The Master Wholesale Electric Contract Federal Energy Regulatory Commission - February 1, 2000

Why Wholesale Electric Contract Standardization? Each transaction has common commercial terms, e.g. 50MW on-peak, into Cinergy, for July-August Business people treat transactions as identical, as “hedges” for one another Traders presume “infrastructure” exists, as in other markets

Why Wholesale Electric Contract Standardization? Lack of or differences in legal terms, “infra-structure,” only become critical in times of market stress 1998 June price spikes and market defaults focused discussion on lack of documents and credit concerns 1999 market events focused discussion on tariff/ contract inconsistencies

Why Wholesale Electric Contract Standardization? Variety of Trading Documentation Cost-based tariffs Market-based rate tariffs (and service agreements) Unilateral contracts Bilateral contracts Pool-enabled transactions Other

Why Wholesale Electric Contract Standardization? Documentation Issues Lack of pricing flexibility in cost-based tariffs Utility specific, unilateral provisions in tariffs Lack of necessary terms (i.e. default and remedy provisions, credit provisions) in most documents Asymmetric terms - do terms of tariff or transaction govern?

Wholesale Electric Contract Standardization General requirements for wholesale electric contracts Facilitates trading of commonly understood products Provides umbrella documentation for all transactions between each pair of trading counterparties Permits flexibility--allows for changes in circumstances and transaction specifics

Wholesale Electric Contract Standardization General requirements for wholesale electric contracts (cont.) Permits the focus of trading to be upon price, quantity, duration and delivery point

Wholesale Electric Contract Standardization Process Initiated- Fall 1998 EEI Legal Committee Meeting Group Progress Kick-off meeting- January 29 Group effort defined Drafting Group established Drafting Group Activity Issues Identified Proposed Standardized Terms

Wholesale Electric Contract Standardization Group Progress (Cont.) Follow- up meetings - March, May, June 1999 Summer 1999 - intense Drafting Group meetings and calls Presentation to larger group - September 24 Input from expanded participation Discussion of Drafting Group efforts Refinement of issues Distribution of Consensus Draft - mid-October EEI/NEMA Workshop- November 17, 1999 in Washington D.C.

Wholesale Electric Contract Standardization Group Progress (Cont.) Product Definitions discussed in December 99 Working Group meeting Product Definitions refined by Drafting Group in January 2000 Working Group adopts product definitions on January 26, 2000

Wholesale Electric Contract Standardization Group Membership EEI Member Utilities Affiliated Power Marketers National Energy Marketers Association Others - WSPP, ERCOT, ISDA Members

Participants in Developing Standardized Master Wholesale Electric Contract DRAFTING GROUP Constellation Power Source Dynegy, Inc. Schiff Hardin & Waite American Electric Power Entergy Power Marketing Enron North America Jones Day Reavis & Pogue Statoil Energy Leboeuf Lamb Greene & Macrae Edison Electric Institute

Working Group Participants Northern Indiana Public Service Company Commonwealth Edison Company Ameren Energy Williams Company Duke Energy Trading Enserch Energy Services Virginia Power Dynegy/Electric Clearinghouse PPG&E Energy Trading Prebon Yamane Southern Company Energy Marketing PSE&G Pepco Consumers Energy Detroit Edison Reliant Energy DTE Energy Trading Arizona Public Service Consolidated Edison Niagara Mohawk Energy Ontario Power Generation TXU Energy Midamerican Energy Company GPU Energy First Energy Corp Western Resources GPU Service, Inc. New Century Energies New England Electric System Superior Water, Light & Power Rochester Gas & Electric Kansas City Power & Light TECO Energy Inc. Conectiv Illinova Energy Marketing PECO Energy Power Team Minnesota Power Aquila Midland Cogeneration Venture Citizens Power Cinergy Energy Trading Northern States Power Indiana Power & Light Company Steel Manufacturers’ Association Northeast Utilities

Wholesale Electric Contract Standardization Elements of Master Wholesale Electricity Contract Facilitates Trading Binding oral transactions Recording permission Clear confirmation process Confirmation controls as between counterparties

Wholesale Electric Contract Standardization Elements of Master Wholesale Electric Contract (cont.) Delineation of Products Precise and consistent product definitions What does “firm” mean? Delivery points What does “into” mean? Identification of each party’s obligations Responsibility of Seller to the Delivery Point What does “force majeure” mean? Responsibility of Buyer from the Delivery Point When is payment due? Is netting permissible?

Wholesale Electric Contract Standardization Elements of Master Wholesale Electric Contract (cont.) Clear methodology to calculate damages for failure to deliver or receive Clear limitation of liability to actual direct damages

Wholesale Electric Contract Standardization Elements of Master Wholesale Electric Contract (cont.) Effective “Real Time” Credit Terms Adequate assurances/credit thresholds Clearly identified events of default (including creditworthiness events of default) Remedies Early termination Liquidation and net out of all transactions Set off rights

Wholesale Electric Contract Standardization Elements of Master Wholesale Electric Contract (cont.) Other Standardized Terms Billing and Payment (i.e. payment dates and billing disputes) Reps and warranties - authority, enforceability, regulatory representations Choice of Law

Formation of a Trade Phone Phone Seller Sends Confirm Oral Transaction Binding -Product -Writing not required -Price unless stated -Delivery -Time Phone Phone Seller Sends Confirm Buyer Sends Confirm No Seller & Buyer Sends Confirm Confirm No Confirm Sent or Received Buyer Objects Buyer Doesn’t Object Recipient Signs Confirm Seller Doesn’t Object Seller Objects Binding Confirmation

Increasing performance obligations on both parties Products Non-firm Unit firm System firm Firm with liquidated damages Into delivery point Firm with no force majeure Increasing performance obligations on both parties

Liquidated Damages Seller’s Unexcused Failure to Perform Buyer’s Unexcused Failure to Perform Replacement Price - Contract Price if positive Contract Price - Sales Price if positive Contract Price US $ Amount Specified in Transaction Payment Process

Claimed Force Majeure Events Event that prevents performance and cannot be avoided or overcome, not anticipated, not within reasonable control or result of negligence Excludes loss of Buyer’s markets, uneconomic resale, loss of Seller’s supply, ability to sell at higher price Transmission Provider Interruption Contracted For Non-Firm Transmission Product Definition can Alter Affect of Event Contracted for Firm Transmission Unexcused Failure To Perform Force Majeure Event Excusing Performance Interruption due to Force Majeure Other Factors and circumstances establish performance was prevented

Default Remedies Events of default Winding down trading relationships Termination payments Netout Closeout setoff

Other Provisions of Legal Importance Limitation of Remedies/Liability/Damages Taxes — Seller liable before delivery point, buyer liable at and after Representations and warranties duly organized regulatory authorizations corporate authority legally enforceable obligations no pending bankruptcy or materially adverse legal proceeding no event of default or potential event of default has occurred using own business judgment, no reliance on other party forward contract merchant status ability to make or take delivery for an option, party is merchant for business-related purposes