1. Presented to: “Ethics and Changing Energy Markets: Issues for Engineers, Managers and Regulators” University of Notre Dame October 28, 2004 “Energy Market Restructuring and Its Ethical Challenges” William F. Hederman, Director Office of Market Oversight and Investigations Federal Energy Regulatory Commission WH-10-21-04

2. 2 1999 Order 2000 2001 California MMCP175 1935 FPA: Federal Power Act 1935 PUHCA: Public Utility Holding Company Act 1938 Natural Gas Act 1954 Phillips Decision 1968 NERC established 1970 Clean Air Act 1977 DOE, FERC created 1978 NGPA, PURPA 1985 Maryland People’s Counsel Decision 1985 Order 436 1990 CAAA90 1992 EPACT; Order 636 1996 Order 888 1997 PJM: 1st FERC- approved ISO 2002 1st FERC- approved RTO: MISO Utility Holding Company Abuses 1920s Hoover Dam 1936 1st commercial nuke 1957 Northeast Power Blackout 1965 OPEC Oil Embargo – energy crisis 1973-74 Three Mile Island 1979 Natural gas shortages 1970s “Gas Bubble” 1980s Chernobyl 1986 Last nuclear plant online 1996 NPC forecast: 30 Tcf 1999 California “Bluebook” 1994 California “melt-down” 2000 Enron bankruptcy (12/02) 2001 OMOI established 2002 Blackout 2003 Electricity and Gas Milestones 1977 Clean Air Act Amendments (CAAA) 1920 2004 EVENTS POLICY ACTIONS 2

3. 3

4. 4 The FERC strategy to provide dependable, affordable energy through sustained competitive markets has 3 elements. Effective Rules Infrastructure Rules Enforcement Competitive Markets Just & Reasonable Outcomes Strategic Approach

5. 5 Role of Ethics in Energy Industry Recovery Restore order Restore integrity Restore confidence in the integrity

6. 6 The energy industry, with the Enron legacy, is different.

7. 7 Market Integrity is Everyone’s Business FERC Hotline: 1-888-889-8030