NORD POOL ASA ANNUAL REPORT Norway Nord Pool ASA Vollsveien 19 P.O. Box 373 NO 1326 Lysaker Tel Fax

Transcription

1 NORD POOL ASA ANNUAL REPORT 2003 NORD POOL ASA ANNUAL REPORT 2003 Norway Nord Pool ASA Vollsveien 19 P.O. Box 373 NO 1326 Lysaker Tel Fax Sweden Nord Pool Sweden Barnhusgatan 4 P.O. Box 3293 SE Stockholm Tel Fax Denmark Nord Pool Denmark Vesterballevej 5 DK 7000 Fredericia Tel Fax Finland Nord Pool Finland Oy Aleksanterinkatu 19 A P.O. Box 915 FI Helsinki Tel Fax This annual report was originally published in Norwegian. For further information, please visit our website: Design and consultancy: GCI Monsen as Photo: Bård Gudim Translation into English: Flom-Jacobsen & Fish

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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 Business areas... 8 Physical market... 9 Financial market Clearing International activities CEO s report Annual Report from 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... 51

4 This is Nord Pool This is Nord Pool Our vision: Nord Pool the world s leading power exchange! Our mission: Nord Pool will develop by focusing on technological leadership and cost-effective operations; Nord Pool will continue to be recognized as the world s leading exchange for trade in electric power contracts. The Nord Pool Group the Nordic Power Exchange operates marketplaces for trade in and clearing of physical-delivery and financially-settled power contracts in the Nordic countries. The Nord Pool Group comprises the parent company, Nord Pool ASA, its wholly owned subsidiaries Nord Pool Clearing ASA and Nord Pool Consulting AS, and the Group s associated company, Nord Pool Spot AS. Nord Pool Consulting became wholly owned as of 1 January The Nord Pool Group accounts for 2003 consolidate Nord Pool ASA and Nord Pool Clearing ASA. Nord Pool Spot AS is a Nord Pool Group associated company. The Nord Pool Group has an ownership interest in the German power exchange European Energy Exchange (EEX), and has an IT systems operations agreement with France s Powernext power exchange. Nord Pool ASA is owned 50/50 by Statnett SF and Svenska Kraftnät, the transmission system operators (TSOs) of Norway and Sweden, respectively. At year-end 2003 the Nord Pool Group, included assosiated companies, had 95 employees. In 2003, contracts worth NOK 405 billion were traded and/or cleared via the Nordic Power Exchange. The Nord Pool Group has it s headoffice in Oslo, Norway and offices also in Denmark, Finland and Sweden. 4 Nord Pool 2003

5 This is Nord Pool Nord Pool s business areas Nord Pool has three core business areas: the physicaldelivery market, the financial market, and clearing. Physical market Elspot is a joint Nordic auction based spot market for trade in power contracts of one-hour duration for next-day delivery. The Elspot system price is the established reference price for trade in financially-settled power contracts in the Nordic countries. Transmission system operators use Elspot closing figures to forecast Nordic cross-border power volumes and balance grid loads. In addition to power producers and heavy industry, participants at Nord Pool s spot market are distributors, retailers, and brokers. Elbas is an intra-day physicaldelivery power adjustment market for Sweden and Finland, where one-hour contracts are traded continuously. At 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 (formerly EL-EX), a wholly owned Nord Pool Spot AS subsidiary. Financial market Nord Pool provides a marketplace where its exchange members can trade in standardized power derivatives, and offers clearinghouse settlement of derivatives trade. Financially-settled derivative contracts are used for price hedging and management of risk in electric power trade. Contracts traded via Nord Pool offer a trading horizon of up to four years; different contract series cover days, weeks, months, quarters, and years. Trade in Contracts for Difference (CfD) provides market participants with a tool for adjusting and hedging portfolios as to price differences between the Elspot system price and the price in specific Elspot price areas. Nord Pool offers trade in Europeanstyle-exercise power options with forward contracts as their underlying instruments. Clearing Clearing of 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-exchangetraded standardized financial power contracts. Nord Pool

6 This is Nord Pool Nord Pool A brief history 1991 Norwegian parliament s decision to deregulate the market for power trading goes into effect Statnett Marked AS (now Nord Pool ASA) is established as an independent company. Total volume in the first operating year is 18.4 TWh, at a value of NOK 1.55 billion The Nordic Power Exchange s financial market grows through product development. The first Market Council of the Nordic Power Exchange is established. A total of 100 participants trade at the Nordic Power Exchange Statnett Marked moves to its own offices at Lysaker. Trade in futures contracts is introduced on the financial market. Nordic energy ministers agree to expand Nordic electric power co-operation Start-up of joint Norwegian-Swedish power exchange, the world s first multinational exchange for trade in power contracts. The power exchange is renamed Nord Pool ASA Forward contracts are introduced on the Nordic Power Exchange s financial market. Nord Pool offers financial-market participants expanded clearing services; in addition to clearing all contracts traded on the Nordic Power Exchange, Nord Pool clears OTC and bilateral contracts Finland joins the Nordic power exchange market area, and the EL-EX power exchange in Helsinki enters into an agreement to represent Nord Pool in Finland. Nord Pool opens an office in Odense, 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 and bilateral market trade. Denmark West (Jutland/Funen) Elspot area trade begins 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, Leipzig Power Exchange (LPX); Nord Pool owns 35% of LPX Nord Pool applies for licensing as both a regulated exchange and a clearinghouse. Nord Pool contributes to the merger between Germany s two power exchanges, LPX and European Energy Exchange (EEX) Nord Pool is licensed as a regulated exchange and as a clearinghouse. Nord Pool s spot market activities are organized in a separate company, Nord Pool Spot AS, owned by all of the transmission system operators in the Nordic power exchange area and by Nord Pool ASA. Key events 2003 Stronger customer focus Uncertain market and high prices Low hydropower reservoir levels and high spot market prices in early 2003 strongly affected both exchange trade and bilateral-market trade of financially settled power contracts in the Nordic countries. Along with uncertainty as to fundamental market conditions, high contract prices led to a contraction in trade and clearing of financial power contracts in 2003 for Nord Pool. Trade in Swedish el certificates In the autumn of 2003, Nord Pool ASA s Board of Directors decided to launch trade in Swedish electricity certificates ( green certificates ) at the Nordic Power Exchange. Trade in Swedish el certificates began in March Transition to the euro continues The very first euro-denominated contract listed by Nord Pool (the forward year contract for 2006) traded on 2 January During the year, the transition toward listing month and quarter contracts began; these forward products are replacing the block and season products that have been traded on Nord Pool s financial market. Nord Pool s decision to gradually switch to the euro as the trading and clearing currency stands firm; as of 1 January 2006, all financial market power contracts will be euro-denominated. Clearing new name accompanies changes On 6 January 2003, Nord Pool s clearing service changed its name to Nord Pool Clearing ASA, from Nordic Electricity Clearing House (NECH). To strengthen its customer focus, Nord Pool Clearing was organized into three units in September 2003: operations, market and development, and risk management. New clearing system Development and testing of Nord Pool s new financial-market clearing system took place throughout The new system, developed by Sweden s OMHEX, is scheduled to go online 1 April Lower margin requirements Nord Pool Clearing introduced several measures to further reduce collaterals participants must post daily for clearing of financial-market power contracts. Since November 2003, Nord Pool Clearing s customers are allowed netting (offsetting) of daily margin calls for contract portfolios held by the various wholly owned companies within the same group of companies. Another practice that Nord Pool Clearing developed for launch in 2004 is netting of risk-neutral positions. Allowing full netting of scenario risk for contracts covering the same delivery periods, results in lower portfolio margin calls for customers holding contracts with opposite positions. 6 Nord Pool 2003

7 This is Nord Pool Key figures Percent Activity by change product area Physical market Volume (TWh) (4.7%) Value (NOK bill.) % Financial market Volume (TWh) (46.5%) Value (NOK bill.) (22.5%) Total volume traded Financial + physical Volume (TWh) (41.9%) Total value traded Value (NOK bill.) (15.2%) Clearing of Volume (TWh) (41.7%) bilateral market trade Value (NOK bill.) (9.5%) Total value of traded Volume (TWh) (41.8%) and cleared volumes Value (NOK bill.) (12.1%) Percent change Number of participants Total number participants of 31 Dec % Percent change Average system price Average system price for the year NOK/MWh % Highest system price NOK/MWh % Lowest system price NOK/MWh (54.1%) Market development (in TWh) Elspot + Elbas Financial market Clearing Nord Pool s market development The bar chart shows the annual volume development of Nord Pool s products since the start-up of the company in For the first time in the history of the Nordic Power Exchange, the volume of trade at the financial market and clearing of non-exchange-traded contracts contracted in Nord Pool

8 Business areas Business areas 2003 Turnover at Nord Pool s markets for power contracts fell in 2003, compared with The volume of financially settled power contracts traded via Nord Pool was 545 TWh in 2003, down 47%, compared with The volume of contracts traded in bilateral and OTC markets and cleared by Nord Pool Clearing in 2003 was 1,219 TWh; down 42% from Nord Pool 2003

