Electricity Market Investment Group

1. Electricity Market Investment Group Presentation to the Ontario Energy Board February 17, 2004

2. Who are we? • A coalition of companies that represent a significant portion of the potential private-sector investment in Ontario’s electricity marketplace • Constellation NewEnergy Canada Inc. • Constellation Power Source, Inc. • Coral Energy Canada Inc. • EPCOR Utilities Inc. • Sempra Energy Trading (Canada) Limited • Sithe Energies, Inc. 2 EMIG Presentation to the Ontario Energy Board

3. EMIG’s Objective • Develop solutions to ensure electricity marketplace sustainable and effective (assumes private-sector investment is a component) • Seek consensus and support from other stakeholders in Ontario’s energy industry for these common positions • Support government to introduce these and other positive changes to restore consumer and private sector confidence in the market 3 EMIG Presentation to the Ontario Energy Board

4. Competition is Good Public Policy “Competition in wholesale electricity markets is the best way to protect the public interest and ensure that electricity consumers pay the lowest price possible for reliable service.” • US Federal Energy Regulatory Commission, Rule on Regional Transmission Organizations, Order No.2000 4 EMIG Presentation to the Ontario Energy Board

5. EMIG’s Proposals: • Provide a workable, incremental approach to implementing key recommendations of the Task Force • Preserves benefits of competition through a viable, liquid wholesale market • Promotes private sector investment with appropriate risk allocation • Protects small consumers while maintaining retail customer choice 5 EMIG Presentation to the Ontario Energy Board

6. Standard Supply Service Objectives • Acknowledge current need for supplier of last resort • Reasonable price stability for low-volume customers • Puts needed demand in the wholesale forward markets • Avoids undue burden on LDCs • Must dovetail with supply ownership diversity targets 6 EMIG Presentation to the Ontario Energy Board

7. Role of Load Serving Entities • LDCs are effectively Load Serving Entities – legislated obligation to serve consumers • Existing obligations can be enhanced to recognize the needs of a developing market • Loads represented by SSS consumers currently served by LDCs need to be available to the wholesale market to facilitate the development of a robust forward market • The aggregation of SSS procurement would have many benefits, including limiting the administrative costs and regulatory burden associated with many small entities procuring SSS 7 EMIG Presentation to the Ontario Energy Board

8. Spot Market Essential to balance need and supply of energy Forward Market Provides for stable and predictable pricing options Promotes investor confidence and gives Province greater access to private capital Spot vs. Forward Market 8 EMIG Presentation to the Ontario Energy Board

9. Standard Supply Service • Eliminate full spot-price pass-through to low-volume consumers • LDCs can choose one of two approaches: • LDC supply portfolio (gas model) • Full requirement outsourcing • LDCs free to act jointly in managing common portfolio or outsourcing solicitation • Periodic review to assess effectiveness 9 EMIG Presentation to the Ontario Energy Board

10. Standard Supply: Portfolio Approach • LDCs manage portfolio directly to supply SSS • OEB process to establish guidelines for standard portfolio • Varying contract terms • Appropriate spot component • No need to limit consumer mobility – spot component allows for management of customer attrition & weather risk • Quarterly price review and true-up • SSS rates should reflect full cost of supply service 10 EMIG Presentation to the Ontario Energy Board

11. Standard Supply Service: Outsourced • LDCs to solicit bids for full requirement service • Third party suppliers provide full requirements at fixed price • No need to limit consumer mobility – third party assumes attrition risk as part of portfolio arrangement • OEB to establish oversight of competitive solicitation process • Provide for broadest possible participation in bidding process by competitive entities 11 EMIG Presentation to the Ontario Energy Board

12. Heritage Power in the SSS Portfolio • Recommend an ‘Auction’ approach for Heritage power • SSS providers and other market participants purchase power strips (contracts for fixed price & term) through auction process • Creates secure revenue stream that can be allocated to consumer or elsewhere • Realizes assets’ value for consumer, but does not distort Wholesale or Retail Market • Addresses market control issue • Enhances liquidity in Wholesale Market 12 EMIG Presentation to the Ontario Energy Board

13. Summary • Establishment of a functioning forward market is the key to protecting consumers and encouraging private investment • An incremental and transitional approach is the soundest way to achieve this market reform • Some additional near-term measures may be necessary • EMIG would be pleased to participate in dialogue to refine details 13 EMIG Presentation to the Ontario Energy Board

14. THANK YOU Questions?