Endless Possibilities RTO/Regulatory Update for East Origination September 18, 2001

Endless Possibilities ALJ's report issued on 7/10/01. FERC will issue order providing further guidance (Enron will file comments) One RTO for Southeast (SPP to go to Midwest) RTO will be Transco structure (includes an Independent Market Administrator) with Independent board Concludes that PJM type congestion management system is best practices (Financial transmission rights with LMP in real time spot market) -- Proposed "balancing resources“ (like icap), which we will argue against ALJ states process should move quickly – Enron asks FERC to maintain RTO market opening Day 2 (12/15/02) Southeast RTO Mediation

Endless Possibilities Midwest Region MISO and Alliance are proceeding as separate RTOs State PUCs and Industrials have asked FERC to order a mediation to make one Midwest RTO Enron asked FERC to order parameters initially based on SE RTO mediation (independent board transco-type structure with LMP spot market/financial congestion rights) MISO has adopted LMP/financial congestion rights model Alliance is proposing physical transmission rights with day ahead balanced schedules Enron’s proposal includes maintaining Day 2 start (12/15/02)

Endless Possibilities Enron filed asking Ohio PUC to add language including utilities' native load in OATT. Janine Migden is setting up a meeting with Cinergy and APS to discuss settlement and resolution of these issues with the hopes of getting a critical mass on board to potentially address the issue at FERC Enron met with MPSC Commissioners and also with Michigan Municipal Power Authority to discuss RTO issues. The Mich. Comm. was very supportive of our position and said they would do what they could to foster competition Enron participated on ICC Chairman Mathias' Roundtable on competition and pushed very hard on transmission access issues and balancing provisions. Received good support and back-up from the two industrial participants Midwest PUC Activities

Endless Possibilities Northeast RTO Mediation Mediation proceedings ended on September 7 with judge’s report issued on September 17 – Result of mediation is creation of a “detailed business plan” of how to create a single northeast RTO Business plan includes three categories of substantive issues – Three alternative market design proposals – Three alternative governance proposals – Several alternative stakeholder process proposals

Endless Possibilities Northeast RTO Mediation (con’t.) Enron supports PJM Market Design Proposal except for date (we advocate 12/02 in-service date) Enron supports Governance/Board make-up with majority of Board members from PJM (5 -PJM; 3-NY; 2-NE) Enron supports Stakeholder Proposal creating four (advisory only) stakeholder sectors – transmission owners; generators; other suppliers; end use customers

Endless Possibilities Atlantic Seaboard Update Closely monitoring material committees in NEPOOL, NYISO, PJM, SERC and FRCC for policy issues Planning a road show to SE regulatory bodies promoting RTO development Currently considering and seeking out commercial opportunities in gas and power through utility basic service/default provider proceedings (NJ, Maryland and several other states)

Endless Possibilities Texas Update Some speculation that retail market may not open 1/1/02; however, formal PUC position is that Texas will be ready for competition The legislative restructuring oversight committee is fully engaged in the market opening and investigating any possibility of delay (2 nd hearing in Oct.) Still working toward eliminating/relaxing day balanced schedule requirement; congestion management issues; possible icap issues; more power marketer representation on board

Endless Possibilities Ontario – Independent Market Operator When the Ontario wholesale market is opened, the IMO will direct the operations of the Ontario transmission grid and operate the real-time energy and ancillary service markets Prior to market opening, the IMO is responsible for dispatch, while Ontario Power Generation (OPG) retains the obligation to serve and is responsible for scheduling The Ontario wholesale and retail markets are scheduled to open “by May 2002”  The Government is committed to opening the wholesale and retail markets at the same time  The IMO completed a simulated or operational dry run of its systems in June The dry run was considered a success by the IMO but outstanding issues remain with respect to settlements and the transmission rights auction software  In late July 2001, the OEB determined that only 4 of the 92 distributors in the Province would be ready for a market opening in 2001  Accordingly, in mid-August 2001, the IMO and OEB issued a new Market Readiness Plan that targets an opening of the wholesale and retail markets in the March/April 2002 time frame  The final decision with respect to market opening lies with the Ontario Government

Endless Possibilities Ontario – Independent Market Operator cont... The IMO executive and staff are committed to closer integration with the connected US markets, particularly those in the Northeast; however, Canadian federal and provincial jurisdictional issues will likely preclude, for the foreseeable future, the complete integration of the IMO into a Northeast RTO Many features of the Ontario wholesale market design are anomalous (failure to offer equivalent treatment to firm domestic and firm export transactions, treatment of importers as pure “price takers” in the real time energy market, very limited opportunity to revise offers/bids in the spot market within 4 hours of real time). OPG has expressed concern that features of the Ontario wholesale market will impair OPG’s ability to secure its marketer authorization from FERC

Endless Possibilities