9 Business areas Physical market Stable spot market The physical-delivery market, organized by Nord Pool Spot AS, is the cornerstone of all Nordic power market trade. In 2003, the volume of power contracts traded via Nord Pool Spot was 119 TWh equivalent to 31 percent of the electric power consumed in the four countries comprising the Nordic Power Exchange area. The value of contracts traded via Nord Pool Spot in 2003 was NOK 36 billion, up 34 percent, compared with Nord Pool s physical market comprises a pan-nordic auction based spot market (Elspot) and a power adjustment market (Elbas). Elspot is a marketplace for short-term trade in physical power contracts for next-day delivery. Elspot prices are determined for each hour of the delivery day in auction-based trading using all buy and sell bids submitted by participants. Elbas is an intra-day power adjustment market for Sweden and Finland, with continuous trade of physicaldelivery contracts of one-hour duration. Contracts for next-day delivery are listed after Elspot trade is closed, and can be traded up to one hour before delivery begins. Nord Pool ASA, Statnett SF, Affärsverket svenska kraftnät, and Fingrid Oyj each owns 20% of Nord Pool Spot AS shares. The two Danish TSOs, Eltra amba and Elkraft System amba, each have 10% shareholdings. NOK 291 per MWh (2002: NOK 201 per MWh). The power adjustment market for Sweden and Finland (Elbas) had a traded volume of 0.7 TWh in 2003 (2002: 0.8 TWh). Nord Pool Spot had an operating profit of NOK 15.5 million in The proportionate profit for the year of Nord Pool Spot AS is reported under the heading of associated companies in Nord Pool ASA s accounts. Due to the strained power situation, exchanges of electric power among the Nordic countries were high. This situation resulted in higher-than-anticipated winter-month spot market volumes. Once the power situation returned to normal in the spring and summer of 2003, turnover at Nord Pool s spot market also returned to normal levels. A more in-depth presentation of Nord Pool Spot AS activities and financial performance is found in the company s 2003 annual review. Growth continues in 2003 Trade in the spot market organized by Nord Pool Spot remained on a par with 2002 figures; spot market trade was 119 TWh in 2003 (2002: 124 TWh). The value of all spot market trade rose to NOK 36 billion in 2003 from NOK 27 billion in The increase is attributable to higher average spot market prices in 2003 than in previous years. The average Elspot system price for 2003 was Elspot 2003 (118 TWh) Trading by country Norway 40.7% Sweden 31.5% Finland 11.8% Denmark 16.0% Nord Pool

10 Business areas Financial market Consolidation in a turbulent year Trade at Nord Pool s market for financially settled power contracts fell by 47 percent in 2003, compared with the TWh volume of contracts traded in Despite market uncertainty, the number of financial market participants grew by 20 in 2003, and the number of trades remained approximately the same as in The total value of contracts traded at the financial market fell by 23 percent in Nord Pool s financial market is the only licensed exchange in the Nordic countries for trade in power derivatives. The market comprises trade in forward, futures, and options contracts. These contracts are used for price hedging and risk management by Nordic power market participants from producers to retailers and for commodity trading purposes. The financial market business area, one of Nord Pool s three core business areas, is part of Nord Pool ASA. Volumes fell in an uncertain market A total of 133,426 contracts were traded on Nord Pool s market for financially settled power contracts in 2003, compared with 146,629 in The volume of power contracts traded on Nord Pool s financial market in 2003 was 545 TWh, of which 13.3% were contracts traded by non-nordic participants. The financial market s 2002 volume of 545 TWh represents a 32% (2002: 33.5%) market share of the total volume of financial power contracts cleared via Nord Pool. Significant growth in the volume of options contracts cleared via Nord Pool Clearing in 2002 lowered the market share figure for Nord Pool s financial market as a whole. There are several reasons for the volume decline in The most important of these is uncertainty as to fundamental factors in the physicaldelivery power market. Early 2003 saw extremely high spot market prices. Hydropower reservoir levels in Sweden and Norway were very low throughout the year, compared with average reservoir levels. More than 50 percent of all power generation in the Nordic countries is from hydropower. Hence, the power prices are very much influenced by the prices for hydro power production. Most exchange members use various models to assess their risk exposure in hedging and trading. When prices and market volatility rise, participants tend to reduce their trading volumes; alternatively, they can change trading guidelines to accommodate greater risk. Market developments in 2003 led several participants to reduce their market exposure. The result was an overall decline in traded volumes. Another outcome was greater trading focus on contracts with shorter time horizons contracts for weeks, months, and the nearest quarters. At year-end 2003, there were a total of 186 exchange and clearing members registered to trade at Nord Pool s marketplace for financial contracts. Of the 20 new members who joined in 2003, five are from non-nordic countries, and four from Finland. RAO Nordic become the first Nordic Power Exchange member from Russia. Financial market volume 2003 (545.1 TWh) Share per country Louise nuclear power plant in Finland. Photo: Fortum Norway 55.6% Sweden 21.7% Finland 5.7% Denmark 3.7% Other 13.3% 10 Nord Pool 2003

11 Business areas Finland was integrated into the joint Nordic power market in In 2003, Finnish exchange members accounted for 5.7 percent of the trading volume at Nord Pool s financial market. One of my most important tasks is to advance Nord Pool s market position in Finland. Ville Pesonen, Marketing Manager, Financial Market, Nord Pool Finland Nord Pool

12 Business areas Traded by product 2003 (in GWh) Options Euro adaptation continues Future Nord Pool s decision to switch to the euro as its trading and clearing currency stands. In response to member feedback, the transition will be gradual. On 2 January 2003, Nord Pool s first eurodenominated financial market contract was listed, the forward year contract for 2006 (ENOYR-06). The contract traded for the first time on 3 January During 2003, month and quarter contracts took over as standard financial contract types for listing and trading via Nord Pool. On 2 January 2004, the eurodenominated contract series for 2005 quarters, 2006 options, and the 2007 year contract were listed. Nord Pool expects the transition to the euro to eventually contribute to strengthened liquidity at the Nordic Power Exchange. The euro is becoming a more widely used currency in the Nordic power market. Also, use of the euro will attract non-nordic exchange members to trade via Nord Pool. Forward Total solutions for financial market trade. Also in 2003, Nord Pool introduced complete Internet-based PowerCLICK connectivity using encrypted virtual private network (VPN) technology. PowerCLICK VPN has proved a success; a large number of new and existing users have chosen the VPN solution. Several upgrades of the PowerCLICK trading system were implemented during The most important change was the 15 September launch of a significantly enhanced and more user-friendly version of the electronic trading system. New financial market fee structure On 1 April 2003, Nord Pool introduced a new fee structure for financial market trade, featuring a flat per-transaction fee of NOK per MWh. Providing all exchange members with equal conditions was the motivating force behind this change. Pool will implement additional measures to establish liquidity in the most important options contracts listed at the Exchange. Sweden s el certificates In 2003, Nord Pool decided to list Swedish el certificates as a new financial market product. Trade in Sweden s green electricity certificates was introduced 3 March. A key objective at Nord Pool is to continually improve the quality of its marketplace and the range of products and services offered. Recruiting additional exchange members in order to strengthen liquidity will be an important task in We will also seek to raise the Exchange s share of trade conducted by our existing members. Trading system improvements In the spring of 2003, Nord Pool introduced NPTrade. This in-house developed solution for trade in financial-market contracts via the Internet, uses a PC s web browser to log onto and communicate with the Nordic Power Exchange s electronic trading system. NPTrade is meant to serve as a lightweight access to the Exchange s PowerCLICK trading system and as a flexible, contingency application. NPTrade is one of two trading application alternatives introduced in 2003 to provide participants with a full range of Focus on options Traditionally, Nord Pool s financial market has had substantially higher market shares for forward and futures contract trade than for options contracts. Experience in other commodity markets shows that exchange trade in standardized options contracts only takes off once the rest of the market has reached a certain maturity. In 2003, power options were largely traded bilaterally outside of Nord Pool s marketplace. Exchange members willingness to trade options contracts via Nord Pool has so far been limited. In 2004, Nord Most trades on Nord Pool s financial market are executed via our electronic trading system, says Nord Pool exchange broker Georg Aasen. 12 Nord Pool 2003

