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Maryland Utilities Request For Proposals for Full Requirements Wholesale Electric Power

Maryland Utilities' Pre-Bid Conference September 24, 2008. 2. Utility Panel. Allegheny PowerBob Reeping

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Maryland Utilities Request For Proposals for Full Requirements Wholesale Electric Power

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    1. Maryland Utilities’ Request For Proposals for Full Requirements Wholesale Electric Power Pre-Bid Conference September 24, 2008 Hyatt Regency Hotel Baltimore, Maryland

    2. Maryland Utilities' Pre-Bid Conference September 24, 2008 2 Utility Panel Allegheny Power Bob Reeping – General Manager, Electric Supply Helen Taylor – Specialist, Electric Supply Baltimore Gas & Electric Bill Pino - Director, Electric Supply and Forecasting Marek Kaczanowski – Principal, Electric Supply Potomac Electric Power Company and Delmarva Power & Light Peter Schaub - General Manager, Energy Supply Compton Ferrier - Manager, Energy Arrangements Joe DeNavas – Lead Analyst, Energy Arrangements

    3. Maryland Utilities' Pre-Bid Conference September 24, 2008 3 Conference Objectives We are here to: Gain a better understanding of the context in which the Request for Proposals (RFPs) are being conducted Inform interested wholesale electric suppliers of the power supply process for Maryland’s investor-owned utilities Review the bid structure within each utility’s RFP Review the Full Requirements Service Agreement (FSA) which will govern the terms and conditions of all transactions resulting from these RFPs Highlight substantive changes to the RFP and FSA from the process conducted last year Answer questions on all of the above topics

    4. Maryland Utilities' Pre-Bid Conference September 24, 2008 4 Conference Objectives We are not here to: Negotiate changes to any of the documents, including the Model RFP, Model FSA and Utility Compliance Plans Discuss rationale of parties’ positions

    5. Maryland Utilities' Pre-Bid Conference September 24, 2008 5 Conference Disclaimer This presentation is not meant to be a fully comprehensive description of every aspect related to all of the Maryland Public Service Commission (PSC) orders and settlements related to the RFP process, but rather a summary of the key features. No statements made in this presentation, or made orally by any utility representative, are intended to be binding in any way. In all cases, the RFP, FSA, settlement documents and Compliance Plans, as approved by the PSC, and all PSC orders, control and supercede all other statements.

    6. Maryland Utilities' Pre-Bid Conference September 24, 2008 6 Summary Agenda Background of Maryland SOS Structure Request for Proposals Utility Bid Plans Full Requirements Service Agreement

    7. Maryland Utilities' Pre-Bid Conference September 24, 2008 7 Background of Maryland PSC SOS Structure

    8. Maryland Utilities' Pre-Bid Conference September 24, 2008 8 Background The PSC has conducted Case Nos. 8908, 9037, 9056 and 9064 to establish how Standard Offer Service will be provided. Currently a new review is also underway in Case No. 9117 Stakeholder process has led to settlements and/or orders of: policy for initial implementation (8908 Phase I) initial implementation details (8908 Phase II) subsequent improvements (through the annual Procurement Improvement Process) to the RFP and FSA documents policy regarding the continuation of Type II SOS from June 1, 2006 to May 31, 2007 (9037) policy regarding the continuation of Type II SOS beginning June 1, 2007 (9056) policy regarding the continuation of Residential and Type I SOS beginning June 1, 2007 (9064) Stakeholders have included customer representatives, public policy representatives, retail suppliers, wholesale suppliers and utilities See utility RFP websites for settlements, orders and procurement improvement documents

    9. Maryland Utilities' Pre-Bid Conference September 24, 2008 9 Background Summary of prevailing changes prescribed in CN 9056 Order Service for Type II load is procured using 3-month contracts, bidding 100% of the SOS load four times per year Type II service volume risk mitigation mechanism was eliminated

