NORD POOL ASA ANNUAL REPORT 2004

Transcription

1 NORD POOL ASA ANNUAL REPORT 2004

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3 Contents This is Nord Pool... 4 Nord Pool s business areas... 5 A brief history... 6 Key events Key figures CEO s report... 8 Internal control Business areas Physical market Financial market Clearing Consultancy activities Report of the board of directors Annual accounts Profit and loss account Balance sheet Cash flow analysis Accounting principles Notes to the accounts Auditor s report Statistics Glossary

4 This is Nord Pool This is Nord Pool Vision Nord Pool the world s leading power exchange. Mission Nord Pool will develop by focusing on technological leadership and cost-effective operation, so that it is recognised as the world s leading exchange for trading power contracts. The Nord Pool group operates marketplaces for trading and clearing physical-delivery and financially-settled power contracts in the Nordic region. It comprises the parent company, Nord Pool ASA, its wholly-owned Nord Pool Clearing ASA and Nord Pool Consulting AS subsidiaries, and Nord Pool Spot AS and Nord Pool Finland Oy. Nord Pool also has a holding in Germany s European Energy Exchange AG (EEX) and an operating agreement for information technology systems with France s Powernext power exchange. Nord Pool ASA is owned by Statnett SF and Svenska Kraftnät. The Nord Pool group has 96 employees, and contracts worth NOK 389 billion were traded and cleared via the Nordic power exchange in The group s operations are located in Oslo, Fredericia, Stockholm and Helsinki. 4 Nord Pool ASA 2004

5 This is Nord Pool Nord Pool s business areas Nord Pool has three core business areas: the physical delivery market, the financial market and clearing. Physical market Elspot is a joint Nordic auction-based spot market for trading power contracts of one-hour duration for next day delivery. The Elspot system price is the established reference price for trading financially settled power contracts in the Nordic countries. Transmission system operators use Elspot closing figures to forecast Nordic cross-border power volumes and to balance grid loads. In addition to electricity generators and heavy industry, participants in Nord Pool s spot market include distributors, retailers and brokers. Elbas is an intra-day physical delivery power adjustment market for Sweden, Finland and eastern Denmark, where one-hour contracts are traded continuously. On Elbas, next-day delivery contracts are listed after Elspot closes, and contracts may be traded up to one hour before delivery begins. Elbas is managed by Nord Pool Finland Oy, a wholly-owned Nord Pool Spot subsidiary. Financial market Nord Pool provides a marketplace where its exchange members can trade in standardised forward and option contracts. These financially settled derivative contracts are used for price hedging and risk management in electricity trading. Contracts have a trading horizon of up to four years, with different contract series for days, weeks, months, quarters and years. Trading in contracts for difference (CfD) provides market participants with a tool for adjusting and hedging portfolios in relation to price differences between the Elspot system price and the price in specific Elspot price areas. Nord Pool offers trading in Europeanexercise power options with forward contracts as their underlying instruments. Clearing Clearing power contracts through Nord Pool s clearinghouse reduces counterparty risk for financial market participants because Nord Pool Clearing enters into the contracts as a contractual counterparty. Daily collateral postings to cover future settlements reduce risk for financial power contract holders. Nord Pool Clearing clears all contracts traded on the Nordic power exchange s financial market. Nord Pool Clearing also offers clearing of non exchange-traded standardised financial power contracts. 5

6 This is Nord Pool A brief history 1991 The Norwegian Storting (parliament) resolves to deregulate the market for power trading Statnett Marked AS (now Nord Pool ASA) is established as an independent company The Nordic power exchange s financial market grows through product development. The first market council for the Nordic power exchange is established. A hundred participants trade on the exchange Trading in futures contracts is introduced on the financial market. Nordic energy ministers agree to expand Nordic cooperation on electricity supplies Inauguration of the joint Norwegian- Swedish power exchange, the world s first multinational exchange for trading power contracts. It is renamed Nord Pool ASA Forward contracts are introduced on the Nordic power exchange s financial market. Nord Pool offers expanded clearing services to financial market participants in addition to clearing all contracts traded on the Nordic power exchange, it clears over-the-counter (OTC) contracts Finland joins the Nordic power exchange market area, and the EL-EX power exchange in Helsinki concludes an agreement to represent Nord Pool in Finland. Nord Pool opens an office at Odense in Denmark. Nord Pool Consulting AS is established Elbas is launched as a separate market for power balance adjustment in Finland and Sweden. For the first time, Nord Pool releases daily data on OTC market trades. Trading begins in Elspot s Denmark West (Jutland/Funen) area on 1 July The Nordic power market becomes fully integrated when Denmark East becomes a Nordic power exchange price area. Nord Pool helps establish Germany s first power exchange, the Leipzig Power Exchange (LPX), and takes a 35 per cent holding Nord Pool applies for licences both as a regulated exchange and as a clearinghouse. It contributes to the merger of Germany s two power exchanges, LPX and the European Energy Exchange (EEX) Nord Pool is licensed as a regulated exchange and as a clearinghouse. Its spot market activities are organised in a separate company, Nord Pool Spot AS, owned by all transmission system operators in the Nordic power exchange area and by Nord Pool ASA Uncertainties over fundamental market conditions and high prices contribute to a downturn in trading and clearing of financial power contracts via Nord Pool. Work on developing and testing the new financial market clearing system at Nord Pool Clearing continues throughout the year. Key events 2004 Market recovery begins The overall volume in Nord Pool s market for financial power contracts came to 590 TWh in 2004, an increase of eight per cent from the year before. At 30 June, the volume traded on the exchange s financial market was 29 per cent below the level for the first half of Nord Pool strengthened its market position in 2004 and increased its market share to 33.8 per cent (2003: 32 per cent). Many new active customers contributed to the recovery. New market-maker In July, Elkem Energi AS became a new market-maker in Nord Pool s market for financial power contracts. New products Nord Pool launched its first product relating to renewable energy production in March. On 18 March, Sydkraft Energy Trading AB and Fyrstad Kraft AB concluded the first trade in Nord Pool s market for Swedish green electricity certificates. Nord Pool initiated trading with EU emission allowances (EUAs) in early February 2005 as the first exchange in the world to conduct such dealings. In addition to trading forward contracts with physical delivery, Nord Pool offers clearing of standardised carbon dioxide allowances. New clearing system A new system for clearing financial power contracts went on line on 1 April Developed by OMX (formerly OM Technology), this system contributes to a more efficient clearing function. It also forms the basis for improved tailoring to customer needs and further development of the clearing solutions offered by Nord Pool. Risk capital strengthened Nord Pool Clearing ASA increased its risk capital in April to NOK million through an underwriting agreement with Swiss Reinsurance Ltd (Swiss Re). More long-term consultancy jobs Nord Pool Consulting secured several long-term contracts relating to the development of power exchange trading in southern Africa, Romania, India and elsewhere. This also contributed to a better result in 2004 than the year before. 6 Nord Pool ASA 2004

7 This is Nord Pool Key figures Percent change Activity by product area Physical market Volume (TWh) % Value (NOK bn) % Financial market Volume (TWh) % Value (NOK bn) % Total volume traded Financial + physical Volume (TWh) % Total value traded Value (NOK bn) % Clearing of Volume (TWh) (1.0%) bilateral market trade Value (NOK bn) (12.3%) Total value of traded Volume (TWh) % and cleared volumes Value (NOK bn) (3.9%) Number of participants Total number participants at 31 Dec % Average system price Average system price for the year NOK/MWh (16.8%) Highest system price NOK/MWh (69.8%) Lowest system price NOK/MWh % Market development The columns show Nord Pool s products from 1995 to 2004 inclusive. A first-ever decline in both volume traded in the financial market and in clearing of OTC contracts was experienced in The low volumes continued into 2004, but the trend reversed in the fourth quarter to give an overall improvement for the year. 7

8 Chief executive s report «building a secure market» A well-functioning power market depends on confidence. Only then can sufficient trading liquidity be achieved. Nord Pool intensified its efforts in 2004 to ensure transparent trading on the Nordic power market. It also developed new products and services which can generate increased interest in the power exchange over coming years. Nord Pool has strengthened its commitment to building confidence in the power market. The company changed its motto to building a secure market, since the goal expressed in the old logo of the Nordic power exchange has been fulfilled. A well-functioning market already exists in the Nordic region, with Nord Pool as its exchange. That target has been reached. Further progress depends entirely on ensuring customer confidence that price formation is sound, that the rules are observed and that quality is incorporated in every part of the business. It is also important for customers to be confident that Nord Pool is developing its activities in a way which makes it an efficient and serviceable marketplace for both new and existing customers and for new products in new markets. Since the new motto heralds a change of direction, Nord Pool upgraded its visual image including its logo in Strengthened liquidity is main target Over the past half-year, Nord Pool has noted rising volumes being traded in the financial market. The traded volume in MWh is an important parameter of the liquidity concept. For Nord Pool, as for any exchange, the best possible liquidity is the overarching goal. Put simply, liquidity is the ability to carry out a desired trade at market price within a given time. In addition to traded volume, other important liquidity elements include the number of active participants, the number of trades, the spread in the various products, the depth of the market and price changes when a trade is concluded. Some of these criteria can be directly influenced by the exchange, whilst others result to a greater extent from external factors. Nonetheless, Nord Pool s overall goal is to improve its liquidity and it will work continuously to meet this target. The daily commitment at the trading table, in contact with the customers, to ensure the best possible price picture is a key element. Nord Pool is the price reference in the Nordic power market and the guarantor of transparency and openness in the price picture. When a high proportion of trades are conducted on the exchange, a large part of the market and price picture will be available to all. I am convinced that the transparency Nord Pool has achieved in the Nordic power market is an important factor in the success of deregulation in this region. A significant difference between Nord Pool and other power markets in Europe is the degree of openness. Through the legal framework, its own regulations and its awareness that openness benefits everyone, Nord Pool ensures that all participants in the market have equal access to information at the same time. These key data include production, consumption, power exchanges and hydropower reservoir levels. In addition, all participants have undertaken in their agreement with Nord Pool to make price-sensitive information available to the market. That is primarily achieved by publishing it on Nord Pool s web site, where key information from the transmission system operators is also made available to all. Although such measures are regarded as sensible and reasonable in the Nordic region, and to the benefit of all, that is far from being the case in the rest of Europe. Liquidity requires effective clearing Clearing is an integrated part of a derivative trade. Secure and efficient clearing of contracts traded over the exchange is essential for satisfactory liquidity. Nord Pool Clearing changed its system and clearing supplier in OMX was selected as the system supplier, while Nord Pool took over significant elements of the clearing operation itself. A change of that kind is a major and extensive job. The new solution provides a more robust and secure clearing operation today and for the next five years. It has permitted substantial cost reductions, which benefit customers in that the loss of income from the reduction of clearing volume in recent years has not led to a corresponding increase in clearing fees. At the same time, Nord Pool s dependence on third-party suppliers for strategically important elements in the clearing process has been reduced. A more secure clearing platform has been created. This will yield a more efficient and secure product for customers in the longer term, while allowing new products to be introduced faster and more efficiently. The risk capital available to the 8 Nord Pool ASA 2004