13 Business areas Clearing Increased capital committed in the power market High power prices during certain periods of 2003 doubled the value of Nordic financialmarket power contracts, compared with the previous year. As of the close of the third quarter of 2003, Nord Pool Clearing customers had posted NOK 10.4 billion in collateral to cover daily margin calls; this represents an increase of 65 percent over the yearearlier figure. The total amount of collateral posted by all exchange and clearing members and clearing customers, including margin calls, on-demand guarantees, and cash deposited in accounts pledged in favor of Nord Pool Clearing, amounted to NOK 18.2 billion, as of 30 September. In clearing, Nord Pool Clearing enters into power contracts as a contractual counterparty. Mandatory posting of daily security requirements to cover any future settlement reduces counterparty risk for all parties to a contract. Participants who clear their contracts through Nord Pool Clearing also streamline their in-house procedures for credit handling and gain access to efficient routines and systems from the clearinghouse. Consequently, credit risk and operational risk are further reduced. All contracts traded on the Nordic Power Exchange s financial market are automatically cleared by Nord Pool Clearing. Nord Pool Clearing also offers clearing of standardized power contracts traded in OTC and bilateral markets. The primary objectives of Nord Pool s clearing activities are to provide the market with secure and efficient clearing services and guaranteed settlement each trading day. The volume of exchange-traded power contracts cleared by Nord Pool Clearing in 2003 was 545 TWh. The volume of OTC and bilateral market contracts cleared via Nord Pool Clearing was 1,219 TWh; down 42 percent from The decline in cleared volumes is largely attributable to general uncertainty in the power market and high power prices throughout Nord Pool Clearing had an operating profit of NOK 21.1 million in 2003, on total operating income of NOK million. The total volume of cleared OTC and bilateral trades in 2003 was 1,219 TWh, worth NOK 230 billion. Reduced market liquidity was one of the consequences of high market prices, volatility, and strained hydrologic conditions in the Nordic power market during the winter of 2002/2003. Nord Pool Clearing has implemented measures to bring in additional capital to cover potential extraordinary risk, add new customers, improve its clearing solutions, and incorporate risk-evaluation factors that can safely reduce customers margin requirements. Customer focus is sharpened To improve customer focus, Nord Pool Clearing implemented a three-division organizational structure on 1 September Nord Pool Clearing is now organized into the following units: operations, market and development, and risk management. Clearing members will see the organizational change in the form of improved service, expanded expertise, and more dialogue with customers. More efficient clearing systems In November 2002, Nord Pool Clearing entered into an agreement with the Swedish company OMHEX for development of a new clearing system. Start-up of the new system is scheduled for the 1 April 2004; under the agreement, OMHEX will operate the system for seven years. Through the agreement with OMHEX, the Nordic Power Exchange has strengthened its position in the Nordic power market, and both companies will reach a better platform for growth into new markets. The functionality of Nord Pool Clearing s online system for registering contracts traded in OTC and bilateral markets Clearing Desk Application (CDA) was improved in Through enhanced quality, the various system improvements yield greater efficiencies and added value for clearing members. Higher capital When contract prices and market volatility are high, clearing customers may have to post more security for financial-market contract clearing, and can be subject to higher margin requirements, reflecting market volatility Nord Pool

14 Business areas or special conditions. High market volatility combined with diminished market liquidity contribute to greater risk for the clearinghouse. If a clearing member fails to meet its clearinghouse obligations when market conditions are unfavorable, it takes longer to close positions. Several measures are planned to meet the clearinghouse s need for greater capital to cover contingencies. During 2003, Nord Pool Clearing carefully reviewed the clearinghouse s risk model and gathered useful data from similar organizations. The most important of the planned measures is the introduction of an insurance scheme. To this end, Nord Pool Clearing has signed a letter of intent with an insurance company to establish risk coverage; the insurance scheme is scheduled to be implemented during the first quarter of Nord Pool Clearing is also planning to introduce risk limits that can be imposed on specific clearing customers. New agreement for risk calculation model Nord Pool Clearing will continue to employ the SPAN method 1) for calculating the interday risk of financial power market portfolios. The license agreement with Chicago Mercantile Exchange Inc. has been extended and modified to accord with the new clearing system that Nord Pool Clearing will introduce in Reducing margin requirements Nord Pool Clearing has decided to implement two concrete measures to reduce margin requirements from customers without increasing the clearinghouse s risk exposure. A new model was developed for full netting (offsetting) of risk-neutral positions, rather than partial netting. Allowing full netting of scenario risk for contracts covering the same delivery periods results in lower portfolio margin calls for customers holding contracts with opposite positions. In late 2003, another measure was introduced to reduce clearing customers security requirements. Since November 2003, Nord Pool Clearing s customers can net the daily margin calls for contract portfolios held by various wholly owned companies within the same group of companies. A Nordic bank solution As a consequence of the transition to the euro as trading and clearing currency, Nord Pool Clearing has entered into an agreement whereby Nordea Bank Norge ASA will serve as the clearinghouse s concentration bank, and provide auxiliary services. The agreement provides technical solutions based on international SWIFT electronic interbank funds transfers. 1) SPAN is a registered trademark of Chicago Mercantile Exchange Inc., used herein under license. Chicago Mercantile Exchange Inc. assumes no liability in connection with the use of SPAN by any person or entity. Porjus power plant, Sweden. Photo: Vattenfall Required collateral and Posted collateral 2003 (amounts in NOK bill.) Required collateral Posted collateral Collateral calls Collateral required from the members was NOK 9.4 billion as of 31 December Total collateral posted as of 31 December 2003 amounted to NOK 19.1 billion Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec 14 Nord Pool 2003

15 Business areas Foto: Elsam A/S Daily collateral postings to cover future settlements reduce risk for financial power contract holders. At year-end 2003, Nord Pool Clearing had an open balance (future contractual obligations) of NOK 36.5 billion. My job is to help ensure that we offer the most efficient and reliable clearing solutions in the Nordic power market. Pär Schröder, Marketing and Development Manager, Nord Pool Clearing ASA Nord Pool

16 Business areas International activities New product opportunities Nord Pool has decided to launch exchange trade in Swedish green electricity certificates. Nord Pool Consulting entered into a long-term contract in South Africa in 2003, while most of Nord Pool Consulting s projects in 2003 were from countries in Asia. Nord Pool International runs the Nord Pool Group s operational activities beyond the Nordic countries, and has during 2003 overseen Nord Pool Consulting AS on behalf of the consulting company s owners. Attention to renewable energy issues and development of green exchange products, such as renewable energy certificates and emissions trade are also responsibilities of the Nord Pool International business area. Germany s EEX strengthens its market position Nord Pool ASA holds a 17.4% ownership interest in the German power exchange, European Energy Exchange (EEX). In addition to operating an auction-based spot market, EEX offers continuous trade in physical-delivery power contracts and trade in financially settled power contracts. Turnover on the German spot market in 2003 continued the positive trend seen in The volume of spot contracts traded on EEX s day-ahead auction market in 2003 was 47.6 TWh (2002: 25.0 TWh). The number of EEX spot market participants rose during 2003, from 95 to 99 at year-end. Turnover in 2003 at EEX s continuous-trade spot market was 1.5 TWh, which corresponds to about 3% of the turnover on EEX s auction-based market. EEX s financial-market trade had a contract volume of 342 TWh in SAPRI Nord Pool s spotmarket trading system EEX s spot market has been using SAPRI, the trading system developed by Nord Pool for its own spot market trade. However, in the autumn of 2003, the German power exchange decided to switch to Deutsche Boerse/Eurex as its sole supplier of trading systems for all its products. The switch is expected to take place around the summer of Powernext, the French spotpower exchange, uses SAPRI as its trading system. Nord Pool will offer spot market trading systems based on SAPRI to countries and regions seeking to establish exchange trade in physicaldelivery power contracts. Powernext solid growth Nord Pool and Powernext entered into a facility management agreement in 2001, under which Nord Pool implemented and operates its SAPRI trading system for the French spot market for trade in electric power. Powernext s spot market opened 27 November 2001, with six participants trading; the number of participants rose to 33 by year-end The volume of spot contracts traded at Powernext in 2003 was 7.5 TWh (2002: 2.6 TWh). Daily Powernext turnover rose from an average of 14,000 MWh at year-end 2002 to some 28,000 MWh at the close of More projects for Nord Pool Consulting Effective 1 January 2004, Nord Pool ASA acquired all the shares of Nord Pool Consulting AS. Throughout 2003, the company was owned by Nord Pool ASA, Svenska Kraftnät, and Statnett, each of which held a one-third interest in Nord Pool Consulting. Nord Pool Consulting is a specialized consulting firm offering systems, strategy, and management services to developing power markets worldwide. One-third of Nord Pool Consulting s annual profit is recorded under associ- Oil- and coal-fired Studstrupværket in Denmark Photo: Elsam 16 Nord Pool 2003

17 Business areas Non-Nordic exchange members conducted 13.3 percent of total trade on Nord Pool s financial market in To boost liquidity at the exchange, additional members are needed. I am using my experience in Europe s power markets to bring European financial institutions to Nord Pool as exchange members and to sign up more non-nordic market participants. Peter Fritsche, Marketing Manager, Financial Market, Nord Pool Denmark and Europe Nord Pool

