, which then
enters orders in the electronic trading system. The electronic trading system then posts them to
the market. All orders placed in the market by an Exchange Member are binding until the end of
the trading day or until the Exchange Member contacts the financial desk with an order
cancellation or alteration. Exchange Members can obtain information about prices and order
depth through the desk.

If a trade is made on one or more of the Exchange Members orders, the financial desk notifies
the Exchange Member immediately to confirm the transaction.

Exchange Members who trade by telephone will usually have access to market information from
an online-based information system. These systems update the prices on the market in real
time. The system displays information such as product series, best buy and sell prices on the
market, last paid price, and accumulated volume for the current trading day. Some information
distributors also offer historical data and tools for analysis.

Trade at Nord Pools Financial Market 20

Nord Pools also provides market information for Exchange Members who dont require
continuously updated data. The website (www.nordpool.com) provides updates on Financial
Market prices every 15 minutes, which is accessible to the public. In addition, Exchange
Members have free access to Nord Pools ftp-server. This database includes historical physical
and financial prices.

4. Trade Volume Development

The traded volume at Nord Pools financial market has increased considerably since the first
products were launched in 1993. In analysing the evolution of volumes and market shares, it
should be observed that since 1993 the products, trading systems, and market area have gone
through many changes.

The major changes include the following:

Introduction of financial futures in 1994.

Merger of Norway and Sweden into one common power market and implementation of an
automatic trading system, PowerCLICK, in 1996.

From 1996-2000 forward contracts, options, and Contracts for Difference (CfDs) were listed.
Finland, Denmark West, and Denmark East joined the Nordic Power Exchanges market area
during this period.

The new Exchange Act was adopted by The Financial Market

the Parliament November 17, 2000 and TWh
went into effect March 2002. 1200
1000
The changes in the Securities Trading 800
Act was adopted by the Parliament June 600
7, 2001.
400
200
Nord Pool applied for exchange license
in May 2001 and was approved March 0
2002. 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

The license was taken into effect Monday March 18, 2002.

New and updated Rulebook reflecting the changes in the market structure set in force March
1, 2002.

The new market in Swedish electricity certificates was established 3 March 2004.

Trade at Nord Pools Financial Market 21

The total volume of financial contracts traded at Nord Pools financial market in 2003 was 545
TWh. In 2003, the total volume of trades cleared by Nord Pool Clearing was 1743 TWh. This
would give Nord Pool ASA a market share of approximately 31% of all cleared contracts.

Total generation in the Nordic Power Exchange area is about 380 TWh per year. Accordingly,
trade in financial contracts is about five times physical load (not including non-cleared financial
contracts).

Trade at Nord Pools Financial Market 22