9 Chief executive s report clearinghouse plays a crucial role in the confidence it gains and its ability to cope with defaulting customers whose liabilities exceed the cover provided by the collateral requirements. Because prices were particularly volatile during the winter of , the Nord Pool group increased its risk capital by EUR 65 million in the winter of 2004 through an insurance policy with Swiss Reinsurance Ltd (Swiss Re). This raised the total risk capital available from roughly NOK 500 million at 31 December 2003 to about NOK 1 billion. By approximately doubling total risk capital, this has given customers additional assurance of Nord Pool s financial strength and ability to handle demanding market conditions in the future. Confidence requires that the rules are enforced Like all other exchanges, Nord Pool depends on the confidence of market participants that everyone observe the established rules. Nord Pool has its own sanctions regime for breaches of these regulations. Should breaches of the Act on Securities Trading be suspected, Nord Pool is under an obligation to investigate and report them to the Financial Supervisory Authority of Norway as the regulatory body. One case of suspected market manipulation has been reported to the Authority, which referred it on to the National Authority for Investigation and Prosecution of Economic and Environmental Crime in Norway (Økokrim). Citing lack of resources, Økokrim decided not to take up this case. The Financial Supervisory Authority accordingly chose to send a public letter to the participant concerned which expressed criticism of the latter s market behaviour on this occasion. On the other hand, it reached no conclusion on whether this conduct constituted a breach of the Norwegian Securities Trading Act. Such cases will always be complex and far-reaching. However, confidence in and respect for the exchange and the law require that suspected breaches of the regulations are investigated and a conclusion reached. Official bodies entrusted with regulatory functions and possible penal sanctions must be given the expertise and resources needed to do their job. An efficient and high-quality response to such cases is essential if Nord Pool is to merit the confidence required by an international marketplace with members from a large number of European countries. This is also essential if Norway is to retain its position as a suitable host for the Nordic power exchange. Trading EUAs Nord Pool is working actively to develop the Nordic power market in order to ensure that its products are up-to-date and adapted to the development of the market. As part of these efforts, a new product has been developed for trading in the market for carbon emission quotas. The start to exchange trading with these European Union allowances (EUAs) during February 2005 made Nord Pool the first regulated marketplace in Europe to trade in and clear such contracts. Many of the exchange s existing customers will be active in the EUA market. Nord Pool also believes that it has a very interesting product for industrial customers, banks and financial institutions. The opportunity for netting both power and EUA contracts allows exchange members to reduce their overall margin requirements. Nord Pool has also opened for clearing OTC-traded EUAs. The market for EUAs is new and exciting, and Nord Pool also wants to be a leader in this area. Nord Pool inaugurated trading with Sweden s electricity certificates in Activity in this market has so far been limited. The Swedish authorities are considering adjustments to the parameters which affect trades in this market. At the same time, Nord Pool will introduce forward contracts for electricity certificates in the Swedish market during A Norwegian market for electricity certificates is due to be created in 2006, and Nord Pool s clear recommendation is that it should be coordinated with the Swedish version. This will increase liquidity and improve competition. Nord Pool has moderate expectations of the electricity certificate market in 2005, but is more optimistic about a common Norwegian/ Swedish market from the following year. The development of the overall market creates a basis for closer integration with the other European energy markets. Nord Pool has modified its contract structure from a hydropower-oriented seasonal basis to a quarterly and monthly basis in line with practice elsewhere in Europe. The Norwegian krone will cease to be a trading currency in Nord Pool during All the company s products will be euro-based from Torger Lien President and CEO Nord Pool ASA 9

10 Internal control An organisation to inspire confidence As a regulated exchange and clearinghouse, Nord Pool is dependent on inspiring confidence among participants. The marketplace must be perceived as an arena for secure and equitable trading, and the company s organisation must ensure satisfactory control at all levels. Secure marketplace As required by the Norwegian Stock Exchange Act and associated regulations on market surveillance, Nord Pool has established its own market surveillance department. This unit is responsible for monitoring trading activities and the conduct of participants in Nord Pool Spot s market for physical deliveries and Nord Pool s market for financially settled power contracts. The department monitors all exchange trade and non-exchange-traded (OTC) financial contracts. This market surveillance is intended to ensure that activities comply with prevailing statutes and regulations as well as with the exchange s own rules for the two marketplaces. During 2004, market surveillance concentrated on the allocation of trading capacity between different Elspot areas. Particular attention was paid to the information provided on capacity limitations in the grid as well as participant behaviour when such limitations and bottlenecks arise. The department also focused on the utilisation of spare transmission capacity between Elspot areas in the operational phase. This spare capacity is managed by the Nordic transmission system operators in connection with optimising operation of the Nordic grid. Such optimisation often results in large imbalances between planned and operational production between the various Elspot areas. Market surveillance is responsible for ensuring that these are not exploited by participants. Guidelines were developed during the year for reporting insider information to the market by both power generators and transmission system operators. An improved application for reporting such information urgent market messages (UMM) was adopted during Reporting to the market was also improved. All these measures have helped to improve transparency in the Nordic power market. An obligation to report contracts traded in the OTC market and cleared by Nord Pool was imposed in Much important experience has subsequently been gained in how this reporting obligation should be practised and monitored. The market surveillance department concentrated its attention in 2004 on the quality of the contract reporting. Anonymous status reports have been published to show how large a proportion of the contracts concerned were reported erroneously or late. No sanctions were imposed during Organisation with adequate controls Nord Pool is subject to extensive legal provisions which govern its organisation. These include the Stock Exchange Act, the Act on Public Limited Companies, the Securities Trading Act and the regulations on internal control. The company is also subject to regulation by Financial Supervisory Authority of Norway. With effect from 1 January 2004, it was also required to establish an internal audit function. To ensure that employees act in a manner which inspires confidence, Nord Pool has drawn up guidelines which provide advice on ethical issues. These will ensure that employees behave in a professional manner and display a high level of personal integrity. The guidelines are subject to regular revision. Internal control measures Nord Pool s board has overall responsibility for organising the business and for ensuring that it is subject to adequate controls. This includes ensuring that systems for internal control are in place, that these controls are applied and monitored, and that they are documented. The chief executive is responsible for implementation, in accordance with prevailing legal provisions and the board s guidelines and instructions. Responsibility for operational implementation of the control measures rests with the line management. As part of the work to ensure that adequate control systems are in place, a review and assessment of risks facing the business are conducted annually. On that basis, established control measures in all parts of the business are reviewed including an assessment of changes which might be required. The company s monitoring bodies In addition to the company s board of directors, its elected auditor and 10 Nord Pool ASA 2004

11 Internal control the Financial Supervisory Authority, Nord Pool has a number of bodies which monitor its internal controls. Control committee This is elected by the general meeting, which also establishes the instructions for its work. These instructions are approved by the Financial Supervisory Authority. The control committee monitors that the power exchange and clearinghouse operations accord with prevailing statutes, regulations, licence terms, articles of association and decisions taken by the governing bodies of the power exchange and clearinghouse. An annual report on its work is submitted by the committee to the general meeting and the Financial Supervisory Authority. Internal audit Norway s internal control regulations require Nord Pool to have an internal audit function. The chief internal auditor is appointed and dismissed by the board, which must also approve an annual audit plan. The internal audit function reports directly to the board and has the right to attend its meetings. The object of the internal audit function is to assist the board in exercising its supervisory responsibility, and it submits an annual report to the board on internal control in the company. This includes confirming the extent to which a systematic review has been conducted of significant risks and associated control measures to manage these, whether the control measures have been monitored, whether possible failures in the internal controls have been reported, and whether the internal control systems are adequately documented. Risk committee To monitor work on implementing the control measures, the administration has established a risk committee of selected personnel from the operational departments. This body reports to the management. The committee s mandate primarily requires it to conduct systematic monitoring and reporting of failures in the internal control measures. This includes reviewing incident logs and ensuring a follow-up and check of incidents which can be related to the risks defined by the internal control system. 11