18 Business areas ated companies in the 2003 accounts of Nord Pool ASA. Nord Pool Consulting s markets are largely outside the Nordic countries, and a significant part of its business takes place outside of Europe. Nord Pool Consulting s customers mainly comprise public authorities and regulatory bodies, transmission system operators, exchanges, and market participants. In 2003, Nord Pool Consulting had major projects in Japan, Russia, the Nordic countries, China, and Hungary. In addition, Nord Pool Consulting conducted several smaller projects and held seminars in countries around the globe; most of them in Asia. Nord Pool Consulting entered into a long-term contract in South Africa in late This contract, along with prospects for several important tenders, provide an optimistic outlook for Nord Pool Consulting in Swedish el certificates In response to market demand, in 2003 Nord Pool decided to introduce exchange trade of the green certificates authorized by Swedish regulators, called electricity certificates. Trade in the certificates, scheduled to begin in the first quarter of 2004, will be implemented through the introduction of new products at Nord Pool s marketplace for financial power contracts. Within the Nordic Power Exchange area, only Sweden has decided to begin trade in electricity certificates. Norwegian public authorities are currently evaluating a solution based on the model used in the Swedish market. Powernext - EEX weekly traded volume 2003 (in GWh) Powernext EEX Week 18 Nord Pool 2003

19 Hydropower provides more than half of all Nordic power generation. Renewable energy resources such as wind power are playing an increasingly important role. Photos: Elsam, Vattenfall, Fortum, and Statkraft Nord Pool

20 CEO s report CEO s report The power market passes the test The last few months of 2002 and early 2003 were characterized by extreme cold throughout the Nordic countries. We began 2003 with hydropower reservoir levels at their lowest since the commencement of exchange trade of power contracts at Nord Pool in The winter of 2002/2003 will be remembered as a period of extremes for the Nordic power market, with the highest price levels since the establishment of Nord Pool. On 6 January 2003, the system price at Nord Pool s spot market reached a historic high of NOK 831 per MWh. Contracts traded at the Nordic Power Exchange s financial market reached prices that, for a brief time, exceeded prices at the physical-delivery power market. In our view, the Nordic power market functioned satisfactorily throughout last winter s strained period, and the market handled the extraordinary situation relatively well. Power consumption fell and new generation capacity was added as a result of the high power prices. Nevertheless, the average system price for 2003 at Nord Pool s spot market was NOK 291 per MWh; this was the highest average system price recorded since trade in the joint Swedish-Norwegian power market began at the Nordic Power Exchange in Naturally, power prices four times normal for the season are not desirable, particularly from the point of view of end-users. Consumers focus on our industry Nord Pool became the focus of a new interest group during the 2002/2003 winter season. High power prices meant significantly higher costs for most consumers, which lead to greater interest in power market price formation. Consumers have become far more knowledgeable about the power market, in general, and particularly aware of alternative retail power vendors. Events of the 2002/2003 winter season provided a lesson for many participants in the Nordic power market. The importance of joint Nordic solutions as opposed to national solutions was made clear. During the crunch, the banking industry came up with new ways of cooperating and new market participation procedures. Nord Pool responded with greater focus on operations, risk management, and product development. There is always room for improvement. Nord Pool has implemented measures, and is planning additional steps to better prepare us to meet similar situations in the future. Dialogue with market participants has been important in identifying and prioritizing areas for improvement. As a result of discussions with market participants, we identified three main areas targeted for improvement: Margin requirements for spot market participants, clearinghouse soundness, and improved financial market liquidity. In the first quarter of 2004, Nord Pool Spot introduced a new settlement system, under which the time span between trading and settlement was reduced from three weeks to one week. Quicker settlement brings a significant reduction in the security each participant must post for spot market trade. The new settlement system also streamlines and simplifies settlement routines. The issue of the need for additional capital to cover extraordinary risk situations that might confront Nord Pool Clearing arose during A new insurance arrangement is being implemented to address this issue. A well-functioning marketplace Nord Pool s role is to facilitate and ensure that the Nordic countries enjoy an efficient and appropriate marketplace for trade in electric power. Our most important function is to maintain adequate liquidity at all times, in order to ensure confidence in price-setting at the Nordic Power Exchange. Greater market liquidity, vital to a predictable power market, is our main objective. We are seeking to maintain adequate liquidity through several measures, each of which focuses on adding new participants. Targeting financial institutions in the Nordic countries and beyond is one dimension. We see that our efforts in this respect are already paying off; in 2003, twenty new exchange members joined Nord Pool s financial market. Nevertheless, we recorded a significant decline in traded volumes on our financial market in 2003; as a result, liquidity declined. Reduced market liquidity The risk exposure a participant wishes to maintain in the power market will in most situations be determined by other factors than higher prices and/or greater price fluctuations. The market situation we faced in the winter of 2002/2003 forced participants to reduce the size of their positions in the Nordic power market to avoid increasing their overall power market risk exposure. This trimming of risk exposure coincided with the withdrawal from European power markets of United States market participants, and elimination of the significant risk capital and trading activity they had brought to the Nordic power market. 20 Nord Pool 2003

21 CEO s report Our most important job is to secure adequate market liquidity, which maintains confidence in price-setting at the Nordic Power Exchange. Torger Lien, President and CEO, Nord Pool ASA A consequence of reduced positions was an overall decline in traded volume. The decline in volume (in MWh) traded at Nord Pool s financial market was 47 percent in 2003, compared with the traded volume in The value of the traded volume, however, dropped by only 23 percent, due to the generally high market prices seen in Market liquidity encompasses more factors than traded volume. Although several of these factors have not been eroded, overall market liquidity was reduced in 2003 because traded volumes were down, the spread between buy and sell prices increased, and market depth decreased. Although these factors are clearly due to the extraordinary situation in the power market in 2003, a decrease in market liquidity is always cause for concern. As an exchange, we need to ask ourselves whether the reduction in liquidity may be caused by less apparent, more fundamental conditions. Market confidence depends on real competition. True competition relies on a sufficient number of buyers and sellers in the market. However, numerous structural changes among power producers have taken place over the past four to five years. Increased concentration resulting from any single ownership change does not alter the market, but collectively and over the course of time there has been a marked trend toward fewer and larger participants. A Nordic market that features good transmission capacity and largely the same power prices throughout the region has, in my view, satisfactory market competition. Nevertheless, I believe we need to be keenly aware of the possible consequences of further concentration, without a significant European expansion of the marketplace, on market confidence. Nord Pool s market surveillance department is a key tool in bolstering market confidence at the Nordic Power Exchange. The department monitors all exchange trade and all non-exchange traded (OTC) financial contracts. Nordic market area strengthening The market in general, and banks and Nord Pool in particular, have learned from the events of We feel that the entire market now is better prepared to meet any future strained power supply situation. However, there are key factors in the Nordic power market that require action by public authorities, regulatory bodies, and Nordic transmission system operators. Steps must be taken to strengthen transmission capacity within the Nordic countries, between countries, and via interconnections with other European countries. Half of the power produced in the Nordic countries comes from hydropower. Due to this reliance on hydropower, there are major fluctuations in power generation, resulting in significant price fluctuations. The unfortunate fluctuations of the magnitude seen in the past winter season must be addressed by an efficient and robust power grid, vital to maintaining a power market that has the confidence of retail consumers and industry. In addition to the price fluctuations attributable to weather and temperature conditions, the Nordic countries are faced with another issue. Several largesized production units, such as the nuclear power blocks in Sweden, must, both for technical reasons and due to the age of the facilities, shut down at times. These conditions place greater demands on both the power generation system and national and cross-border transmission infrastructures. I am pleased that the Nordic energy ministers, in their September 2003 meeting in Gothenburg, stated that the current challenges must be resolved through joint Nordic market-based solutions. Long-term supply reliability is a priority in future Nordic cooperation on electric power. Issues include power balance, bottleneck handling, and grid investments. Nord Pool will contribute to the further development of a well-functioning Nordic power market. However, Nord Pool s measures, by themselves, are insufficient to sustain the confidence of the market and its participants. We rely on predictable and harmonized pan- Nordic framework conditions that provide incentives for investments in the transmission grid and new production capacity. Torger Lien President and CEO Nord Pool ASA Nord Pool