    10. Maryland Utilities' Pre-Bid Conference September 24, 2008 10 Background Summary of CN 9064 Order Procurement for Residential and Type I services uses 2-year contracts with bidding approximately 25% of the load twice per year. AP Residential load was excluded from this Order, however through interim bid plan proposals and subsequent letter orders, Allegheny has solicited for contracts of 5-months, 12-months, 17-months and 29-months to date and has approval to continue Residential procurement for an additional 13 bid blocks with terms ranging from 5-months to 29-months in the 2009 procurement cycle. Transition from the legacy contract construct for the Residential and Type I service to the new 2-year laddering construct was implemented by each utility. The customer demarcation of Type I and Type II services was redefined. Legacy Type I customers, small commercial class customers, that have exceeded one of the following thresholds were reclassified as a Type II customer. Metered 30-minute demand of 25kW Energy consumption of 6,000 kWh in any two consecutive winter months Energy consumption of 7,500 kWh in any summer month

    11. Maryland Utilities' Pre-Bid Conference September 24, 2008 11 Background Summary of CN 9064 Order (continued) Implementation of the same Volume Risk Mitigation (VRM) mechanism for Residential and Type I service has been effective since June 1, 2008: Incremental load is defined as load above the base load per bid block plus 5 MW, therefore excluding the load up to the 5 MW threshold; and Decrement of a contract Base Block Size is made if the daily adjusted PLC obligation is lower than 3MW from the Base Block Size. Decrement is made in 3MW steps with multiple steps possible on single day. The utility is responsible for procuring the incremental load in the PJM spot market. An example of VRM mechanism is provided in the FSA portion of this presentation. Increment Load and Decrement, VRM method, are also described in FSA 6.2 and illustrated by the example in FSA Exhibit H.

    12. Maryland Utilities' Pre-Bid Conference September 24, 2008 12 Background Summary of CN 9064 Order (continued) Implementation of the Price Anomaly Threshold (PAT) procedure in the evaluation of Type I service bids became effective in solicitations for contracts with delivery beginning on or after June 1, 2008

    13. Maryland Utilities' Pre-Bid Conference September 24, 2008 13 Background 2009 Procurement Improvement Process (PIP) Information Sharing – two (2) weeks prior to the beginning of the Delivery Period, on each Business Day until the Delivery Period, Buyer shall post on its website the estimated Capacity PLC (FSA 3.3) FSA 4.7 was added to specify PJM Pnodes at which contracted energy delivery takes place for each utility. Renewable Energy Obligation – Renewable Energy Portfolio Standards apply to retail metered sales (FSA Exhibit B). Obligation for year 2011 was added. Sample PJM Bill – Line items updated to reflect the most current ‘Customer Guide To PJM Billing (FSA Exhibit D). Please note that Transmission Enhancement charges may also be included in the credit section of the bill. Both charges and credits for Transmission Enhancement are attributed to a buyer. Reliability Guidelines and Compliance Requirements – Language was updated to reflect NERC Reliability Standards status shift from voluntary guidelines to enforced compliance (FSA 4.8)

    14. Maryland Utilities' Pre-Bid Conference September 24, 2008 14 Background 2009 Procurement Improvement Process (Continued) Language describing parties obligations to support and account for the Load Response Programs was modified to provide more details about the process built by BGE using PJM Load Response settlement and billing structures. In this process used by BGE for the last few years: Buyer must register and Seller shall approve or allow registration to be automatically approved within the PJM Load Response Participation System. Registration takes place in spring before each delivery year and may be modified at any time during delivery year if there is a substantial change in supply or load response. Seller is also obligated to approve impact data of emergency and economic load reduction events. Advantage of using PJM settlement and billing systems for the Load Response settlement: Assures full PJM scrutiny of the Buyer’s Load Response program, Provides for single PJM bill accounting for measured and curtailed loads.

    15. Maryland Utilities' Pre-Bid Conference September 24, 2008 15 2009 Procurement Improvement Process (Continued) At the August 27, 2008 hearing in Case 9064, the Commission accepted Allegheny Power’s proposed residential bid plan as part of the 2009 Standard Offer Service bid plan. When and how the balance of AP’s Residential SOS load will be procured will be dependent on future filings and/or the timing and substance of the Commission’s final order in Case No. 9117. Background