12 Business areas 2004 The overall volume in Nord Pool s market for financial power contracts came to 590 TWh in 2004, an increase of eight per cent from the year before. The total volume cleared by Nord Pool Clearing ASA came to TWh, compared with TWh for the year before. Clearing of contracts traded in the OTC market also remained on a par with 2003, amounting to TWh as against TWh. 12 Nord Pool ASA 2004

13 Business areas Physical market Big growth in turnover The physical delivery market is the cornerstone for all Nordic power market trading. This market is organised by Nord Pool Spot AS, owned 20 per cent by Nord Pool ASA. Prices in Nord Pool s spot market remained relatively stable throughout 2004, but were at a higher level during the summer than had been normal in past years. A total of 167 TWh was traded via Nord Pool Spot AS in 2004, up by no less than 40 per cent from the year before. This increase was due almost entirely to the introduction of gross bidding agreements for reporting all purchases and sales by a company at reduced fees. The average system price for 2004 was NOK /MWh, compared with NOK /MWh the year before. For more details about activities and results at Nord Pool Spot AS, see the company s own annual review. 13

14 Business areas Financial market Growth in a demanding market Trading in Nord Pool s market for financially settled power contracts increased by eight per cent in volume terms during Twelve new market members were registered. The number of trades and the value of the volume traded were virtually unchanged from the year before. Nord Pool is the only licensed exchange in the Nordic countries for trading in power derivatives. The market comprises trading in forward, futures and options contracts. These are used for price hedging and risk management by Nordic and European power companies. The financial market also has a number of participants who utilise Nordic power as a financial trading area in combination with trading in other energy commodities. Volumes up in late 2004 A total of contracts were traded on Nord Pool s market for financially settled power contracts in 2004, with the volume traded totalling 590 TWh. Non-Nordic market participants accounted for just under 14 per cent of the traded volume. A concentrated marketing commitment helped to increase Nord Pool s share of the total cleared volume from 32 per cent in 2003 to 34 per cent. The first nine months of 2004 were characterised by continued uncertainty over fundamental conditions in the physical market. This helped to hold traded volumes on a par with During the first half, both depth and spread (difference between buy and sell prices) improved sharply in all contracts. Elkem s entry as a market-maker in July 2004 was a very positive factor in this context. A hydrological deficit still existed in the Nordic region at 1 October. That was converted during the fourth quarter into a surplus as the result of a mild early winter with high precipitation. This development continued into 2005, which led in turn to falling prices and increased trading volumes. Many participants who had been hanging back now took the opportunity to hedge prices for their future power generation or consumption. As a result, the increase in traded volumes occurred entirely in the final quarter of the year. Most exchange members in Nord Pool use various models to assess their risk exposure in both hedging and trading. When prices and market volatility rise, participants are often forced to reduce the size of their positions. The fall in prices towards the end of 2004 helped to free up trading capital for some participants. New methods for calculating risk-neutral positions implemented by Nord Pool Clearing in the autumn of 2004 also made a positive contribution. More participants Nord Pool secured 12 new exchange members and 40 new clearing clients (members who trade on Nord Pool via another exchange member) during the year. Forty-five new licences for Nord Pool s electronic PowerCLICK trading system were installed. At 31 December, a total of 397 exchange and clearing members were registered to trade on Nord Pool s market for financial contracts. World energy markets were turbulent in 2004, with sharply rising prices for electricity, oil, gas and coal. This led to a general growth in the attention paid to trading energy raw materials, which helped in turn to increase interest in energy trading both in the Nordic region and internationally. Adapting to the euro A ever-growing share of trades on the exchange were denominated in euros during 2004, as a natural consequence of the decision to quote all forward contracts in this currency with effect from 1 January The transition from blocks to months has been completed, and the move from seasons to quarters will be finalised during Interest was displayed during the year in trading contracts denominated in local Nordic currencies, but this was not strong enough to persuade Nord Pool to quote such contracts on the exchange. Most participants put both currency policies and the necessary currency accounts in place during Nord Pool believes that converting to the euro will help to strengthen the liquidity of the Nordic power exchange in the long term. Trading systems Nord Pool launched its own solution for thin-client web-based trading with financial contracts in the spring of The NPTrade system was developed as a supplementary application to the PowerCLICK electronic trading system. The volume traded via NPTrade was substantially smaller than envisaged, and the system was accordingly closed down in the spring of All NPTrade 14 Nord Pool ASA 2004

15 Business areas customers were transferred to PowerCLICK without financial or technological cost. Nord Pool launched a web-based virtual private network (VPN) for connecting to PowerCLICK in This has been a success, attracting great interest from exchange members. Green certificates Spot trading in Sweden s green electricity certificates began on Nord Pool in the spring of The volume of trading was limited in During the year, it became clear that Norway would also introduce such green certificates. Nord Pool is working to ensure that the Norwegian version will copy the Swedish model in order to facilitate an inter-nordic trade in green certificates. Forward trading in electricity certificates will also be offered by Nord Pool in Exchange trading with EUAs After a year of preparatory work, Nord Pool launched trading with European Union allowances (EUAs) for carbon emissions in February This market opened in competition with several other European exchanges. Nord Pool s trading solution has already attracted positive interest, resulting in new exchange members from all over Europe. Several uncertainties are faced in starting up this new market, most notably international political developments in the climate area. However, the response from international carbon traders suggests that Nord Pool has so far developed the leading carbon trading solution for Europe. Optimistic start to 2005 Exchanges reflect the risk exposure sought by their members. Nord Pool s most important job in 2004 was to improve the quality of the marketplace and thereby the opportunities for its members to achieve their desired risk positions in an efficient way. At the same time, Nord Pool wants to recruit new exchange members and increase the use of its electronic trading system by new and existing participants. At the beginning of 2005, it is accordingly well positioned for what looks like being a year of increased trading activity with Nordic power contracts. Political uncertainty prevails about trading with both green certificates and EUAs. However, Nord Pool is well placed in both these markets. 15

16 Business areas Clearing Efficiency and security crucial for liquidity The introduction of a new clearing system and increased risk capital helped to strengthen the position of the clearing service in the Nordic power market. In particular, inaugurating the new clearing solution in April contributed to more efficient and secure clearing. Collateral requirements were also reduced for many participants as a result of changes in margining adopted during the year. In clearing, Nord Pool Clearing enters into power contracts as a contractual counterparty in order to reduce the credit financial counterparty risk of the parties to the contract. Clearing contracts allows participants to streamline their in-house procedures for credit management while giving them access to standardised routines and systems from the clearinghouse. Credit and operational risks are thereby further reduced. All contracts traded on the Nordic power exchange s financial market are automatically cleared. Nord Pool Clearing also offers clearing of standardised power contracts traded in the over-the-counter (OTC) market. In addition to ensuring settlement each trading day, the clearing activity delivers secure and effective clearing services. The volume of exchange-traded power contracts cleared in 2004 was 590 TWh, while the volume of OTC market contracts cleared via Nord Pool Clearing came to TWh. The latter figure represented a 32 TWh increase from Nord Pool Clearing achieved an operating profit of NOK 35.8 million on a total operating income of NOK 126 million. The total cleared volume for OTC market contracts had a contractual value of NOK 202 billion, while the exchange-traded volume cleared had a contractual value of NOK 149 billion. Legal requirements mean that Nord Pool Clearing is a separate limited company, but works closely with Nord Pool ASA. New clearing platform With the introduction of a new clearing platform in 2004, Nord Pool Clearing 16 Nord Pool ASA 2004

17 Business areas took a substantial step forward in organisational and system terms. This platform greatly improves opportunities for developing new markets and products, and for offering efficient clearing services to the Nordic power market. Introducing the new clearing platform is a substantial and complex project, and not everything went according to plan. Nord Pool Clearing was grateful for the flexibility and patience shown by all participants during this process. The system changes are fundamental, and affect all parts of the clearing process. The new platform consists of SECUR from OMX, adaptations to SPAN 1, a new EDIFACT bank interface and the clearing report application, which provides a reporting interface to participants. Nord Pool s whole organisation has worked hard to implement this major improvement, which has yielded immediate gains. Despite certain operational problems, the financial benefits are already evident in the 2004 accounts. Combined with a solid contribution from the organisation, the system change was a direct reason why clearing fees could be kept at a low level during 2004, even with lower volumes. Increased risk capital Experience from the winter of provided the starting point for new discussions on the level of capital required to cover contingencies (risk capital) in Nord Pool Clearing. The extreme price variations experienced during that period, combined with low liquidity in the form of big spreads and low trading volumes, had a significant impact on the stress tests which were carried out. A sound liquidity is important, and it was accordingly concluded that the company needed additional risk capital. An insurance contract concluded in March 2004 provided Nord Pool Clearing with a further EUR 65 million in risk cover for possible defaults. Together with the company s equity, this insurance scheme provides a total risk capital of more than NOK 1 billion to cover contingencies. Running until 31 March 2007, the scheme has roughly doubled risk capital and given participants greater security in the event of a possibly default. Positive volume development Volumes continued into 2004 at the same low level witnessed in late The market was characterised by large spreads and varying liquidity, primarily because of uncertainties over hydrological conditions in Norway until September. From that month, however, hydropower reservoir data turned positive and activity in the market recovered sharply towards the end of the year. The total volume in 2004 was TWh, an increase of 32 TWh from the year before. The share of options in the total cleared volume was significantly lower than in 2002, a record year. The open balance (future contractual obligations) varied between NOK 34.9 billion and NOK 44.5 billion during the year. In TWh, the open balance fluctuated between 199 and 365. Changes in margining Reduced volatility meant that collateral requirements were reduced three times during the first half-year. A number of changes were also made to the risk model during the year in order to optimise collateral requirements: Volatility measurements were adopted in July which take account of the fact that options differ in their implicit volatility for different strike series. A technical model for managing riskneutral positions and delta netting was implemented in October. A risk-neutral position comprises forward contracts which cover the same delivery periods, and in which opposite positions mean that the position is not subject to price risk if held until maturity. Delta netting involves a market assessment of the option s delta and its contribution in MWh to a net positionnetting between different positions. These measures have reduced collateral requirements for many participants. Collateral requirements at 31 December totalled NOK 6.6 billion, and collateral posted amounted to NOK 16.2 billion. Corresponding figures for 2003 were NOK 9.4 billion and NOK 19.1 billion respectively. Better adapted to customers Nord Pool Clearing devoted special attention in 2004 to developing products for smaller participants in the Nordic power market. The aim was to lower the threshold for such players to enter the market. Introducing a new price structure for these participants, with a combination of reduced annual fee and higher variable fees, has been the first step in this direction. Nord Pool Clearing has also worked since the summer of 2004 to find a solution which allows participants to settle their contracts in local currencies. This product will be tailored primarily for smaller players who do not wish to have currency flows in euros relating to their power trading activities. It will also become possible in 2005 to provide collateral for trading Nordic power contracts in local currencies, even through the contracts are quoted in euros or Norwegian kroner. 1 SPAN is a registered trademark of Chicago Mercantile Exchange Inc., used herein under licence. Chicago Mercantile Exchange Inc. assumes no liability in connection with the use of SPAN by any person or entity. 17