22 Annual Report from the Board of Directors 22 Nord Pool 2003

23 Annual Report from the Board of Directors Annual Report For the first time since its establishment, Nord Pool experienced a decline in power contract trading and clearing volumes. This decline is attributable to the extraordinary conditions in the Nordic power market in An extremely dry and cold autumn of 2002 resulted in record high power prices in late 2002 and early Low hydropower reservoir levels, combined with severe winter cold that continued into 2003, drove up power prices. The strained power balance presented a real risk of delivery problems in parts of the Nordic region toward the end of winter. In hindsight, we can observe that as the New Year progressed, winter weather turned more normal, and the supply situation never became critical. High power prices throughout 2003 resulted in significantly lower consumption. Although the supply situation improved somewhat in the fall of 2003, it continued to be tighter than normal at the beginning of For Nord Pool, the extremes experienced by the Nordic power industry resulted in lower trading and clearing volumes. Nord Pool s physical-delivery market showed a slight 4.7 percent decline in traded volume in At the financial market, trading volume dropped by 46.5 percent, compared with Clearing of contracts traded off the exchange declined 41.7 percent, compared with As the Nord Pool Group s revenues depend greatly on traded and cleared volumes, the Group s revenues fell 29 percent, compared with Revenues from Nord Pool trading system agreements with the EEX and Powernext exchanges amounted to NOK 13.6 million in 2003 compared with NOK 7.5 million in The increase is attributable to higher traded volumes. EEX s financial situation remains weak; the exchange is expected to turn profitable in No dividends were paid by EEX in The Nord Pool Group for the 2003 accounting period comprises the parent company, Nord Pool ASA, and the wholly owned subsidiary Nord Pool Clearing ASA. The Nord Pool Group is headquartered in Oslo, with offices in Stockholm, Helsinki, and Fredericia. Nord Pool ASA owns 20 percent of Nord Pool Spot AS, and in the 2003 accounting year, Nord Pool ASA held a one-third interest in Nord Pool Consulting AS. As of 1 January 2004, Nord Pool ASA acquired full ownership of Nord Pool Consulting from Statnett and Svenska Kraftnät. Nord Pool Spot AS and Nord Pool Consulting AS are treated as associated companies in the 2003 accounts. Nord Pool s shareholding in the financial services IT company NOS ASA was sold in the spring of Market trends For the Nordic power market, 2003 was an unusual year. Power prices were significantly higher than normal, and financial-market volatility was great. This market situation resulted in significantly higher electric bills for general consumers. The situation varied somewhat among the Nordic countries, but in Norway, in particular, the situation was the subject of significant public attention and political debate. This in turn led to Nord Pool garnering more media attention than usual. Lower hydropower reservoir levels in Norway and Sweden, along with severe cold weather in late 2002, resulted in supply-side shortages. The consequences were high power prices throughout 2003, lower consumption than previously, and high Nordic imports Nord Pool

24 Annual Report from the Board of Directors of power throughout the year. Since 1993, when Nord Pool was established, precipitation and hydropower reservoir influx have been above the long-term averages, with the exception of the years 1996 and So expectations are for greater precipitation and higher reservoir levels than statistics warrant. The market was therefore relatively unprepared for what happened in Because prices rose far higher than anticipated, participants who had hedged their production at significantly lower prices were confronted with high margin calls. The impact at Nord Pool Clearing was record-high security requirements and settlement amounts. Because financial market liquidity was low at the same time, the result was significantly higher risk levels in the market. Many participants failed to anticipate and prepare sufficiently for the changes in risk levels. Consequently, 2003 served as a reminder of the risk inherent in financially settled power markets. The lower trading and clearing volumes seen in the current market are largely a consequence of these developments. Nord Pool s market shares declined marginally in Nord Pool s share of the market for financially settled power contracts was 32.0 percent in 2003, compared with 33.5 percent in Trade in long-term contracts fell more sharply than trade in shorter-horizon contracts. This trend may be attributable to the general price increase for long-term contracts and the uncertainty inherent in longer-term contracts. The pattern may also be associated with the fact that longer-term contracts are now euro-denominated. Many participants have not yet modified their procedures and introduced systems to handle eurodenominated trade accounts Nord Pool ASA had 2003 operating revenues of NOK million; down 23 percent from The parent company of the Nord Pool Group had an operating profit of NOK 1 million in 2003, compared with NOK 13.8 million in The Nord Pool Group had 2003 operating revenues of NOK million, compared with NOK million for Group operating profit was NOK 22.2 million in 2003, down NOK 34.6 million from the year-earlier figure. The decline in revenues and profit is attributable to the steep volume reduction in contracts traded and cleared, and the resulting reduction in fee revenues that are volume-dependent. Lower operating expenses in 2003, compared with 2002, compensated for part of the reduction in revenues. In April 2003, Nord Pool s financial market changed its fee structure, introducing a flat per-transaction fee of NOK per MWh. The average trading fee rose somewhat compared with This is largely attributable to 2002 s fee structure, which was based on a step-wise, volumedependent fee schedule; customers with high trading volumes paid lower per-mwh fees. Nord Pool Clearing did not change its step-wise, volume-dependent fee structure in The lower volume of clearing in 2003, compared with 2002, resulted in a higher average per-mwh clearing fee in 2003 than in the previous year. The significant decline in Nord Pool s fee revenues in 2003 is largely attributable to reduced volumes. Lower operating expenses, compared with 2002, resulted from several costcontainment measures introduced during Another factor resulting in lower costs is that volume-dependent trading and clearing expenses decrease when fee revenues decline. 24 Nord Pool 2003

25 Annual Report from the Board of Directors Regarding pension liabilities, in order to apply the same principles as Statnett, the Group changed its accounting principles in 2003, from recording estimate deviations in the profit and loss account to distributing them over the expected average remaining earnings period. Compared with the previously applied accounting principles, this change results in a NOK 5.5 million higher profit for the parent company and a NOK 6 million higher Group profit. Cash flow for the Group developed positively throughout 2003; net cash flow was NOK 7.5 million. The Group s liquidity is good; working capital as of 31 December 2003 was NOK 483 million. At year-end, the balance sheet stood at NOK 635 million; down NOK 30 million from the year-earlier amount. The Nord Pool Group s equity capital as of 31 December 2003 was NOK 472 million. At year-end 2003, Nord Pool Clearing had an open balance (future contractual obligations) of NOK 36.5 billion. The open balance represents members gross cleared positions. Members security requirements for margin calls amounted to NOK 9.4 billion; total security posted was NOK 19.1 billion. The Board views the situation regarding security requirements and security posting as satisfactory. Viewed in relation to the security posted by participants throughout the year, the Group s equity capital is deemed adequate. An insurance arrangement that will provide additional capital to cover risk associated with Nord Pool s clearing activities is being prepared. The Board of Directors is not satisfied with Nord Pool s development as to volumes, market shares, and financial results. The company is carefully monitoring developments in these three key figures, and will be actively engaged in reversing the trends. The annual accounts are prepared based on the assumption of a going concern. Organization and work environment At year-end 2003, the Nord Pool Group had 70 employees: 59 in Norway, eight in Sweden, and three in Denmark. Nord Pool had 52 employees, and Nord Pool Clearing had 18 employees. Three employees were on leave as of year-end The decline in the number of employees by four individuals in 2003 is attributable to management s policy of avoiding new hires to the extent possible, and allowing for normal attrition in a year of low earnings. Nord Pool s associated companies had the following staff at year-end 2003: Nord Pool Spot AS: 12 employees, plus seven employees at the wholly owned subsidiary, Nord Pool Finland Oy (previously EL-EX). Nord Pool Consulting AS: six employees. The rate of absences due to illness at Nord Pool averaged 2.11 percent, or days work, compared with 2.07 percent for For the Group, absence due to illness averaged 2.75 percent in 2003 (677.7 days work), compared with 2.5 percent in The increase is attributable to more employees on longer-term leaves. A Nord Pool Group work environment survey was carried out in 2003, as in the previous year. Its findings were satisfactory. Efforts to improve the working environment are ongoing in all Nord Pool departments. There were no injuries or accidents associated with operations that resulted in absences in Of Nord Pool s 52 employees, 20 are women and 32 men; 38 percent of Nord Pool

26 Annual Report from the Board of Directors employees are female, 62 percent male. The company s board of directors comprises three women and five men. Nord Pool s management comprises one woman and six men. Among other management and middle-level managers, 22 percent are women and 78 percent are men. Most Nord Pool departments feature even distribution of the sexes, but with some preponderance of male employees at the financial market and the IT department. Nord Pool s staffing policy is based on the principle of equal pay for equal work, which means that women and men in the same job receive the same pay, provided their expertise, experience, level of responsibility, and other factors are the same. However, salary statistics for 2003 show that the annual salaries of male employees (these figures do not include top management) average 46 percent higher than for female employees. This major difference in average salaries between men and women is largely attributable to more women than men working in jobs that do not require advanced education. In addition, there are more male than female mid-level managers. The company seeks to encourage employees of both genders to establish solutions that facilitate combining family life and career. At year-end 2003, one female employee was on leave. As of 31 December 2003, the company had six employees in part-time positions, all of whom were women. Nord Pool has a preponderance of male leaders. This is not the result of an established hiring policy, but rather a consequence of the fact that the power and financial industries are traditionally male dominated. Nord Pool is seeking to recruit more women leaders at all levels of its organization. Nord Pool s activities do not pollute the interior or external environment. Allocation of profit for the year The Board proposes that a dividend of NOK 14 million be paid to Nord Pool s owners. It is further recommended that Nord Pool s profit for the year of NOK 5.5 million be paid in full as dividends, and that NOK 8.5 million be transferred from other equity for the dividend disbursement for The company s unrestricted equity at year-end 2003 was NOK million. Outlook 2003 was a difficult year for both the Nordic power market and Nord Pool. Nevertheless, the Board of Directors is of the opinion that the company handled the difficulties well. The volume declines throughout 2003 will continue to affect the coming years. Provided there is normal precipitation, hydropower reservoir levels will take some years to recover. In addition, the uncertainty associated with the higher risk levels seen in 2003 in the power market will affect the power market for some years to come. Trading and clearing volumes are expected to remain at 2003 levels. Lower costs in 2004, however, are expected to result in 2004 profits above those of The company has also invested in new trading and clearing systems that will result in lower costs. The gradual transition to the euro as Nord Pool s trading currency will facilitate the entry of more non-nordic participants. Smaller-sized Norwegian participants may find that trading in contracts denominated in currencies other than NOK is too complicated and costly for them, and we are assessing measures to overcome these problems, in cooperation with the banks that participate in clearinghouse settlement. Lysaker, 18 February 2004 Jan Magnusson Board Chairman Eva Granly Fredriksen Deputy Chairman Peter Thelin Odd Håkon Hoelsæter Bjarne Aamodt Elisabeth Westberg Kari Schultz Geier Robert Lillefloth Torger Lien President and CEO 26 Nord Pool 2003