    16. Maryland Utilities' Pre-Bid Conference September 24, 2008 16 Background Important Procurement Qualification Notes In order to be qualified to bid for Type II load Those qualified in the auction for Delivery Year 2008/2009 are still qualified to bid for Type II load with delivery starts on December 1, 2008 and March 1, 2009. If you were not previously qualified you would have to become qualified under the 2008 RFP/FSA documents In order to be qualified to bid for Residential, Type I load and any Type II load delivery period not listed above Suppliers must qualify under the 2009 RFP/FSA documents, even if already qualified under the 2008 RFP/FSA documents

    17. Maryland Utilities' Pre-Bid Conference September 24, 2008 17 2009 Request for Proposals (RFP)

    18. Maryland Utilities' Pre-Bid Conference September 24, 2008 18 Request for Proposals (RFP) Supply Requirement Overview Full requirements service, including energy, capacity, ancillary services, losses and renewables; excluding network transmission Supplier’s obligation will be in terms of a fixed percentage of a utility’s total SOS load for a specific service type Wholesale supply will be at fixed prices, for the Base Load only. The Incremental Load will be supplied by buyer at a variable price (PJM spot market). Base and Incremental loads are defined by Volume Risk Mitigation (VRM) mechanism (FSA 6.2)

    19. Maryland Utilities' Pre-Bid Conference September 24, 2008 19 Request for Proposals Procurement Process Overview Scope of the RFP includes all supply contracts with delivery starting anytime within the June 1, 2009 to May 31, 2010 planning year. Suppliers will have to qualify only once for this multi-procurement process, however if changes occur that materially affect supplier’s financial condition or its status with PJM or FERC, supplier is responsible for notifying utilities Credit ratings PJM membership in good standing FERC authorization for market based rates

    20. Maryland Utilities' Pre-Bid Conference September 24, 2008 20 Request for Proposals Procurement Process Overview (continued) For BGE and PHI Residential and Type I supply, 25% of the load will be procured in October for June 1 delivery and another 25% in April for October delivery For AP, bidding for Residential supply will occur in four procurements – October 2008, January, April, and June 2009, and the contract terms will range from five to twenty-nine months. 100% of the Type II supply will be procured every 3 months with delivery starting December, March, June and September (December and March under the 2008 RFP) A reserve procurement will be scheduled for each solicitation in the event that conforming bids are insufficient to meet supply requirements

    21. Maryland Utilities' Pre-Bid Conference September 24, 2008 21 Request for Proposals Procurement Process Overview (continued) The typical bid week will look like the following Monday: Bids due by 4:30 pm Monday: Bids awarded by 8:30 pm Tuesday: Utility forwards partially executed contracts to supplier Wednesday: Supplier forwards fully executed contracts to utility by 2:00 pm Wednesday: Utility files executed contracts with Commission Thursday: Public hearing for Commission to review results Friday: Commission approval of contracts Bids expire the earlier of rejection notice or midnight of bid award day Retail prices will be posted about two-and-a-half weeks after Commission approves all contracts with common delivery start date

    22. Maryland Utilities' Pre-Bid Conference September 24, 2008 22 Request for Proposals Schedule Overview Oct. 6, 2008 - Eligibility requirements due Oct. 13 – Issue eligibility status Oct. 20 – Procurement for Type II December 2008 contracts, Residential, and Type I June 2009 contracts Jan 12, 2009 - Procurement for Type II March 2009 contracts and AP Residential contracts Apr 20, 2009 - Procurement for Type II June 2009 contracts, Residential, & Type I October 2009 contracts Jun 8, 2009 - Procurement for Type II September 2009 contracts and AP Residential contracts Oct 19, 2009 - Procurement for Type II December 2009 contracts Jan 11, 2010 - Procurement for Type II March 2010 contracts

    23. Maryland Utilities' Pre-Bid Conference September 24, 2008 23 Request for Proposals Supplier Eligibility Criteria Submittal of the Expression of Interest Form Execution of the Confidentiality Agreement Submittal of PJM qualification and FERC authorization Qualified market buyer and seller in good standing with PJM FERC authorization to make sales of energy, capacity and ancillary services at market based rates Submittal of Credit Application & related financial information For supplier or financial guarantor Unsecured credit requires a rating of unsecured senior long-term debt by S&P, Moody’s or Fitch Bankruptcy status will not disqualify an applicant from bidding; however, FSA establishes additional requirements pursuant to PSC Order 79452 Submittal of Binding Bid Agreement