18 Business areas Consultancy activities Exporting Nordic market expertise Advising on the operation and establishment of power markets internationally is the main business at Nord Pool Consulting. Wholly owned by Nord Pool, this consultancy company secured several major contracts in 2004 which provide a long-term volume of work. Nord Pool Consulting aims to be a preferred supplier of consultancy services in deregulated power markets internationally. In addition, it seeks business opportunities worldwide in order to prepare the ground for later international industrial activities by the Nord Pool group. After the creation of Nord Pool, which quickly became world-renowned, the company received a substantial number of approaches from international players who wanted to learn what had been done in the Nordic region and to study how that market functioned. Such enquiries were originally handled by Nord Pool itself, but the company quickly saw that this opened a new business opportunity the sale of expertise on exchange trading combined with knowledge of power adjustment markets and system operator services. Based on the Nordic experience and Nord Pool Consulting s international project experience, the company offers tailored solutions to its customers which have been adapted to local frame conditions. Nord Pool Consulting was established in 1998 by Nord Pool, Statnett and Svenska Kraftnät. All the shares in the company were acquired by Nord Pool ASA in The company has a core of permanent employees, and also draws on expertise and resources available from the rest of Nord Pool and from its owners the Nordic transmission system operators. This supplementary expertise primarily contributes knowledge of an operational nature. Nord Pool Consulting secured several large contracts in 2004, and its portfolio of projects gained a desired long-term character which forms an important basis for further expansion. Some of the projects currently under way which deserve a mention include: creating a regional spot market in southern Africa creating and starting up spot and power adjustment markets in Romania designing a spot market for India. Further development of power trading in southern Africa The Southern Africa Power Pool (SAPP) has been created by 12 countries in the Southern African Development Community (SADC). Nine of the member nations are linked together in a interconnected grid. Nord Pool secured the part of the project relating to continued development of spot power trading in the area. The work so far has primarily involved specifying a trading concept for the region. Over the next 18 months, the market will be opened with new regulations and agreements. Nord Pool will also play a key role in this part of the project. Establishing a Romanian spot market Nord Pool Consulting has concluded a long-term agreement to assist Romanian market operator OPCOM in creating a national spot market. The first phase of this project focuses on the organisational build-up of the power exchange, inaugurating the trading system and training OPCOM personnel and exchange members. In phase two, Nord Pool will advise OPCOM on further market development and adaptation to regional conditions. Indian energy markets Nord Pool Consulting has been engaged as an adviser by the National Thermal Power Corporation (NTCP), India s largest electricity generator, in creating a national Indian power market. The south Asian nation adopted a new Energy Act in 2003 which gives weight to breaking up and privatising its stateowned monopolies, and to establishing an inter-state regional wholesale market for better harmonisation and exploitation of energy and capacity between the Indian states. Nord Pool will analyse and prepare a design for the regional/national energy market. This project is due to be completed during the summer of 2005, and Nord Pool expects to continue its involvement in the possible realisation of the Indian wholesale market. Nord Pool Consulting also pursued a large number of small projects during 2004 and held seminars for customers from all over the world. The outlook is promising, with interesting project opportunities in south-east Europe following the expansion of the EU as well as Africa and Asia. 18 Nord Pool ASA 2004

19 19

20 Report of the board of directors 20 Nord Pool ASA 2004

21 Report of the board of directors Report of the board of directors Good liquidity It was the beginning of November before the accumulated volume traded in Nord Pool s financial market during 2004 exceeded the corresponding figure for the year before. The final total was 590 TWh, an eight per cent increase from Nord Pool s share of the financial market expanded from 32 per cent the year before to 33.8 per cent. 12 new exchange members and a number of active customers contributed to this positive trend. The number of transactions was on a par with The total volume cleared by Nord Pool Clearing ASA came to TWh, compared with TWh for the year before. Clearing of contracts traded in the OTC market remained on a par with 2003, amounting to TWh as against TWh. The average system price for 2004 was NOK /MWh, compared with NOK /MWh the year before and an average of NOK /MWh for the period. The average system price for was NOK / MWh. Hydropower reservoir levels were low across the Nordic region at the beginning of 2004, and these conditions persisted throughout the winter and spring. Reservoirs were still low at the end of the spring thaw more than 15 per cent below the median level in Norway and about 10 per cent below in Sweden. This meant that spot prices remained stable at a NOK /MWh level, right through to the autumn. At 1 October, Nordic reservoir levels were still below normal. Combined with electricity imports to the region during most of 2004, a mild and wet conclusion to the year brought reservoirs back to marginally above the median level at 31 December. The spot price fell during the same period to about NOK 200/MWh. Trading in the financial market showed a marked upturn during the fourth quarter, and this has continued in Several reasons account for the change, with more normal reservoir levels and a rather lower level of spot market prices as important factors. This also resulted in a marked reduction in futures prices for 2005 and to some extent for subsequent years. Embracing the parent company, Nord Pool ASA, and the wholly-owned subsidiaries Nord Pool Clearing ASA and Nord Pool Consulting AS, the Nord Pool group has its head office in Lysaker outside Oslo. In addition come operations in Stockholm, Helsinki and Fredericia. Nord Pool ASA owns 20 per cent of Nord Pool Spot AS. Nord Pool s monitoring bodies On the basis of their status as a regulated exchange and a clearinghouse respectively, Nord Pool and Nord Pool Clearing are subject to legislation which requires them to maintain partly overlapping and extensive controls through various types of monitoring body. The companies are subject to supervision and regulation by the Financial Supervisory Authority of Norway. Both have a control committee, and an agreement to provide an internal audit function has been concluded with PricewaterhouseCoopers in order to satisfy the internal control regulations. In addition, the administration has established a risk committee to ensure that internal controls are implemented. European Energy Exchange Nord Pool ASA has a 17.4 per cent holding in the European Energy Exchange (EEX). Turnover in the German spot market continued the positive trend seen in 2003, although at a rather lower growth rate. A total of 59.4 TWh was traded (2003: 47.6 TWh). There were 109 spot market participants at January 2005, an increase of 10 from 31 December Turnover in the continuous-trade spot market came to 0.2 TWh or about 0.3 per cent of total spot market trading. Turnover in the financial market was 338 TWh, including 181 TWh in OTC trades. SAPRI Nord Pool s system for spot market trading EEX and Powernext are licensed to use SAPRI, which is Nord Pool s system for spot market trading. However, the German power exchange resolved in the autumn of 2003 to convert to Deutsche Börse/Eurex as its sole supplier of trading systems for all its products. This switch will take place in the summer of 2005 at the latest, when the licence agreement expires. In 2001, Nord Pool ASA concluded a facility management service agreement with Powernext on operation of a French spot market for electricity. Accounts for 2004 Operating revenues for Nord Pool ASA in 2004 came to NOK million, an increase of three per cent from the year before. Operating profit was NOK 10.7 million, a marked improvement from the NOK 1 million reported for The Nord Pool group s operating income totalled NOK million, up 14.4 per cent from the year before. 21