27 Annual Report from the Board of Directors Jan Magnusson (Styrets leder) Eva Granly Fredriksen (Nestleder) Peter Thelin Jan Magnusson (Chairman) Odd Håkon Hoelsæter Bjarne Aamodt Elisabeth Westberg Kari Schultz Geier Robert Lillefloth Torger Lien (Adm. direktør) Nord Pool

28 Annual accounts Our new company structure, our expanded product range, and the additional exchange members pose new challenges for financial reporting and accounting practices, according to both Nord Pool accounting manager Gudmunn Sørensen and controller Gro Becher. 28 Nord Pool 2003

29 Annual accounts Profit and loss account Nord Pool ASA Nord Pool Group Amounts NOK Note Fee revenues Service agreement Other operating income 4, Total operating income Trading and clearing fees 2, 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 Nord Pool

30 Annual accounts Balance sheet Assets Nord Pool ASA Nord Pool Group 31 Dec Dec Amounts in NOK Note 31 Dec Dec FIXED ASSETS Intangibles EDP 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 2003

31 Annual accounts Balance sheet Equity and liabilities Nord Pool ASA Nord Pool Group 31 Dec Dec Amounts in NOK Note 31 Dec Dec EQUITY Paid-in equity Share capital (200,000 shares at NOK 1,200) 15, Share premium reserve Total paid-in capital Earned equity Other equity Total earned equity TOTAL EQUITY LIABILITIES Allocations for liabilities Pension liabilities Total allocations for liabilities Long-term liabilities Subordinated loan Total long-term liabilities Current liabilities Accounts payable Accounts payable, Group Taxes payable Fees payable to public authorities Dividend Other short-term liabilities Group liabilities Total current liabilities TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES Lysaker, 18 February 2004 Jan Magnusson Chairman of the Board Eva Granly Fredriksen Deputy Chairman Peter Thelin Odd Håkon Hoelsæter Bjarne Aamodt Elisabeth Westberg Kari Schultz Geier Robert Lillefloth Torger Lien President and CEO Nord Pool

32 Annual accounts Cash flow analysis Nord Pool ASA Nord Pool ASA Group Amounts in NOK Cash flow from operating activities Profit for the year after taxes (432) 22 Loss (+)/profit (-) on sale of operating assets (68) (432) Ordinary depreciation Loss on financial operating assets Change in accounts receivable (1 881) ( ) (1 486) Change in accounts payable (2 150) (61 697) (3 182) Change in pension liabilities (771) Change in investments or financing activities (3 787) ( ) Change in other accrual items (35 455) (4 012) ( ) Net cash flow from operating activities Cash flow from investment activities Proceeds from sales of fixed assets (10 495) (14 241) Payment for purchases of fixed assets/intangibles (27 813) (10 677) Proceed from sale of NOS ASA shares ( ) Payment for share acquisitions (5 501) Transfer of NOS shares to Nord Pool Clearing ASA ( ) Payment of long-term receivables to subsidiaries ( ) (13 811) Net cash flow from investment activities (14 318) Cash flow from financial activities Proceeds from issuance of long-term debt Proceeds from equity issue (30 000) Dividend payments (30 000) (30 000) Net cash flow from financial activities (30 000) ( ) Net change in liquid assets for the year Liquid assets as of 1 January Liquid assets as of 31 December Nord Pool 2003

33 Accounting principles Accounting principles The annual accounts have been prepared in accordance with the Norwegian Accounting Act of 1998 and generally accepted accounting principles in Norway. New corporate structure Effective for accounting purposes as of 1 January 2002, Nord Pool ASA is organized into three companies: Nord Pool ASA (Nord Pool), Nord Pool Clearing ASA (Nord Pool Clearing) name changed 6 January 2003 from Nordic Electricity Clearing House ASA and Nord Pool Spot AS (Nord Pool Spot). The organizational changes were made through a demerger of spot-market and clearing activities formerly belonging to Nord Pool. The changes were such that accounting and taxation continuity were maintained. As of 1 January 2002, Nord Pool comprises the marketplace for trade in financially settled power contracts in the Nordic countries, and international activities for physical delivery and financial power contracts. Nord Pool is owned 50 percent each by Statnett SF and Affärsverket svenska kraftnät. Nord Pool Clearing, the clearinghouse for the Nordic financial power market, is wholly owned by Nord Pool. Nord Pool Spot is the marketplace for organized trade in physical delivery power contracts in the Nordic countries. Nord Pool Spot is owned 20 percent by Nord Pool; the five Nordic TSOs own the remaining 80 percent of Nord Pool Spot. Nord Pool s spot market and clearing activities were demerged from Nord Pool, along with their respective operational activities. Nord Pool Clearing and Nord Pool Spot currently purchase administrative services from Nord Pool. Consolidation principles The Group s consolidated accounts comprise the accounts of the parent company Nord Pool and its Nord Pool Clearing 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 according to uniform principles, since the subsidiary uses the same accounting principles as the parent company. Nord Pool Clearing is recorded in the Group accounts based on 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 according to the equity method. The Group s share of profit in an associated company is its proportionate amount of the after-tax profit of the associated company, less any internal gains and depreciation of surplus value (due to the cost of the shares exceeding 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. Upon consolidation of branch office accounts in foreign currencies, exchange rates at the close of the accounting year are applied. Subsidiaries and associated companies Subsidiaries are valued according to the cost method in the parent company accounts. Investments are valued at acquisition cost for the shares, unless a write-down has been necessary. Investments are written down to market value if the decline in value is viewed as not transitory in nature and when deemed necessary according to generally accepted accounting principles. Writedowns are reversed if the conditions for the write-down are no longer present. Associated companies are consolidated in the Nord Pool Group accounts according to the cost method. Revenues In the financial market, power contracts with a time horizon of up to four years are traded. Contracts traded comprise financially settled futures, forward, and options contracts. The contract value of financialmarket power trade 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 fees (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 OTC and bilateral markets are recorded to income at the time such contracts are registered for clearing. Classification and valuation of balance sheet items Current assets and short-term liabilities include items that fall due within a year of their acquisition date and items that are associated with the business cycle. Other items are classified as operating assets or long-term liabilities. Current assets are valued at the lowest of acquisition cost or market value. Short-term 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. 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 financial benefits associated with the intangible asset in question can be identified. If such is not the case, such expenses are recorded to costs on a current basis. Nord Pool

34 Accounting principles In-house development In-house development of proprietary software systems is capitalized at its calculated cost. Foreign currency Accounts receivable and accounts payable in foreign currency are valued at the year-end exchange rate. Translations of assets and liabilities for the branch offices in Sweden are also made according to the year-end exchange rate. Tangible fixed assets Tangible fixed assets are recorded in the balance sheet and depreciated over the expected useful lives of the assets. Direct maintenance costs related to tangible assets are currently expensed 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 they refer to. Pension costs and liabilities The Nord Pool Group maintains pension plans that provide employees with the right to defined future pension benefits (defined benefit plans). Benefits are based on the number of years of employment and salary 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 by 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 standards (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 as of the balance sheet date, which are to be paid through the company s own pension fund or financed by 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, from which assets may not be transferred to under-funded plans, are shown as pension assets (financial fixed assets). Regarding pension liabilities for 2003, the Group applied a different accounting principle. Where previously it recorded in the profit and loss account the effect of estimate deviations that were due to changes in pension liabilities and pension assets, it now applies a threshold criteria in such reporting, called corridor reporting, as follows: Changes in pension liabilities and pension assets that are due to changes and deviations in assumptions applied to calculations (changes in estimates) are distributed over the remaining expected average earnings period if the deviations as of 1 January exceed 10 percent of whichever is greater, 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 percent of the temporary differences between accounting and tax values, as well as the tax loss carryforward 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 it is likely that they will be used. As of 31 December 2003, 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; taxes paid in Sweden are a tax 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 arrived at by entering the after-tax profit for the year and the other operating items shown. The cash flows from investment and financial activities are presented gross. Changes in accounting principles The Nord Pool Group changed accounting principles in 2003 regarding pension liabilities, from recording in the profit and loss account the effect of estimate deviations resulting from changes in pension liabilities and pension assets that are due to changes and deviations in assumptions applied to calculations (changes in estimates), to distributing these over the remaining expected average earnings period if the deviations at year-end exceed 10 percent of whichever is greater, gross pension liabilities or pension assets as of 1 January. The change in accounting principles regarding pension liabilities was made to conform to the same principles as used by Statnett SF. The change in accounting principles has had a NOK 0.4 million effect on equity for Nord Pool ASA and NOK 0.5 million for the Nord Pool Group. Comparative figures according to the new principles are changed in the balance sheet, but not in the profit and loss account. If applying the same principles used in the 2002 accounts, the parent company would have shown a NOK 0.05 million loss and the Group a NOK 22.5 million profit for Comparative figures Effective 1 January 2003, the Group made certain changes relating to classifications used in profit and loss account and balance sheet items. Comparative figures, in accordance with the new principles, have been entered into the balance sheet but not in the profit and loss account. No comparative figures have been prepared for the cash flow analysis. Consequently, figures are not comparable. 34 Nord Pool 2003