    24. Maryland Utilities' Pre-Bid Conference September 24, 2008 24 Request for Proposals Supplier Eligibility Criteria (continued) Suppliers not receiving eligibility status for the first procurement on October 20 may participate in subsequent procurements if they cure any deficiency in their eligibility no later than two weeks prior to the due date of proposals for such procurement New applicants entering the procurement process after the initial eligibility deadline must submit eligibility documents at least two weeks prior to the due date of proposals for the procurement in which they intend to participate

    25. Maryland Utilities' Pre-Bid Conference September 24, 2008 25 Request for Proposals Bid Assurance Collateral $300,000 per bid block is required from the supplier with each bid Form of collateral must be either cash or Letter of Credit (LC) A Bid Assurance LC form acceptable to the utilities has been provided as Appendix 6 in the RFP Bid assurance collateral will be returned to the supplier upon execution of contract(s) or rejection of bid(s) Bid assurance collateral will be forfeited in the event that the supplier does not execute contract(s) on its awarded bid(s); and such supplier will be ineligible to participate in subsequent procurements pursuant to this RFP

    26. Maryland Utilities' Pre-Bid Conference September 24, 2008 26 Request for Proposals Alternate Forms of Bid Assurance Letter of Credit Suppliers that wish to propose an alternative Bid Assurance LC form or some other form of security may do so by the October 6 eligibility requirements due date Acceptance of such alternative forms of collateral is at the utility’s discretion, and will be communicated to the supplier by the October 13 eligibility notification due date

    27. Maryland Utilities' Pre-Bid Conference September 24, 2008 27 Request for Proposals Bid Form Spreadsheets All bids must be submitted using the appropriate Bid Form Spreadsheet Bid Form Spreadsheets are unique for: each utility, each service type, each contract term, and each procurement The format of a bid is specified within each Bid Form Spreadsheet

    28. Maryland Utilities' Pre-Bid Conference September 24, 2008 28 Request for Proposals Bid Form Spreadsheets (continued) Contained within the Bid Form Spreadsheet, and fully transparent to the supplier, is the transformation of the supplier’s price offer into a “Discounted Average Term Price” to be used as the only parameter to rank bids All of the fields within the Bid Form Spreadsheet that require the supplier’s input must be completed in order for the bid to be conforming; e.g., if it is the supplier’s intent to submit a zero price for any component of the pricing structure, the supplier must enter the numeric value of zero, rather than leaving the field blank

    29. Maryland Utilities' Pre-Bid Conference September 24, 2008 29 Bid Form Spreadsheet Sample

    30. Maryland Utilities' Pre-Bid Conference September 24, 2008 30 Request for Proposals Bid Validation Conforming Bids Must Be: Accompanied by the appropriate amount of bid assurance collateral Submitted using the Bid Form Spreadsheet(s), completed in full and without modification Submitted by the due date and due time Submitted by an eligible supplier

    31. Maryland Utilities' Pre-Bid Conference September 24, 2008 31 Request for Proposals Evaluation of Bids Discounted Average Term Price calculated on each Bid Form Spreadsheet will be the single parameter used to compare all offers within the same service type and the same contract term Winning suppliers will be paid their offer prices, not the Discounted Average Term Price Bids to supply Residential and Type I load will be subject to the Price Anomaly Threshold Procedure

    32. Maryland Utilities' Pre-Bid Conference September 24, 2008 32 Request for Proposals Price Anomaly Procedure On the bid due date in each procurement, a Price Anomaly Threshold (PAT) will be developed for each utility soliciting for Residential and/or Type I supply. Each Residential and Type I service type and each contract term will have a PAT developed. The PATs will be developed by the PSC’s consultant, with input from the PSC Staff The suppliers will not be informed of the PATs Each PAT will be compared to the load weighted average price of all of the winning bids applicable to that PAT, i.e., the PAT will not be used as a threshold for individual bids

    33. Maryland Utilities' Pre-Bid Conference September 24, 2008 33 Request for Proposals Price Anomaly Procedure (continued) If the average price of the portfolio of winning bids exceeds the PAT, the highest priced bids will be removed until the average price is at or less than the PAT If bids are rejected due to the application of a PAT, such deficiency in supply will be bid in either the next procurement (if available) or in the reserve procurement A supplier will not be notified that its bid was rejected due to a PAT, but simply that its bid was rejected