22 Report of the board of directors Operating profit was NOK 47.7 million compared with NOK 22.2 million in Operating revenues at 30 June were down by 6.1 per cent from the same period of the year before. At 30 September, total operating income was up by 2.5 per cent from the same period of the year before. This increase can primarily be attributed to the improvement in other operating income. Fee revenues for 2004 followed the development of volumes in the market. A marked shift in trading on the power exchange occurred in week 38, and trading volumes also rose from that point until the end of the year. Fee revenues did not exceed corresponding income in 2003 until the final two months of On that basis, the board is satisfied that operating profit for the full year was substantially higher than in Cost control remained a primary concern for the group, as it had been for the previous two years. Overall costs increased slightly compared with The underlying operating conditions changed significantly with the implementation of the new clearing system. Consequent organisational adaptations, combined with changes in fee revenues as a result of the agreement with OMX, represent a substantial change from Overall operating costs were somewhat higher than the year before, primarily because of the sharp rise in the level of activity at Nord Pool Consulting and the fact that this company has been consolidated in the accounts for the first time. Excluding that increase, overall costs for Nord Pool declined from The board will continue to concentrate on strict cost controls in order to ensure that the group maintains its competitiveness with other energy markets. This is particularly important in light of the volume conditions which characterised the market until week 38, when volume income was lower than in In its work to keep the level of costs under control, the board will continue to take a very cautious approach to permitting permanent increases in the level of costs before corresponding revenues have been securely established. Group cash flow developed positively, and came to NOK 35.5 million. Liquidity for the group is good, and working capital at 31 December totalled NOK million. The balance sheet at the same date was NOK 688,4 million, an increase of NOK 53.7 million over the year. Equity for the Nord Pool group at 31 December amounted to NOK million. At 31 December, the whollyowned Nord Pool Clearing subsidary had an open balance of NOK 39.5 billion. This represents the gross cleared positions of clearing members. Collateral requirements for members vary in line with market conditions. They amounted to NOK 6.6 billion at 31 December 2004, when total collateral posted amounted NOK 16.2 billion. The group s risk capital was strengthened with the creation of an insurance scheme which has provided EUR 65 million in additional risk capital. The board considers collateral requirements and postings to be adequate. It also deems the group s equity to be adequate in relation to the collateral posted by members during the year. The board notes that trading 22 Nord Pool ASA 2004

23 Report of the board of directors volumes first exceeded the 2003 figure in the fourth quarter of The development of market shares and the financial results achieved with the aid of strict cost controls are positive, and the board will continue to monitor trends for these three key figures closely. Work will continue to strengthen the positive development of all three. In accordance with section 3, subsection 3 of the Norwegian Accounting Act, the board confirms that the going concern assumption is realistic. This assumption is based on profit forecasts for 2005 and the group s long-term strategic forecasts for coming years. The group s economic and financial position is sound. Organisation and working environment The Nord Pool group had 71 employees at 31 December, including 65 in Norway, four in Sweden and two in Denmark. Forty-eight were employed by Nord Pool ASA, 17 by Nord Pool Clearing ASA and six by Nord Pool Consulting AS. Two employees were on leave of absence at 31 December. The workforce increased by one person during 2004 because Nord Pool Consulting became a wholly-owned subsidiary of Nord Pool ASA. Viewed overall, the number of employees in Nord Pool ASA declined by five people compared with Staffing in affiliated companies at 31 December comprised 18 employees in Nord Pool Spot AS, plus a further seven in its wholly-owned Nord Pool Finland Oy (formerly EL-EX) subsidiary. Sickness absence in Nord Pool ASA came to two per cent working days compared with 2.11 per cent the year before. For the group, sickness absence was 1.8 per cent working days as against 2.75 per cent the year before. This decline primarily reflects a smaller number of employees on long-term sick leave. No working environment survey was conducted in the Nord Pool group during 2004, but one is due to be carried out in the early spring of Work on improving the working environment is continuing in all Nord Pool departments. No lost-time accidents or personal injuries were suffered in Fourteen of the 48 Nord Pool ASA employees are women and 34 are men, or 29 per cent female and 71 per cent male. Women account for 24 of the group s 71 employees, or 33.8 per cent. The board of directors comprises three women and five men. Nord Pool s management team consists of seven men. Women occupy 20 per cent of other senior and middle management posts. The genders are well balanced in most Nord Pool departments, with some preponderance of males in the financial market and information technology. Men are over-represented in Nord Pool s management. This is not a desirable position, but reflects the fact that the power and financial sectors have traditionally been male-dominated. 23

24 Report of the board of directors Nord Pool is very concerned to recruit more female managers at all levels in the organisation, and has initiated a process to achieve that. Nord Pool s human resources policy is based on equal pay for equal work, which means that women and men in equivalent jobs receive the same pay providing they possess comparable expertise and experience. Pay figures for 2004 (excluding top management) show that annual pay for male employees was 34 per cent higher on average than for the company s female staff. This big difference in average pay between men and women primarily reflects the fact that more women occupy posts which do not require higher education. Part of the differential can also be attributed to the large number of male middle managers. The company wants to encourage employees of both genders to establish solutions which makes it easier to combine work and family life. Two female staff were on leave of absence at 31 December, when the company also had six part-time employees. All of these were women. Nord Pool s operations do not pollute the natural environment. Allocation of net profit The board proposes the payment of a dividend of NOK 20 million to the shareholders. It is proposed to pay our the whole of Nord Pool s net profit of NOK million. In addition, the board recommends that NOK million be paid from other equity. The company s free equity at 31 December 2004 was NOK million. Outlook As mentioned above, the trend for volume growth in the market for financially settled power contracts in the Nordic region changed during the fourth quarter of This positive development has persisted into With hydropower reservoirs above the normal level and reduced uncertainty over fundamental conditions, the positive trend for Nord Pool is expected to persist during With the good start to the year, the level of trading and clearing is expected to lie at or somewhat above the 2004 level. The adaptation to the euro being implemented by Nord Pool and other product development are expected to have a positive effect both on the number of active participants and on volumes in the Nordic financial market. The board expects that the start of trading with EUAs will make a positive contribution to the company s results in The board expects an overall profit for 2005 which is at least on a par with the 2004 figure. Lysaker, 17 February 2005 Odd Håkon Hoelsæter Jan Olof Magnusson Peter Thelin Elisabeth Westberg Board chairman Deputy chairman Eva Granly Fredriksen Bjarne Aamodt Kari Schultz Geier Robert Lillefloth Torger Lien President and CEO 24 Nord Pool ASA 2004

25 Report of the board of directors Odd Håkon Hoelsæter (Board chairman) Jan Magnusson (Deputy chairman) Peter Thelin Elisabeth Westberg Bjarne Aamodt Kari Schultz Geier Eva Granly Fredriksen Robert Lillefloth Torger Lien (President and CEO) 25

26 Annual accounts 26 Nord Pool ASA 2004

27 Annual accounts Profit and loss account Nord Pool ASA Nord Pool group Amounts in NOK Note Fee revenues Service agreement 3, Other operating income Total operating income Trading and clearing fees Depreciation 11, Payroll expenses 5, Other operating expenses 6, Total operating expenses Operating profit Income from associated companies Net financial items 9, Profit before taxes Taxes Profit for the year DIVIDEND PAYMENTS Dividend for the year 27

28 Annual accounts Balance sheet Assets Nord Pool ASA Nord Pool group 31 Dec Dec 2004 Amounts in NOK Note 31 Dec Dec 2003 FIXED ASSETS Intangibles Computerised trading systems Deferred tax benefit Total intangibles Tangible fixed assets Financial assets Investments in subsidiaries Investments in associated companies Investments in other companies Loans to group Total financial assets TOTAL FIXED ASSETS CURRENT ASSETS Accounts receivable Accounts receivable, group Group receivables Other receivables Total receivables Cash and bank deposits TOTAL CURRENT ASSETS TOTAL ASSETS Nord Pool ASA 2004

29 Annual accounts Balance sheet Equity and liabilities Nord Pool ASA Nord Pool group 31 Dec Dec 2004 Amounts in NOK Note 31 Dec Dec 2003 EQUITY Paid-in equity Share capital ( shares at NOK 1 200) 15, Share premium reserve Total paid-in capital Earned equity Other equity Total earned equity TOTAL EQUITY LIABILITIES Provisions Pension liabilities Total provisions Long-term liabilities Subordinated loan Total long-term liabilities Current liabilities Accounts payable Tax payable Fees payable to public authorities Dividend Other current liabilities Total current liabilities TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES Lysaker, 17 February 2005 Odd Håkon Hoelsæter Jan Olof Magnusson Peter Thelin Elisabeth Westberg Board chairman Deputy chairman Eva Granly Fredriksen Bjarne Aamodt Kari Schultz Geier Robert Lillefloth Torger Lien President and CEO 29

30 Annual accounts Cash flow analysis Nord Pool ASA Nord Pool group Amounts in NOK Cash flow from operating activities Profit for the year after taxes (69) Loss (+)/profit (-) on sale of operating assets (69) (68) Ordinary depreciation Loss on financial operating assets Change in accounts receivable (4 001) (1 486) (439) Change in accounts payable (2 150) Change in pension liabilities Change in investments or financing activities (4 291) (3 787) (11 422) Change in other accrual items (35 455) Net cash flow from operating activities Cash flow from investment activities Proceeds from sales of fixed assets (14 241) (5 544) Payment for purchases of fixed assets/intangibles (17 682) (27 813) Proceed from sale of NOS ASA shares (2 776) Payments for acquisition of shares in Nord Pool Consulting (13 811) (7 946) Net cash flow from investment activities (17 308) Cash flow from financial activities (30 000) (14 000) Dividend payments (14 000) (30 000) (30 000) (14 000) Net cash flow from financial activities (14 000) (30 000) (4 378) Net change in liquid assets for the year Liquid assets at 1 January Liquid assets at 31 December Nord Pool ASA 2004