35 Notes to the accounts Notes to the accounts Note 1 Posting of security Posting of security When entering into member agreements for financial-market power trade and/or clearing, the members accept the current standard terms for trading and clearing, which among other matters governs posting of collateral for power contracts traded via Nord Pool and/or cleared by Nord Pool Clearing. Nord Pool Clearing requires posting of both a minimum collateral and a daily collateral amount based on each member s positions. The daily collateral requirement, calculated using a riskbased portfolio system, includes a margin requirement for anticipated day-to-day price fluctuations, as well as collateral requirements for the member s unrealized losses. Collateral is posted as a cash deposit, as a bank guarantee, or in another manner approved by Nord Pool Clearing according to the applicable standard terms. Additional, extraordinary security may be demanded on one hour s notice if special conditions require. At year-end 2003, Nord Pool Clearing had an open balance (future contractual obligations) of NOK 36.5 billion. Collateral required by the members was NOK 9.4 billion as of 31 December Total collateral posted as of 31 December 2003 amounted to NOK 19.1 billion. At year-end 2003, all members had posted satisfactory collateral, as required by the standard terms. Note 2 Business areas Nord Pool ASA Financial Nord Pool Other Total market Clearing activities (*) Nord Pool ASA Amounts in NOK million Operating revenues Operating expenses Operating profit (3.8) Value of power contracts traded Contract volume (TWh) Nord Pool Group Financial Nord Pool Other Total market Clearing activities (*) Group Amounts in NOK million Operating revenues Operating expenses Operating profit (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 analyses and statistical information and courses. Nord Pool

36 Notes to the accounts Note 3 Services agreements Amounts in NOK Nord Pool ASA Services rendered to Nord Pool Spot AS Services rendered to Group companies Total Nord Pool Group Services rendered to Nord Pool Spot AS Total Note 4 Other operating income Amounts in NOK Nord Pool ASA Re-invoicing of telecom services Services rendered to EEX AG and Powernext France Subscription income Distribution of price information Miscellaneous other operating income Total Nord Pool Group Re-invoicing of telecom services Services rendered to EEX AG and Powernext France Subscription income Distribution of price information Miscellaneous other operating income Total Note 5 Payroll expenses, number of employees, remuneration, loans to employees, etc. Nord Pool ASA Nord Pool Group Amounts in NOK Payroll expenses Salaries Capitalized in-house development (334) Social security contribution Pension costs Other benefits Total Nord Pool ASA had 55 employees on average in 2003; the corresponding figure for the Nord Pool Group was 73. In 2002, Nord Pool ASA had 57 employees on average; the Group had 75 employees. Note 5 continues on the next page 36 Nord Pool 2003

37 Notes to the accounts Nord Pool ASA Remuneration to key personnel President and CEO 2) Board members 1) Salary ) 320 Other remuneration 113 1) Board members who are Statnett SF, Affärsverket svenska kraftnät, or Nord Pool Group employees receive no remuneration; remuneration is paid only to external board members. 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. In addition, Nord Pool s President and CEO has an agreement to receive one year s salary if the Board of Directors initiates his departure. 3) The figure includes a bonus paid in As of 31 December 2003, the President and CEO s salary is NOK 1,400,000. No loans have been granted or security posted on behalf of the President and CEO, Chairman of the Board, or other closely related parties. No individual loan or security posting represents more than 5% of the Nord Pool Group s equity. Employee bonus plan The Group has a bonus plan for its employees, offering bonuses based on achieving various performance criteria, including volumes and profit. The maximum bonus is 15% of an employee s annual salary. No bonus will be paid for Auditors Fees to independent auditors for regular auditing services in 2003 for Nord Pool ASA amounted to NOK 150,000, and fees paid for the Group were NOK 200,000; these figures are exclusive of VAT. Fees paid for other attestation and auditing services amounted to NOK 302,086 (including VAT). Fees for consulting services in 2003 amounted to NOK 324,188 (including VAT). Note 6 Other operating expenses Nord Pool ASA Nord Pool Group Amounts in NOK IT costs PowerClick Outsourced services Software development Miscellaneous administrative expenses Total Note 7 Real estate leases The Group has a lease for rented office space at Granfos Industrial Park at Lysaker, near Oslo. The lease expires on 1 July As of 1 April 2002, the Group increased its rented floor space. Including this expansion, the annual rent for 2003 was NOK 3.9 million, compared with NOK 3.7 million in The rent is adjusted annually in accordance with the consumer price index. Nord Pool

38 Notes to the accounts Note 8 Subsidiaries, associated companies, and other investments Acquisition Disposal Head- Ownership Share of voting date date quarters (in%) rights (in%) Subsidiary: Nord Pool Clearing ASA 10 Dec Oslo 100.0% 100.0% Associated companies: Nord Pool Spot AS 1 Jan Oslo 20.0% 20.0% Nord Pool Consulting AS 22 Sept Oslo 33.3% 33.3% Investments in other companies: European Energy Exchange AG 3 June 1999 Leipzig 17.4% 17.4% NOS ASA 3 June May 2003 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, taking effect for accounting purposes as of 1 January NECH changed its name to Nord Pool Clearing ASA on 6 January Nord Pool Clearing had a 2003 profit after taxes of NOK 19.2 million, compared with NOK 27.6 million in As of 31 December 2003, the company s equity amounted to NOK million. Investments in the associated companies Nord Pool Spot AS and Nord Pool Consulting AS are recorded in the parent company accounts using the cost method; the equity method is used in the consolidated Group accounts. Nord Pool s spot market activities were demerged into Nord Pool Spot AS, taking effect for accounting purposes as of 1 January At year-end 2003, Nord Pool Spot s equity amounted to NOK 97 million. The company s 2003 after-tax profit was NOK 21.8 million, compared with NOK 14.1 million in Nord Pool Consulting AS s equity amounted to NOK 3.9 million, as of 31 December After-tax profit for 2003 was a loss of NOK 1.3 million, compared with a loss of NOK 0.5 million in LPX Leipzig Power Exchange GmbH (LPX) was originally established as a power exchange; it began operations as a physicaldelivery spot market in June LPX merged with European Energy Exchange AG (EEX) in As of 31 December 2003, EEX s equity was NOK million (EUR million). After-tax profit for 2003 amounted to a loss of NOK 14.1 million (EUR 1.72 million). The after-tax profit for 2002 amounted to a loss of NOK million (EUR 19.9 million.) Services and tasks performed by Nord Pool ASA for Nord Pool Consulting AS Until 1 April 2002, Nord Pool Consulting AS rented office premises from Nord Pool ASA. Nord Pool Consulting purchases administrative services from Nord Pool. These charges amounted to NOK 0.4 million in 2003, compared with NOK 0.6 million in In 2003, the Nord Pool Group purchased services from Nord Pool Consulting AS at a value of NOK 0.1 million, compared with NOK 0.3 million in Services performed by Nord Pool for European Energy Exchange AG EEX purchases administrative and IT services, including leased telecom lines, from Nord Pool. For 2003, charges for these services amounted to NOK 0.9 million, compared with NOK 0.7 million in In addition, Nord Pool receives licensing revenues for its spot trading system from EEX; these amounted to NOK 10.2 million in 2003, compared with NOK 5.1 million in Services performed by NOS ASA for the Nord Pool Group In 1999, NOS ASA entered into an agreement with OM Gruppen AB for clearing of financial power trade. A company jointly owned by NOS and OM Gruppen Power Clearing Systems AS (PCS) delivers clearing services to Nord Pool Clearing ASA; these services include clearing systems and infrastructure. In December 2002, Nord Pool Clearing ASA terminated its agreement with PCS and entered into an alternative agreement with OM-HEX for delivery of clearing services, to begin 1 January Deliveries from OM-HEX are somewhat delayed. Consequently, OM-HEX has entered into an agreement with PCS on continued delivery of clearing services to Nord Pool Clearing until OM-HEX s clearing system is operational. Note 8 continues on the next page 38 Nord Pool 2003

