The Illinois Model of Retail Competition Presentation to Massachusetts Electric Restructuring Roundtable in joint session with XENERGY’s 11th Executive Forum May 18, 2001 Arlene A. Juracek Commonwealth Edison Company Vice President, Regulatory & Strategic Services

Supply & Demand in the Competitive Market Today The Illinois Restructured Marketplace Illinois v. California Keys to Competition Promoting Competitive Marketplace

Illinois Restructuring - Legislative Background Electric Service Customer Choice & Rate Relief Act of 1997 A transition enabler--not an end-state design Bundled Rates Frozen through 2004 FACs eliminated Decommissioning costs rolled out One of the Largest Residential Rate Cuts in the Nation 15% for ComEd on August 1, 1998 5% for ComEd on October 1, 2001 Meter Surcharge Imposed to Fund Supplemental Low-Income Assistance, Energy Efficiency and Coal Technology Development Assistance Programs

Illinois Restructuring - Legislative Background (Con’t.) Retail Choice Phased In over 3-year Period Most large customers eligible on October 1, 1999 All non-residential eligible on December 31, 2000 Residential customers eligible on May 1, 2002 Transition Charges Determined through a “Revenues Lost” Approach Market value employed is equal to the value of utility’s opportunity to resell freed up energy Charges may be imposed through 12/31/06, but can be extended to 12/31/08 with ICC approval Utilities Allowed, But Not Required, To Divest Generation and Transmission Assets

Illinois Restructuring - Legislative Background (Con’t.) Mandatory ISO/RTO Membership Act Does Not Address Power Exchange (“PX”) Concept and Does Not Contain Any Restrictions on Power Purchases Customer Safety Nets Provided by the Act Tariffed, cost-based rates available to all customers until service is declared competitive Tariffed, market-based rates available to small commercial and residential customers after service is declared competitive Tariffed rates available to larger customers for at least 3 years after service is declared competitive An unbundled, Power Purchase Option (“PPO”) available to non-residential customers paying transition charges

Illinois Restructuring - Legislative Background (Con’t.) Customer Safety Nets Provided by Utilities Utilities voluntarily offer interim supply service at market-based rates to customers dropped by their alternative suppliers

Illinois Restructuring - ComEd’s Experience All Commercial and Industrial Customers Have Choice Now More than 300,000 customers 12,389 customers have chosen other than bundled service Represents 5,044 MW of demand on a 21,800 MW system 19 million MWh of sales representing about 31% of eligible sales Based on Current Market Prices, Many Transition Charges Are Less Than ½¢ / kWh and Some Customers Will See Charges Drop to Zero Before 12/31/06 Residential Open Access Tariffs in the Works Risks Associated with Being the Provider of Last Resort (“POLR”) Will Increase as More Customers Exercise Choice

How Is Illinois Different from California? ComEd: Retail rates are frozen until 1/1/05, but . . . ComEd has a forward hedged supply with its generation affiliate California utilities were forced to purchase supply on the spot market Illinois: Regional Generation and Transmission ComEd transmission import capability > 4,500 MW Illinois: MAIN regional reserve margin > 18%, plus undedicated IPP generation ComEd: MAIN Reserves > 20% for 2001 California: Virtually no new plants for a decade California: Likely blackouts this summer ComEd’s service territory has seen significant additions of new IPP generation on-line in 2001with much more to come

New Supply - Key to Competition ComEd Actively Invited New IPP Generation Into Its Service Territory Actively encouraging IPP development Posted electrically optimum site locations on the Internet Well articulated interconnection policies Experiments to encourage renewables and DG As a Result, ComEd’s Service Territory Has the Most Active Development of New IPP Generation in the Nation 3,600 MW on-line in 2001 1,100 MW under construction now for 2002 4,100 MW in design for 2002

Siting - Key to Competition The Illinois Commerce Commission, the Illinois EPA, and the Illinois Pollution Control Board Follow a Balanced Approach to Approving New Generation Restructuring in Illinois Is Being Phased in Over Several Years to Allow for Adjustments, Rather than All at Once Nevertheless, Some IPPs Have Encountered Local Siting Difficulties Governor’s Task Force on peaker siting

Competitors - Key to Competition There Are Sixteen Retail Electric Suppliers in Illinois AES NewEnergy, Inc. Enron Energy Services, Inc. Ameren Energy Marketing Co. Illinois Power Co. AmerenCIPS MidAmerican Energy Blackhawk Energy Service, L.L.C. Nicor Energy, L.L.C. CMS Marketing, Services and Trading Co. Peoples Energy Services Corp. Central Illinois Light Co. South Beloit Water Gas & Electric Co. Dynegy Energy Services, Inc. Unicom Energy, Inc. EnerStar Power Corp. WPS Energy Services, Inc All of these Suppliers Are Currently Able, or Certificated to, Provided Service to Nonresidential Customers in ComEd’s Service Territory Nine of the Sixteen Have Limited Their Sales to Customers with a Maximum Demand of 1 MW or Over and/or within Certain Utility Service Territories .

Promoting Competitive Retail Markets Act Locally, But Think Regionally by Encouraging IPP development Promoting and pursuing improvements to the regional transmission highway Fostering the development of vibrant regional wholesale markets Trust the “Invisible Hand” of Competition

Downside of the Competitive Game San Diego L.A.