31 Annual accounts Accounting principles The annual accounts have been prepared in accordance with the Norwegian Accounting Act of 1998 and Norwegian generally accepted accounting principles. New corporate structure Nord Pool is the marketplace for trading financially settled power contracts in the Nordic countries, and for the international activity relating to physical delivery and financial power contracts. Nord Pool is owned by Statnett SF and Affärsverket svenska kraftnät. Nord Pool Clearing is the clearinghouse for the Nordic financial power market, and wholly owned by Nord Pool ASA. Nord Pool Spot is the marketplace for organised trade in physical delivery power contracts in the Nordic countries. It is owned 20 per cent by Nord Pool, with the remaining 80 per cent owned by the five Nordic TSOs. Nord Pool Clearing and Nord Pool Spot currently purchase most of their administrative services from Nord Pool. Consolidation principles The group s consolidated accounts comprise the accounts of parent company Nord Pool, the Nord Pool Clearing subsidiary and, with effect from 2004, the Nord Pool Consulting subsidiary. The group accounts are prepared as if the group were a single financial entity. Transactions between companies in the group are eliminated, and the group accounts are prepared in accordance with uniform principles, since the subsidiaries apply the same accounting principles as the parent company. Nord Pool Consulting has been consolidated for the first time in the 2004 accounting year. Comparative figures have not been prepared for Nord Pool Clearing and Nord Pool Consulting are recorded in the group accounts on the basis of the parent company s acquisition cost. The acquisition cost is allocated among identifiable assets and liabilities of the subsidiary. Associated companies are consolidated in the group accounts in accordance with the equity method. The group s share of profit in an associated company is its proportionate amount of net profit for the associated company, less any internal gains and depreciation of surplus value (because the cost of the shares exceeds the acquired share of booked equity). In the profit and loss account, the share of profit in associated companies is shown under Income from associated companies. When consolidating branch office accounts in foreign currencies, exchange rates prevailing at the close of the accounting year are applied. Subsidiaries/associated companies Subsidiaries are valued in accordance with the cost method in the parent company accounts. Investments are valued at the acquisition cost of the shares, unless a write-down has been necessary. Investments are written down to market value if the decline in value is not deemed to be temporary and when considered necessary in accordance with generally accepted accounting principles. Write-downs are reversed if the conditions for the write-down are no longer present. Associated companies are consolidated in the Nord Pool group accounts in accordance with the cost method. Income Power contracts with a time horizon of up to four years are traded in the financial market. These comprise financially settled futures, forward and option contracts. The contract value of financial market power trading is not recorded in the accounts. Fee revenues The Nord Pool group s income base comprises: set-up fees annual fees trading fees clearing fees Set-up (entrance) fees are recorded to income in full at the time a participant is admitted to trading and/or clearing. Trading and clearing fees in the financial market are recorded to income at the time the trade is formally entered into. Clearing fees for contracts traded on the OTC market are recorded to income at the time such contracts are registered for clearing. Classification and valuation of balance sheet items Current assets and current liabilities include items which fall due within a year of their acquisition date, and items associated with the business cycle. Other items are classified as operating assets or long-term liabilities. Current assets are valued at the lower of acquisition cost or market value. Current liabilities are recorded in the balance sheet at face value at the time of the transaction. Fixed assets are recorded at acquisition cost. Upon a change in value not deemed to be temporary, the affected fixed asset is written down. Long-term liabilities are recorded in the balance sheet at face value at the date they are assumed. 31

32 Annual accounts Receivables Accounts receivable and other receivables are recorded in the balance sheet at face value after provision for expected loss. Intangible assets Intangible assets are recorded in the balance sheet to the extent that financial benefits associated with the intangible asset in question can be identified. If such benefits cannot be identified, the expenses are recorded as costs on a current basis. In-house development In-house development of proprietary software systems is capitalised at its calculated cost. Foreign currency Accounts receivable and payable in foreign currency are valued at the yearend exchange rate. Translation of assets and liabilities for the branch offices in Sweden is also done at the year-end exchange rate. Tangible fixed assets Tangible fixed assets are recorded in the balance sheet and depreciated over the expected useful life of the assets. Direct maintenance costs related to tangible assets are currently recorded as operating expenses, whereas upgrades and improvements are added to the cost bases of the operating assets and depreciated at the same rate as the assets to which they refer. Pension costs and liabilities The Nord Pool group maintains pension plans which provide employees with the right to defined future pension benefits (defined benefit plans). Benefits are based on the number of years of employment and pay at retirement age. Accrued pension rights are primarily secured through pension plans in Statnett SF s pension fund. In addition, the Nord Pool group has early retirement plans (AFPs) which are financed from operations. Contributions to the pension funds are made in accordance with the actuarial method of calculation. Pension assets are primarily invested in securities. Pension liabilities are calculated in accordance with the Norwegian provisional accounting standard (NRS) for pension costs. The company has a contributionbased pension plan for employees in Sweden and Denmark. The current year s pension costs correspond to the current year s premium payment. Pension obligations are valued at the present value of future pension obligations earned at the balance sheet date, which are to be paid through the company s own pension fund or financed from operations. Net pension liabilities are recorded in the balance sheet after correcting for the effect on deferred profit of changes in estimates and pension plans, as well as deviations between actual and projected yield on pension assets not yet recorded in the profit and loss account. Net pension obligations are presented as an allocation for liabilities. Over-funded plans, assets of which cannot be transferred to under-funded plans, are shown as pension assets (financial fixed assets). The group applies the corridor principle for reporting changes in pension liabilities. Changes in liabilities and pension assets arising from changes to and deviations in assumptions applied to calculations (changes in estimates) are distributed over the remaining expected average earnings period if the deviations at 1 January exceed 10 per cent of whichever is the greater of gross pension liabilities or pension assets. Net pension costs for the year are included as a salary expense in the profit and loss account. Premiums paid are treated as investments in pension funds. Taxes Tax expenses in the profit and loss account consist of taxes payable for the period and the change in deferred taxes. Deferred tax is calculated as 28 per cent of the temporary differences between accounting and tax values, as well as the tax loss carried forward at the end of the accounting year. If the temporary differences that increase or decrease taxes are reversed or may be reversed in the same period, the differences have been eliminated. Net deferred tax benefits are recorded in the balance sheet to the extent that it is likely they will be used. At 31 December 2004, the company had net negative temporary differences between accounting and tax values. The associated deferred tax benefit is recorded in the balance sheet as an asset. The tax treaty between Norway and Sweden is based on the credit method of taxing business activities that are taxable in both Norway and Sweden. Thus, taxable profits are fully taxed in Norway in accordance with Norwegian taxation rules, and taxes paid in Sweden are applied as a credit against taxes payable in Norway. Cash flow The cash flow analysis has been prepared using the indirect method. Net cash flow from operating activities is obtained by entering the net profit for the year and the other operating items shown. Cash flows from investment and financial activities are presented gross. 32 Nord Pool ASA 2004

33 Annual accounts Notes to the accounts Note 1 Posting collateral Posting collateral When entering into member agreements for financial-market power trade and/or clearing, members accept the current standard terms for trading and clearing. These include such matters as posting collateral for power contracts traded via Nord Pool and/or cleared by Nord Pool Clearing. Nord Pool Clearing requires the posting of both a minimum collateral and a daily collateral amount based on each member s positions. The daily collateral requirement is calculated as the total of a portfolio s unrealised losses and maximum expected losses based on a simulation in a risk-based portfolio system. Collateral is posted as a cash deposit, a bank guarantee or in another form approved by Nord Pool Clearing in accordance with the applicable standard terms. Additional extraordinary security may be required at one hour s notice if special conditions make this necessary. Nord Pool Clearing had an open balance (future contractual obligations) of NOK 39.5 billion at 31 December Collateral required from members at the same date was NOK 6.6 billion. Total collateral posted at 31 December 2004 amounted to NOK 16.2 billion, and all members had posted satisfactory collateral as specified by the standard terms. Note 2 Business areas Nord Pool ASA Financial Nord Pool Nord Pool Other Total Amounts in market Clearing Consulting activities 1 Nord Pool ASA NOK million Operating revenues Operating expenses Operating profit 5.5 (3.8) Value of power contracts traded Contract volume (TWh) Nord Pool group Financial Nord Pool Nord Pool Other Total Amounts in market Clearing Consulting activities* group NOK million Operating revenues Operating expenses Operating profit 5.5 (3.8) Value of power contracts traded Contract volume (TWh) Other activities comprise administrative services performed for Nord Pool Spot AS and Nord Pool Clearing ASA, as well as international activities, the sale of market data, and courses. 33

34 Annual accounts Note 3 Service agreements Nord Pool ASA Amounts in NOK Services rendered to Nord Pool Spot AS Services rendered to group companies Total Nord Pool group Amounts in NOK Services rendered to Nord Pool Spot AS Total Note 4 Other operating income Nord Pool ASA Amounts in NOK Re-invoicing of telecom services Services to EEX AG and Powernext France Subscription income Distribution of price information (516) Miscellaneous other operating income Total Nord Pool group Amounts in NOK Re-invoicing of telecom services Services to EEX AG and Powernext France Subscription income Distribution of price information (516) Consultant income Miscellaneous other operating income Total Note 5 Payroll expenses, employees, remuneration, loans to employees, etc Nord Pool ASA Nord Pool group Amounts in NOK Payroll expenses Salaries Capitalised in-house development (1 032) (334) Social security contribution Pension costs Other benefits Total Employees in 2004 averaged 50 for Nord Pool ASA and 71 for the Nord Pool group. The corresponding figures for 2003 were 55 and 73 respectively. 34 Nord Pool ASA 2004