    34. Maryland Utilities' Pre-Bid Conference September 24, 2008 34 Utility Bid Plans

    35. Maryland Utilities' Pre-Bid Conference September 24, 2008 35 Utility Bid Plans In total, Maryland utilities are requesting electric supply proposals totaling approximately 5,009 MW of Standard Offer Service load AP 918 www.alleghenypower.com/rfp BGE 2,566 rfp.bge.com Delmarva 353 www.delmarva.com/mdrfp Pepco 1,172 www.pepco.com/mdrfp Total 5,009 MW The load figures will be updated prior to the bid due dates

    36. Maryland Utilities' Pre-Bid Conference September 24, 2008 36 AP Bid Plan AP’s SOS Load Overview Preliminary Capacity PLC, MW Service Type Eligible SOS Type II Non-Residential SOS 350 166 PH (< 600 kW PLC)C, C-A, CSH, G ( = 25 kW) Residential 752 752

    37. Maryland Utilities' Pre-Bid Conference September 24, 2008 37 AP Bid Plan Type II Non-Residential SOS PH (< 600 kW PLC) C, C-A, CSH, G (= 25 kW) 3-Month 3-Month 3-Month 3-Month 3-Month 3-Month Delivery Start Date 1-Dec-08 1-Mar-09 1-Jun-09 1-Sep-09 1-Dec-09 1-Mar-10 Approximate Total PLC, MW 166 166 166 166 166 166 *Block Size, % 33.33% 33.33% 33.33% 33.33% 33.33% 33.33% Approximate Block Size, MW 55.3 55.3 55.3 55.3 55.3 55.3 Total # of Blocks 3 3 3 3 3 3 Oct 20, 2008 Procurement** 3 Jan 12, 2009 Procurement** 3 Apr 20, 2009 Procurement 3 Jun 8, 2009 Procurement 3 Oct 19, 2009 Procurement 3 Jan 11, 2010 Procurement 3 *Two (2) bid blocks will have a weighting of 33.33%, and one (1) bid block will have a weighting of 33.34%. The one (1) bid block with a weighting of 33.34% will be awarded first. ** Type II Dec 2008-Feb 2009 contracts and Mar 2009-May 2009 contracts will be governed by the 2008 Model FSA.

    38. Maryland Utilities' Pre-Bid Conference September 24, 2008 38 AP Bid Plan Allegheny Power Residential Load Commission August 27, 2008 letter order Directs Allegheny to procure a total of thirteen blocks of Residential Load during the 2009 procurement cycle as reflected in the chart below . Contract terms range from 5- to 29-months Bid Date Blocks to be Bid Contract Duration October 20th 1 5- month block 1/1/09 - 5/31/09 2 29- month blocks 1/1/09 - 5/31/11 2 12- month blocks 6/1/09 - 5/31/10 January 12th 1 12- month block 6/1/10 - 5/31/11 2 12- month blocks 6/1/09 - 5/31/10 1 24- month block 6/1/10 - 5/31/12 April 20th 1 12 -month block 6/1/10 - 5/31/11 1 24- month block 6/1/10 - 5/31/12 June 8th 1 12- month block 6/1/10 - 5/31/11 1 24- month block 6/1/10 - 5/31/12 When and how the balance of AP’s Residential SOS load will be procured will be dependent on future filings and/or the timing and substance of the Commission’s final order in Case No. 9117.

    39. Maryland Utilities' Pre-Bid Conference September 24, 2008 39 AP Bid Plan

    40. Maryland Utilities' Pre-Bid Conference September 24, 2008 40 AP Website Update Allegheny has expanded its website www.alleghenypower.com/rfp Three separate links on the main webpage Link “2008 Procurement” Type II Dec 2008-Feb 2009 and Mar 2009-May 2009 contracts will be governed by the 2008 RFP and Model FSA Link “2009 Procurement” Residential and Type II (June 2009-August 2009 and Sept-Nov 2009) contracts will be governed by 2009 RFP and Model FSA Link “Previous Solicitation Results” This site will contain the posted results from previous solicitations pursuant to Section 7-510(c)(4)(ii)(5) of the Maryland Public Utilities Code.