39 Notes to the accounts Nord Pool ASA Investments valued according to the cost method Total Shares Par value Total par Acquisition Book Company share capital owned per share value cost value Nord Pool Spot AS Nord Pool Consulting AS European Energy Exchange AG The Nord Pool Group s shareholding in NOS ASA was sold 28 May Nord Pool Group Investments valued according to the equity method Nord Pool Spot Nord Pool Group Consulting AS Total Amounts in NOK Share of profit for the year (574) Book value as of 31 Dec is arrived at as follows: Equity of associated company as of 31 Dec Ownership in associated company 20% 33% Share of equity in associated company Note 9 Net financial items Nord Pool ASA Nord Pool Group Amounts in NOK Financial revenues Share dividends Interest income from Group companies Other interest income Other financial revenues Gain on sales of shares Guarantee provision Total financial revenues Nord Pool ASA Nord Pool Group Financial expenses Loss/write-down of shares (3 190) (17 788) Interest expenses, subordinated loan (8 791) (7 632) (8 791) (7 632) Other interest expenses (65) (1 308) (397) (1 309) Other financial expenses (200) (210) Total financial expenses (8 856) (9 140) (12 378) (26 939) Net financial items Nord Pool

40 Notes to the accounts Note 10 Intra-Group profit and loss account items Nord Pool Amounts in NOK Clearing ASA Nord Pool ASA Operating revenues Net financial items Total Note 11 EDP trading systems Nord Pool ASA Nord Pool Group Amounts in NOK Intangible assets Intangible assets Acquisition cost as of 1 January 2003 Additions Disposals Acquisition cost as of 31 December Accumulated depreciation as of 31 December 2003 (19) (19) Book value as of 31 December 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 Amounts in NOK Vehicles Machinery and equipment Total Nord Pool ASA Acquisition cost as of 1 January Additions Disposals (695) (695) Acquisition cost as of 31 December Accumulated depreciation as of 31 December 2003 (1 124) (48 539) (49 663) Book value as of 31 December Depreciation for the year Amounts in NOK Vehicles Machinery and equipment Total Nord Pool Group Acquisition cost as of 1 January Additions Disposals (745) (745) Acquisition cost as of 31 December Accumulated depreciation as of 31 December 2003 (1 162) (48 753) (49 915) Book value as of 31 December 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 3 5 years 40 Nord Pool 2003

41 Notes to the accounts Note 13 Accounts receivable No losses on accounts receivable were recorded in 2002 or As of 31 December 2003, accounts receivable were booked at face value. Note 14 Bank deposits Amounts in NOK Nord Pool ASA Nord Pool Group 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 As of 31 December 2003, Nord Pool had two shareholders. There is only one class of shares; all shares carry the same rights. Share of Shareholders as of 31 December 2003 No. of shares held Ownership voting rights Statnett SF % 50.0% Affärsverket svenska kraftnät % 50.0% Total number of shares % 100.0% Note 16 Equity Share premium Other Total Amounts in NOK Share capital reserve equity equity Nord Pool ASA Equity as of 31 December Effect of changes in pension liability accounting principles (378) (378) Equity as of 1 January Translation differences 2 2 Profit for the year Dividend (14 000) (14 000) Equity as of 31 December Share premium Other Total Share capital fund equity equity Nord Pool Group Equity as of 31 December Effect of changes in pension liability accounting principles (516) (516) Equity as of 1 January Translation differences 2 2 Profit for the year Dividend (14 000) (14 000) Equity as of 31 December Nord Pool

42 Notes to the accounts Note 17 Closely related parties/owners Nord Pool is owned on a 50/50 basis 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 performs maintenance and contingency services for Statnett SF s IT systems in the areas of balance settlement and regulating power. Statnett SF is in the process of transferring these tasks to its own organization. Total income for 2003 amounted to NOK 0.8 million, compared with NOK 0.8 million in The agreements for these services were renegotiated in 1999 and will 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 security posting and clearing for the regulating power market. Remuneration for services rendered in 2003 amounted to NOK 0.5 million, compared with NOK 0.5 million in The agreement covering these services was entered into in Nord Pool Clearing terminated the agreement in November 2003; the agreement period expires 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 in accordance with agreements between the two parties. Nord Pool has a joint insurance plan with Statnett SF. In total, costs for these services were NOK 1.3 million in 2003, compared with NOK 0.2 million in The agreements run for one year. b) Pension plan The Nord Pool Group is a member of Statnett SF s Pension Fund, with associated pension obligations. Statnett SF s Pension Fund is also the administrator for the pension fund. See the item on pension costs and pension liabilities under Accounting Principles for more details. Note 18 Pensions The Nord Pool Group has pension plans for employees in Norway, covering 59 people. The corresponding figure for the parent company is 48 individuals. The plans entitle beneficiaries to defined future benefits. On the whole, benefits depend on the length of employment, salary level at retirement, and the pension paid by the National Insurance Fund. Nord Pool ASA Amounts in NOK Pension expenses for the period comprise: Current value of this year s pension earnings Interest cost for pension liabilities Yield on pension assets (718) (957) Change in estimates and deviations recorded in profit and loss account 525 (1 339) 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 (800) (1 033) Change in estimates and deviations recorded in profit and loss account 546 (1 561) Social security contributions Net pension costs, defined benefit plan Note 18 continues on the next page. 42 Nord Pool 2003

43 Notes to the accounts Nord Pool ASA Nord Pool ASA Insured Unsecured Insured Unsecured Calculated pension liabilities as of 31 December Estimated pension assets as of 31 December 2003 (14 110) (16 041) Effect of changes in estimates and deviations not recorded in profit and loss account (7 856) Social security contributions Net pension liabilities Nord Pool Group Nord Pool Group Insured Unsecured Insured Unsecured Calculated pension liabilities as of 31 December Estimated pension assets as of 31 December 2003 (15 752) (17 401) Effect of changes in estimates and deviations not recorded in profit and loss account (8 404) Social security contributions Net pension liabilities Technical assumptions: Discount rate 5.0% 6.0% Expected growth in salaries 3.0% 3.5% Expected growth in social security base amount 3.0% 3.0% Expected growth in pensions 3.0% 2.5% Expected yield on funds 6.0% 7.0% Average social security tax rate 14.1% 14.1% Allocations to pension liabilities are based on estimated pension liabilities as of 31 December The actuarial assumptions are based on common insurance assumptions as to demographic factors. Nord Pool Clearing ASA has a contribution-based pension plan for employees in Sweden. This pension plan covers eight employees; the annual pension cost for employees in Sweden for 2003 was NOK 1.1 million. Note 19 Subordinated loan capital The subordinated loan was provided by the company s two owners, who each contributed 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 Norway s Banking, Insurance and Securities Commission. Loan type Amount of loan Interest rate Maturity Date issued Maturity date Subordinated loan NOK % 10 years 20 February February 2012 Note 20 Other current liabilities Amounts in NOK Nord Pool ASA Other operating expenses, accrued Accrued trading fees Accrued holiday pay Accrued interest costs, subordinated loan from owners Total Note 20 continues on the next page. Nord Pool

44 Notes to the accounts Amounts in NOK Nord Pool Group 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 (739) (110) (5 215) Tax effect of Group gains Excess tax allocated in previous year (426) (426) Total tax expense Calculated tax base for the year: Pre-tax profit Permanent differences*) Change in temporary differences Other adjustments (19 414) Group gains (3 787) (11 839) Dividends received, entitled to tax refund (1 435) (1 435) Basis, taxes payable for the year Presentation of temporary differences: Fixed assets (6 285) (5 070) (6 558) (5 056) Allocations in accordance with generally accepted accounting principles (415) (508) (415) (722) Pensions (3 766) (2 270) (5 269) (3 269) Shares (17 788) Total (10 466) (7 848) (12 242) (26 835) Deferred tax (28%) (2 930) (2 045) (3 427) (7 514) Deferred tax on Group gains Total deferred tax benefit (2 930) (2 045) (866) (4 953) 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 (426) Permanent differences (28%) 75 Calculated tax expense Nominal tax rate**) 23.1% The tax treaty between Norway and Sweden is based on the credit method of taxing business activities 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. * ) Include non-deductible expenses, such as entertainment. **) Tax expenses as a percentage of pre-tax profit. 44 Nord Pool 2003

45 Auditor s report Auditor s report To the Annual Shareholders Meeting of Nord Pool ASA Auditor s report for 2003 We have audited the annual financial statements of Nord Pool ASA as of 31 December 2003, 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 2003, and the results of its operations and its 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 comply with law and regulations. Oslo, 18 February 2004 ERNST & YOUNG AS Jan Egil Haga State Authorised Public Accountant (Norway) Tor Steenfeldt-Foss State Authorised Public Accountant (Norway) Note: The translation to English has been prepared for information purposes only. Nord Pool

46 Statistics In 2003, Nord Pool sold information products that were distributed via five key channels to 282 customers. My role is to ensure that decision-makers can access the right information at the right time, and get an accurate picture of the power market. Erling Mork, Manager, Statistics and Analysis, Nord Pool ASA 46 Nord Pool 2003