35 Annual accounts Nord Pool ASA President and CEO 2 Directors 1 Remuneration of key personnel Salary Other remuneration Remuneration is paid only to external directors, and not to directors employed by Statnett SF, Affärsverket svenska kraftnät or the Nord Pool group. 2 Nord Pool s president and CEO is covered by Nord Pool s group pension plan, but has no rights beyond those associated with that plan. The president and CEO has an agreement to receive one year s salary if the board of directors requests his resignation. 3 The president and CEO s annual salary was NOK at 31 December No loans have been granted or security posted on behalf of the president and CEO, the chairman of the board or other closely related parties. No individual loan or collateral posting represents more than five per cent of the Nord Pool group s equity. Employee bonus plan The group has a bonus plan for its employees based on meeting various performance criteria, including volumes and profit. The maximum bonus is 15 per cent of an employee s annual salary. The bonus paid for 2004 was 2.51 per cent. Auditors Fees paid to independent auditors for regular auditing services in 2004 amounted to NOK for Nord Pool ASA and NOK for the group, excluding VAT in both cases. Fees paid by the group for other attestation and auditing services amounted to NOK including VAT. Fees for consulting services amounted to NOK including VAT. Note 6 Other operating expenses Nord Pool ASA Nord Pool group Amounts in NOK Outsourced services Software development Miscellaneous administrative expenses Total Note 7 Real estate leases The group has a lease for rented office space in the Granfos Industrial Park at Lysaker outside Oslo. This lease expires on 1 July The annual rent for 2004 was NOK 4.3 million, compared with NOK 3.9 million in This amount is adjusted annually in accordance with the consumer price index. Rent for 2004 also includes the lease for Nord Pool Consulting AS. 35

36 Annual accounts Note 8 Subsidiaries, associated companies and other investments Acquisition Disposal Head- Ownership Share of voting date date quarters (in%) rights (%) Subsidiaries: Nord Pool Clearing ASA 10 Dec 1998 Oslo 100.0% 100.0% Nord Pool Consulting AS 1 Jan 2004 Oslo 100.0% 100.0% Associated companies: Nord Pool Spot AS 1 Jan 2002 Oslo 20.0% 20.0% Nord Pool Consulting AS 22 Sep Jan 2004 Oslo 33.3% 33.3% Investments in other companies: European Energy Exchange AG 3 June 1999 Leipzig 17.4% 17.4% Nordic Electricity Clearing House AS (NECH) was established on 10 December The company had no operations until clearing activities were spun off from Nord Pool ASA, which took effect for accounting purposes at 1 January NECH changed its name to Nord Pool Clearing ASA on 6 January Nord Pool Clearing had a net profit of NOK 26.0 million for 2004, compared with NOK 19.2 million in The company s equity amounted to NOK million at 31 December Equity in Nord Pool Consulting AS amounted to NOK 4.8 million at 31 December Net profit for 2004 was NOK 0.8 million, compared with a loss of NOK 1.3 million in Investments in the associated company Nord Pool Spot AS are recorded in the parent company accounts using the cost method and in the consolidated accounts using the equity method. Nord Pool s spot market activities were demerged to Nord Pool Spot AS with accounting effect at 1 January At 31 December 2004, Nord Pool Spot s equity amounted to NOK 95.9 million. Net profit for the company in 2004 was NOK 28.1 million, compared with NOK 21.8 million in LPX Leipzig Power Exchange GmbH (LPX) was originally established as a power exchange, with a physical delivery spot market which became operational in June It merged in 2002 with European Energy Exchange AG (EEX). EEX equity at 31 December 2004 was NOK million (EUR million). The net loss for 2004 came to NOK 24.7 million (EUR million), compared with a loss of NOK 14.1 million (EUR 1.72 million) in Services and tasks performed by Nord Pool ASA for Nord Pool Consulting AS Nord Pool Consulting AS purchases administrative services from Nord Pool ASA. These charges amounted to NOK 0.5 million in 2004, compared with NOK 0.4 million in The Nord Pool group purchased services from Nord Pool Consulting AS for NOK 0.1 million in 2004, unchanged from Services performed by Nord Pool for European Energy Exchange AG EEX purchases IT services from Nord Pool, including leased telecommunication lines. Charges for these services amounted to NOK 0.8 million in 2004, compared with NOK 0.9 million in Nord Pool also receives licence fees for its spot trading system from EEX, which amounted to NOK 13.9 million in 2004 compared with NOK 10.2 million in Services performed by NOS ASA for the Nord Pool group Through Power Clearing Systems AS (PCS), NOA ASA delivered clearing services to Nord Pool Clearing ASA in the form of clearing systems and infrastructure. Nord Pool Clearing ASA terminated its agreement with PCS in December 2002 and the contract expired on 31 December In December 2002, Nord Pool Clearing concluded a new contract with OM-HEX for delivery of clearing services from 1 January The delivery by OM-HEX was delayed, and OM-HEX concluded an agreement with PCS on continued delivery of clearing services to Nord Pool Clearing until OM-HEX s clearing system became operational. The new clearing system was inaugurated on 1 April Nord Pool ASA 2004

37 Annual accounts Investments valued in accordance with the cost method Nord Pool ASA Total Shares Par value Total par Acquisition Book Company share capital owned per share value cost value Nord Pool Spot AS European Energy Exchange AG EUR EUR 1 EUR Nord Pool Consulting AS became a wholly-owned subsidiary on 1 January Nord Pool group Investments valued in accordance with the equity method Nord Pool Spot group Amounts in NOK Calculation of share of net profit Share of net profit Share of profit for the year Book value at 31 Dec 2004 is calculated as follows: Equity of associated company as of 31 December Ownership in associated company 20% Share of equity in associated company Note 9 Net financial items Nord Pool ASA Nord Pool group Amounts in NOK Financial revenues Interest income from group companies Other interest income Other financial revenues Total financial revenues Financial expenses Loss/write-down of shares (3 190) Interest expenses, subordinated loan (8 619) (8 791) (8 618) (8 791) Other interest expenses (7) (65) (72) (397) Other financial expenses (55) (608) Total financial expenses (8 681) (8 856) (9 297) (12 378) Net financial items

38 Annual accounts Note 10 Intra-group profit and loss account items Nord Pool Nord Pool Nord Pool Clearing ASA Clearing ASA Consulting AS Amounts in NOK Nord Pool ASA Operating revenues Net financial items Total Note 11 Computerised trading systems Nord Pool ASA Nord Pool group Amounts in NOK Intangible assets Intangible assets Acquisition cost at 1 Jan Additions Acquisition cost at 31 Dec Accumulated depreciation at 31 Dec 2004 (2 351) (5 322) Book value at 31 Dec Depreciation for the year Both the parent company and the Nord Pool group apply straight-line depreciation to all intangible assets. The expected useful life of intangible assets is five years. Note 12 Tangible fixed assets Nord Pool ASA Amounts in NOK Vehicles Machinery and equipment Total Tangible fixed assets Acquisition cost at 1 Jan Additions Disposals (664) (664) Acquisition cost at 31 Dec Accumulated depreciation at 31 Dec 2004 (930) (56 447) (57 377) Book value at 31 Dec Depreciation for the year Nord Pool group Amounts in NOK Vehicles Machinery and equipment Total Tangible fixed assets Acquisition cost at 1 Jan Additions Disposals (664) (664) Acquisition cost at 31 Dec Accumulated depreciation at 31 Dec 2004 (1 072) (58 069) (59 141) Book value at 31 Dec Depreciation for the year Both the parent company and the Nord Pool group apply straight-line depreciation to all tangible fixed assets. Expected useful life of assets: IT and office equipment 3 10 years Vehicles 5 years 38 Nord Pool ASA 2004

39 Annual accounts Note 13 Accounts receivable No losses on accounts receivable were recorded in 2003 or Accounts receivable were booked at face value at 31 December Note 14 Bank deposits Nord Pool ASA Nord Pool group Amounts in NOK Restricted tax withholdings Note 15 Share capital and shareholder information Nord Pool ASA Share capital comprises: Number of shares Par value Book value Class A shares Total Nord Pool had two shareholders at 31 December The company has only one share class and all shares carry the same rights. Shareholders at 31 Dec 2004 Number of shares held Ownership Share of voting rights Statnett SF % 50% Affärsverket svenska kraftnät % 50% Total number of shares % 100% Note 16 Equity Nord Pool ASA Share premium Other Total Amounts in NOK Share capital reserve equity equity Equity at 31 Dec Equity at 1 Jan Profit for the year Dividend (20 000) (20 000) Equity at 31 Dec Nord Pool group Share premium Other Total Amounts in NOK Share capital reserve equity equity Equity at 31 December Equity at 1 Jan Translation differences (140) (140) Profit for the year Dividend (20 000) (20 000) Equity at 31 Dec