    41. Maryland Utilities' Pre-Bid Conference September 24, 2008 41 BGE Bid Plan BGE’s SOS Load Overview Preliminary Capacity PLC, MW Service Type Eligible SOS RFP Residential 3,510 3,412 1,706 Type I 345 286 143 Type II 1,851 717 717

    42. Maryland Utilities' Pre-Bid Conference September 24, 2008 42 BGE Bid Plan

    43. Maryland Utilities' Pre-Bid Conference September 24, 2008 43 BGE Bid Plan

    44. Maryland Utilities' Pre-Bid Conference September 24, 2008 44 Delmarva Bid Plan Delmarva’s SOS Load Overview Preliminary Capacity PLC, MW Service Type Eligible SOS RFP Residential 535 529 265 Type I 65 50 25 Type II1 173 63 63 Type II2 173 63 63 1Type II contract periods beginning December 1, 2008 and March 1, 2009 2Type II contract periods beginning June 1, 2009 and September 1, 2009

    45. Maryland Utilities' Pre-Bid Conference September 24, 2008 45 Delmarva Bid Plan

    46. Maryland Utilities' Pre-Bid Conference September 24, 2008 46 Delmarva Bid Plan

    47. Maryland Utilities' Pre-Bid Conference September 24, 2008 47 PHI Website

    48. Maryland Utilities' Pre-Bid Conference September 24, 2008 48 Pepco Bid Plan Pepco’s SOS Load Overview Preliminary Capacity PLC, MW Service Type Eligible SOS RFP Residential 1,658 1,540 770 Type I 123 90 45 Type II1 997 357 357 Type II2 997 357 357 1Type II contract periods beginning December 1, 2008 and March 1, 2009 2Type II contract periods beginning June 1, 2009 and September 1, 2009

    49. Maryland Utilities' Pre-Bid Conference September 24, 2008 49 Pepco Bid Plan

    50. Maryland Utilities' Pre-Bid Conference September 24, 2008 50 Pepco Bid Plan

    51. Maryland Utilities' Pre-Bid Conference September 24, 2008 51 PHI Website

    52. Maryland Utilities' Pre-Bid Conference September 24, 2008 52 Full Requirements Service Agreement (FSA)

    53. Maryland Utilities' Pre-Bid Conference September 24, 2008 53 Full Requirements Service Agreement (FSA) Master FSA over Multiple Transactions Full Requirements Service Obligations PJM Declaration of Authority Scheduling & Forecasting Determination of Delivered Quantities Risk Mitigation Measures Billing & Settlement Performance Assurance Default & Termination

    54. Maryland Utilities' Pre-Bid Conference September 24, 2008 54 Full Requirements Service Agreement Transaction Confirmation Master FSA will be executed under which multiple transactions will be executed Each awarded bid for a specific service type and contract term will be a transaction A transaction confirmation will specify, among other details, the following: service type delivery period number of bid blocks percentage of load equivalent to each bid block base PLC per bid block to be used in determining increment load prices monthly on-peak and off-peak energy quantities to be used in determining the MtM exposure

    55. Maryland Utilities' Pre-Bid Conference September 24, 2008 55 Sample Transaction Confirmation

    56. Maryland Utilities' Pre-Bid Conference September 24, 2008 56 Full Requirements Service Agreement Full Requirements Service Obligations Seller must provide all services (other than network transmission) to meet its share of the load obligation at the wholesale level, as accounted for by PJM. Seller’s obligations include, but are not limited to the following: Energy Capacity Transmission other than network transmission Ancillary services Renewable energy resource requirements Transmission & distribution energy losses Congestion management costs New PJM charges, other than charges assessed to network Transmission customer

    57. Maryland Utilities' Pre-Bid Conference September 24, 2008 57 Full Requirements Service Agreement Full Requirements Service Obligations (continued) Buyer’s obligations include the following: Accept service from Seller for resale to retail customers, i.e., Buyer is the Load Serving Entity Network integration transmission service Future PJM charges assessed to network transmission customers Distribution service

