Competitive Retail Electricity Markets in Areas Outside of Regional Transmission Organizations Vanus J. Priestley Philip R. O’Connor. Ph.D. Constellation NewEnergy, Inc. April 2, 2004

Constellation NewEnergy Competes in Virtually Every Competitive Retail Market CNE Provides over 8000 MW of Electricity and 250 BCF of Natural Gas to Over 8000 Commercial and Industrial Customers in the following States/Regions California Connecticut Delaware Washington D.C. Illinois Maine Massachusetts Michigan New Hampshire New Jersey New York Ohio Ontario Oregon Pennsylvania Rhode Island Texas Virginia

Competitive Retail Markets and Regional Transmission Organizations PJM Pennsylvania New Jersey Maryland Rhode Island Virginia Delaware D.C. NYISO New York NE RTO/NEPOOL Massachusetts Maine Vermont New Hampshire CAL-ISO California RTO West Oregon OIMO Ontario ERCOT Texas No RTO/ISO (Moving toward MISO/PJM West) Illinois Ohio Michigan

Regional Transmission Organizations are Beneficial, But Not Compulsory RTO’s Eliminate Many Problems That Occur in Competitive Retail Markets RTO’s are Independent, without a financial stake in market outcomes RTO’s improve the competitive wholesale environment Competitive Retail Markets Can Work Without an RTO No need to wait for the RTO When RTOs are implemented, the transition can be Seamless

Retail Competition in El Paso Market Size is Sufficient Over 200,000 Residential Customers Over 20,000 Commercial and Industrial Customers Level of Wholesale Market Competition El Paso Area can attract more Wholesale Competitors Capacity Auctions will create liquidity

Open Access Transmission Tariffs Need Improved Flexibility Conventional OATTs are fine for Bulk, Long-term Wholesale Transactions Competitive Retail Markets require allowances for Smaller Loads, and Shorter Terms and Rapid Transaction Response Time REPs need the ability to procure the discreet components necessary to serve retail load in small increments and for short time periods

OATT Problems Transmission Procurement Process Ancillary Services Must be more flexible in terms and procurement with a quicker close time for transactions Facilities Impact Studies can normally be waived Ancillary Services Market Based Pricing is optimal but not required Balancing Energy Bands need more flexibility Contracts Must be able to Substitute for Units Energy Contracts must qualify as Network Resources

NON-RTO OPEN ACCESS IN NORTHERN ILLINOIS ComEd, the utility serving Chicago and Northern Illinois will soon enter PJM. Since October 1999 retail open access has operated without problems on the basis of ComEd’s FERC OATT. Important OATT terms were agreed in1999 to accommodate retail access The ComEd approach is replicable.

ANCILLARY SERVICES MEET RETAIL ACCESS NEEDS Ancillary Service Prices set on basis of cost as a regulated monopoly service. Energy Imbalance service charges are set to cover costs as well as adders to encourage good faith scheduling. Ancillary services revenue part of “wires” utility revenue requirement. Retail providers billed monthly.

ENERGY IMBALANCE CHARGES: FAIR, NOT PUNITIVE Energy Imbalance Charge is the price paid by ComEd in that hour. 100% assessed for MWh imbalances less/equal to +/- 2% (2MW min). Non-utility power providers pooled to set net hourly imbalance >100 MW subject to 10% adder to EIC for provider on “wrong” side. 25% adder to EIC for excess MWh if 25% out of balance for 10% or more hours. Providers can trade imbalances if they wish.

POWER CONTRACTS: CAPACITY AND FIRM LD CONTRACTS With FERC concurrence ComEd has accepted Firm Liquidated Damages contracts as satisfying the need for capacity backed provider power supplies. Since Oct. 1999 start of retail access there have been no reliability problems. Now making the transition to RTO capacity requirements.

IN COMED NETWORK TRANSMISSION IS EASY TO GET Speical “Retail” category on ComEd OASIS site for service queue. ComEd NITS allows both designated and undesignated resources. Firm LD counts as designating a system network resource No transmission studies are required. FTRs and capacity will be new features with PJM integration of ComEd.