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

2. 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

3. 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

4. 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

5. 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?

6. 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

7. 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

8. 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

9. Wholesale Electric Contract Standardization
Group Progress (Cont.)
Follow- up meetings - March, May, June 1999
Summer 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.

10. 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

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

12. 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

13. 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

14. 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

15. 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?

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

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

24. 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