    58. Maryland Utilities' Pre-Bid Conference September 24, 2008 58 Full Requirements Service Agreement PJM Declaration of Authority An agreement between Buyer and Seller for the benefit of PJM to appropriately account for the respective obligations contained within the FSA Required by PJM Executed by both Buyer and Seller at the time of FSA execution Copy of Declaration has been provided as Exhibit I in the FSA

    59. Maryland Utilities' Pre-Bid Conference September 24, 2008 59 Full Requirements Service Agreement

    60. Maryland Utilities' Pre-Bid Conference September 24, 2008 60 PJM Invoice Sample (continued)

    61. Maryland Utilities' Pre-Bid Conference September 24, 2008 61 Full Requirements Service Agreement Scheduling & Forecasting Utilities’ load settlement processes will establish the daily load obligations for Sellers and post such obligations to the Sellers’ PJM accounts Seller is responsible for all scheduling with PJM to meet the obligation Seller is responsible for monthly settlements with PJM pertaining to their obligations Buyer will provide to the Seller on a reasonable efforts basis: On each business day after execution, Buyer’s estimation of Seller’s capacity PLC for the seventh following day for each service type On each business day of the delivery period, Buyer’s estimation of Seller’s energy and capacity obligation as is provided to PJM for settlement purposes for each service type, transaction, voltage level and customer class.

    62. Maryland Utilities' Pre-Bid Conference September 24, 2008 62 Full Requirements Service Agreement Congestion Management Seller is responsible for all congestion management costs Buyer will transfer to Seller its congestion revenue rights in proportion to the Seller’s share of the load, i.e., revenue rights will follow the load The nominations for congestion revenue rights for the upcoming PJM planning year will be made by the entity recognized by PJM as having the right to make such nominations, i.e., the supplier who has the load obligation effective June 1, the first day of the planning period

    63. Maryland Utilities' Pre-Bid Conference September 24, 2008 63 Full Requirements Service Agreement Buyer’s Load Response Programs Buyer will manage all aspects of its programs Buyer will retain all benefits associated with its programs In real-time market, Seller’s load obligation will reflect the load reduction due to activation of programs

    64. Maryland Utilities' Pre-Bid Conference September 24, 2008 64 Full Requirements Service Agreement Renewable Energy Obligation Seller’s obligation effective January 1, 2008 Renewable Sources _______________________ Solar Component Tier 1 of Tier 1 Tier 2 2008 2.005% 0.005% 2.5% 2009 2.010% 0.010% 2.5% 2010 3.025% 0.025% 2.5% 2011 3.040% 0.040% 2.5%

    65. Maryland Utilities' Pre-Bid Conference September 24, 2008 65 Full Requirements Service Agreement Determination of Delivered Quantities Delivered quantities on an energy (MWh) basis will be as reported by Buyer to PJM for Seller’s obligation, reduced for losses to reflect load at the retail meter Includes unaccounted-for-energy In accordance with PJM’s initial (day-after) settlement, and 60-day (AP 90-day) settlement

    66. Maryland Utilities' Pre-Bid Conference September 24, 2008 66 Full Requirements Service Agreement Risk Mitigation Measures for Sellers Elimination of Network Transmission obligation Increment/Decrement provisions for mitigation of volume risk due to customer migration New Renewable Resource Requirements If requirements are changed by law, Buyer will pay Seller’s incremental cost, subject to PSC approval, for the balance of the contract year in which the change took place In subsequent years of a multi-year transaction, seller is not obligated, but may continue to provide any incremental renewable requirement Subsequent RFPs will pick up the new requirements

    67. Maryland Utilities' Pre-Bid Conference September 24, 2008 67 Full Requirements Service Agreement Base Load and Increment Load An “increment/decrement” concept to mitigate volume risk associated with customer migration for Type I and Residential service: The Base Bid Block Size is established on the first day of power flow Thresholds for the difference between the daily block size and Base Bid Block Size: inc = +5MW, dec = -3MW Upon trigger of an inc, inc load = load above Base Bid Block Size + 5MW Upon trigger of a dec, Base Bid Block Size is ratcheted down in increments of 3MW with more then one reduction per day allowed. Buyer has the increment load obligation