40 Annual accounts Note 17 Closely related parties/owners Nord Pool s shares are owned by Affärsverket svenska kraftnät and Statnett SF. Nord Pool performs no tasks or services for Affärsverket svenska kraftnät. All transactions with Statnett SF are conducted at market value. Services and tasks performed by Nord Pool for Statnett SF a) Balance settlement and regulating power market Nord Pool provides maintenance and contingency services for Statnett SF s IT systems relating to balance settlement and the regulating power market. Total income for 2004 amounted to NOK 0.8 million, unchanged from The contracts for these services were renegotiated in 1999 and remain in force until terminated by either party. b) Clearing management for the regulating power market Nord Pool Clearing has been hired by Statnett SF to administer collateral posting and clearing for the regulating power market. Fees for services rendered in 2004 amounted to NOK 0.1 million, compared with NOK 0.5 million in The contract for these services was awarded in 2000, and terminated by Nord Pool Clearing in November It expired in May Services and tasks performed by Statnett SF for Nord Pool a) Administrative services Statnett SF performs tasks for Nord Pool related to real-estate leases and IT services associated with back-up solutions for the marketplace as specified in contracts between the two parties. Nord Pool also has a joint insurance policy with Statnett SF. Costs for these services totalled NOK 1.3 million in 2004, unchanged from The contracts run for one year at a time. b) Pension plan The Nord Pool group is a member of the Statnett SF Pension Fund, with associated pension obligations. The Statnett SF Pension Fund also administers the pension fund. See the item on pension costs and pension liabilities under accounting principles for further details. Note 18 Pensions The Nord Pool group has pension plans for employees in Norway which cover a total of 65 people. The corresponding figure for the parent company is 48 individuals. These plans entitle beneficiaries to defined future benefits, which depend primarily on the length of employment, pay at retirement and level of the Norwegian state pension. Pension expenses for the period comprise: Nord Pool ASA Current value of this year s pension earnings Interest cost for pension liabilities Yield on pension assets (942) (718) Change in estimates and deviations recorded in profit and loss account Social security contributions Net pension costs, defined benefit plan Nord Pool group Current value of this year s pension earnings Interest cost for pension liabilities Yield on pension assets (1 285) (800) Change in estimates and deviations recorded in profit and loss account Social security contributions Net pension costs, defined benefit plan Nord Pool ASA 2004

41 Annual accounts Nord Pool ASA Nord Pool group Insured Unsecured Insured Unsecured Calculated pension liabilities at 31 Dec Estimated pension assets at 31 Dec 2004 (18 022) (14 110) Effect of changes in estimates and deviations not recorded in profit and loss account (6 743) 33 (7 856) 97 Social security contributions Net pension liabilities Nord Pool ASA Nord Pool group Insured Unsecured Insured Unsecured Calculated pension liabilities at 31 Dec Estimated pension assets at 31 Dec 2004 (24 803) (15 752) Effect of changes in estimates and deviations not recorded in profit and loss account (7 468) 84 (8 404) 99 Social security contributions Net pension liabilities Technical assumptions: Discount rate 5.0% 5.0% Expected growth in salaries 3.0% 3.0% Expected growth in social security base amount 3.0% 3.0% Expected growth in pensions 3.0% 3.0% Expected yield on funds 6.0% 6.0% Average social security tax rate 14.1% 14.1% Allocations to pension liabilities are based on estimated pension liabilities at 31 December The actuarial assumptions are based on common assumptions made in the insurance business with regard to demographic factors. Nord Pool Clearing ASA has a contribution-based pension plan for employees in Sweden. This plan covers four employees. The annual pension cost for employees in Sweden in 2004 was NOK 0.3 million. Note 19 Subordinated loan capital The subordinated loan has been provided by the company s two owners, each contributing NOK 50 million. The loan s priority is junior to all other debt. The borrower is entitled to extend the loan s maturity by five years, provided certain conditions are met. After five years, the borrower is entitled to redeem the loan in part or in full, subject to approval in advance by the Financial Services Authority of Norway. Loan type Amount of loan Interest rate Maturity Date issued Maturity date Subordinated loan NOK % 10 years 20 Feb Feb 2012 Note 20 Other current liabilities Nord Pool ASA Amounts in NOK Other operating expenses, accrued Accrued trading fees Accrued holiday pay Accrued interest costs, subordinated loan from owners Total

42 Annual accounts Nord Pool group Amounts in NOK Other operating expenses, accrued Accrued trading fees Accrued holiday pay Accrued interest costs, subordinated loan from owners Total Note 21 Taxes Nord Pool ASA Nord Pool group Amounts in NOK Tax cost for the year comprises: Taxes payable Change in deferred tax (1 322) (739) (1 126) Excess tax allocated in previous year 152 (426) (1 031) (426) Total tax expense Calculated tax base for the year: Profit before tax Permanent differences Change in temporary differences Other adjustments (19 414) Group gains (8 463) (3 787) Basis, taxes payable for the year Presentation of temporary differences: Fixed assets (9 973) (6 285) (10 009) (6 558) Allocations in accordance with generally accepted accounting principles - (415) (1 125) (415) Pensions (5 213) (3 766) (8 515) (5 269) Total (15 186) (10 466) (19 649) (12 242) Calculated deferred tax benefit on temp diffs (4 252) (2 930) (5 502) (3 427) Deferred tax on group gains Total deferred tax benefit (4 252) (2 930) (2 941) (866) Explanation of why this year s tax expenses do not constitute 28% of pre-tax profit: Nord Pool ASA Pre-tax profit % tax on pre-tax profit Excess tax allocated in previous year 165 Permanent differences (28%) 91 Calculated tax expense Nominal tax rate % The tax treaty between Norway and Sweden is based on the credit method of taxing business activities which are taxable in both Norway and Sweden. Thus, taxes paid in Sweden are a tax credit against taxes payable in Norway. Tax expenses for the year are calculated in accordance with Norwegian taxation rules. 1 Including non-deductible expenses, such as entertainment. 2 Tax expenses as a percentage of pre-tax profit. 42 Nord Pool ASA 2004

43 Auditor s report Auditor s report To the Annual Shareholders Meeting of Nord Pool ASA Auditor s report for 2004 We have audited the annual financial statements of Nord Pool ASA as of 31 December 2004, showing a profit of NOK for the parent company and a profit of NOK for the Group. We have also audited the information in the Directors report concerning the financial statements, the going concern assumption, and the proposal for the allocation of the profit. The financial statements comprise the balance sheet, the statements of income and cash flows, the accompanying notes and the consolidated accounts. These financial statements and the Directors report are the responsibility of the Company s Board of Directors and Chief Executive Officer. Our responsibility is to express an opinion on these financial statements and on other information according to the requirements of the Norwegian Act on Auditing and Auditors. We conducted our audit in accordance with the Norwegian Act on Auditing and Auditors and auditing standards and practices generally accepted in Norway. Those standards and practices require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. To the extent required by law and auditing standards, an audit also comprises a review of the management of the Company s financial affairs and its accounting and internal control systems. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements have been prepared in accordance with law and regulations and present the financial position of the Company and of the Group as of 31 December 2004, and the results of the operations and cash flows for the year then ended, in accordance with accounting standards, principles and practices generally accepted in Norway the Company s management has fulfilled its duty to properly register and document the accounting information as required by law and accounting standards, principles and practices generally accepted in Norway the information in the Directors report concerning the financial statements, the going concern assumption, and the proposal for the allocation of the profit is consistent with the financial statements and complies with law and regulations. Oslo, 17 February 2005 ERNST & YOUNG AS Tor Steenfeldt-Foss State Authorised Public Accountant (Norway) Note: The translation to English has been prepared for information purposes only. 43

44 Statisitcs 44 Nord Pool ASA 2004

45 Statisitcs Market statistics Market data services 2004 A key task for Nord Pool is to prepare, process and disseminate market information. The aim is to provide the same data to all participants at the same time. Equal access to market information This covers not only information from the power exchange s own trading and clearing activities but also data from transmission system operators (TSOs) as well as power generators and grid owners. Through their agreements with Nord Pool, TSOs and participants/ exchange members are required to disclose relevant information which the power exchange then disseminates to the market through various channels. Multiple channels for market information The trading systems for Nord Pool s physical delivery and financial markets are key channels for distributing trading data from the power exchange. Market data in real time are also made available via Nord Pool s feed system (NPFeed). Redistributors who subscribe to NPFeed provide important information and analysis services, both for exchange members and for participants who are not linked to the power exchange s electronic trading system for the financial market. Trading data from both spot and financial markets are posted, subject to a time delay, to Nord Pool s web site at Information on power generation, consumption and exchanging between the Nordic countries is also available here. Nord Pool also offers access on a subscription basis to an extensive historical database and to various reports covering a range of topics and time spans. Information on prices, special incidents, plant maintenance schedules, outages and other subjects is distributed electronically through Nord Pool s trading systems, via the internet, as , or as text messages to mobile phones.the following pages present some key figures and illustrative graphs relating to Nord Pool s trading and clearing activities in

46 Statisitcs Elspot turnover Weekly Elspot traded volumes are shown for Elbas turnover Weekly traded volumes are shown for Financial market turnover Weekly traded volumes are shown for Clearing of OTC market contracts The cleared volume of standardised OTC-market financial power contracts registered for clearing are shown on a weekly basis for Nord Pool ASA 2004

47 Statisitcs Elspot 167 TWh Norway and Sweden are the largest markets and also have the largest share of the total traded volume. The graphs show each country s percentage share of Nord Pool s annual turnover for the various products. Elbas 0.9 TWh Trading on Elbas is confined to participants in Sweden, Finland and eastern Denmark. Financial market 590 TWh Other in the graph refers to trades by non-nordic exchange members. Clearing of OTC-traded contracts TWh Other in the graph refers to trades by non-nordic participants. 47

48 Statisitcs Elspot system price 2004 Early 2004 was characterised by low reservoir levels throughout the Nordic region. This was the main reason why the spot price remained at a level of NOK /MWh right through to the autumn. Average median price per day 2004 The graph shows the average Elspot system price per day. Elspot system price The Elspot system price has been calculated since It reflected only the Norwegian power market until Sweden was included in 1996, Finland in 1998, Denmark West in 1999, and Denmark East in The highest daily system price in the exchange s history was set on 6 January 2003 at NOK 685/ MWh. The spot market s annual median price declined from NOK 291/MWh in 2003 to NOK 242/MWh in Elspot system price per month The Elspot system price varies seasonally, from a winter high to a summer low. 48 Nord Pool ASA 2004

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