    68. Maryland Utilities' Pre-Bid Conference September 24, 2008 68 Full Requirements Service Agreement

    69. Maryland Utilities' Pre-Bid Conference September 24, 2008 69 Full Requirements Service Agreement Billing and Settlement Buyer will develop and deliver the invoice to the Seller on or before the 6th business day of each month for base load quantities delivered in the previous month Buyer will pay Seller by electronic funds transfer by 12:00 p.m. on the day PJM settles Seller is responsible for its settlements with PJM for base load obligations only Buyer is responsible for settlements with PJM for incremental load obligations

    70. Maryland Utilities' Pre-Bid Conference September 24, 2008 70 Full Requirements Service Agreement Performance Assurance Security against Seller’s default Nominally represents Buyer’s exposure above Seller’s unsecured credit limit Formulaic and transparent methodology for determining Buyer’s exposure A Buyer’s call on performance assurance cannot be disputed by Seller Forms of performance assurance are cash and LC Calculation done daily: Each transaction with a Seller is marked to market & the exposures are summed If Buyer is exposed, the exposure is reduced by the value of the amount delivered but not yet paid If Buyer is still exposed the exposure is compared to the Seller’s unsecured credit amount If the exposure exceeds the unsecured credit amount by at least $500k, a call is made on performance assurance

    71. Maryland Utilities' Pre-Bid Conference September 24, 2008 71 Full Requirements Service Agreement Performance Assurance (continued) The MtM exposure will equal the change in the PJM western hub forward energy prices relative to initial forward prices for each forward month times the estimated forward monthly energy quantities Estimated forward energy quantities will be derived from the quantities stated on each Transaction Confirmation associated with 50 MWs of PLC. The quantities will be scaled for the current size of each contract. The forward prices used at the western hub will be the on-peak prices The forward off-peak prices will be derived using an historic ratio of the day-ahead off-peak and on-peak prices An independent pricing agent will be retained by the Buyers to provide the forward prices

    72. Maryland Utilities' Pre-Bid Conference September 24, 2008 72 Full Requirements Service Agreement Unsecured Credit Initially determined from financial data provided by supplier in the pre-bid qualification process Reviewed daily for changes in credit rating Based on Seller’s financial parameters, or Seller’s guarantor’s financial parameters Form of guaranty is non-negotiable and can be found as Exhibit F in the FSA Seller’s unsecured credit will be the lower of: Seller’s (or Seller’s guarantor) unsecured credit cap Seller’s (or Seller’s guarantor) relevant tangible net worth Guaranty amount from Seller’s guarantor

    73. Maryland Utilities' Pre-Bid Conference September 24, 2008 73 Full Requirements Service Agreement Unsecured Credit (continued) Seller’s unsecured credit cap will based on seller’s lowest credit rating

    74. Maryland Utilities' Pre-Bid Conference September 24, 2008 74 Foreign Entities A Seller or Seller’s guarantor that have not been incorporated in the United States or District of Columbia to have a predefined way to participate in the Maryland Auction See section 14.6 for details

    75. Maryland Utilities' Pre-Bid Conference September 24, 2008 75 Full Requirements Service Agreement Default & Termination Default conditions provided in FSA Section 12.1 Remedies If Seller defaults but continues to perform, Buyer may create a special remedy subject to PSC approval Non-defaulting party may suspend performance up to 10 days Non-defaulting party may terminate by setting an Early Termination Date In the event of an early termination of a FSA, all other wholesale suppliers will have the option to take a full or partial pro-rata share of the terminated contract without change to pricing, terms and conditions

    76. Maryland Utilities' Pre-Bid Conference September 24, 2008 76 Full Requirements Service Agreement Settlement Upon Early Termination For any part of a terminated contract that is not covered by suppliers exercising their step-up rights, a termination payment will be determined Non-defaulting party will determine default damages and settlement amount in a commercially reasonable manner Default damages include costs from event of default up to the termination date Settlement amount includes costs at and beyond the termination date Option provided to Seller regarding determination of settlement amount to accommodate either mark-to-market accounting or accrual accounting If Buyer is the non-defaulting party, Buyer will conduct a competitive solicitation to replace the terminated contract under identical price, terms and conditions Until the delivery period starts with the new seller, Buyer will procure from the PJM spot market The net spot market costs, along with the cost or proceeds from the solicitation, will define the settlement amount

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