1 “The National Grid” Presented To The Fall Tri-State Member Services Conference October 10, 2001 Covington, KY Jeff Mitchell ECAR Manager, Transmission Services

2 “The bulk electric system is a term commonly applied to that portion of an electric utility system, which encompasses the electrical generation resources, transmission lines, interconnections with neighboring systems, and associated equipment, generally operated at voltages of 100 kV or higher.”

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12 NERC Regions

13  Formed June 1968  Mission: “Promote Reliability of Bulk Electric Supply in North America”  Voluntary Organization of 10 Regions ( and Their Members)  Develops Planning and Operating Reliability Standards  Uses “Peer Pressure” to Enforce Reliability Rules

14 Since its formation in 1968, the North American Electric Reliability Council (NERC) has operated as a voluntary organization - one dependent on reciprocity, peer pressure, and the mutual self-interest of all those involved. Through this model, NERC has helped to make the North American electric system the most reliable system in the world. Now, the growth of competition and the structural changes taking place in the industry have significantly altered the incentives and responsibilities of market participants to the point that a system of voluntary compliance is simply no longer adequate. NERC is in the process of transforming itself into NAERO - the North American Electric Reliability Organization - whose principal mission will be to develop, implement, and enforce standards for a reliable North American bulk electric system. Under today's system, compliance with NERC standards is mandatory but it is not enforceable. NERC is working with its members to incorporate an enforcement mechanism by way of contracts between NERC's Regional Councils and their members. However, federal legislation is needed in the United States to ensure that NERC and its Regions have clear-cut statutory authority to enforce compliance with reliability standards among all market participants.transforming itself into NAERO NERC's membership is unique. As a not-for-profit corporation, NERC's members are ten Regional Councils. The members of these Regional Councils come from all segments of the electric industry: investor-owned utilities; federal power agencies; rural electric cooperatives; state, municipal and provincial utilities; independent power producers; power marketers; and end-use customers. These entities account for virtually all the electricity supplied in the United States, Canada, and a portion of Baja California Norte, Mexico.

15 ECAR is one of the ten Regional Reliability Councils of the North American Electric Reliability Council (NERC). ECAR was established in 1967 to augment the reliability of its members’ electricity supply systems through coordination of the planning and operation of the members’ generation and transmission facilities. ECAR’s membership includes 29 major electricity suppliers located in nine east-central states serving more than 36 million people. Membership is voluntary, and the current Full Members are those utilities whose generation and transmission have an impact on the reliability of the interconnected electric systems in the Region. Small electric utilities, IPPs, marketers who are active within the Region, and Full Members of other NERC Regions participate as Associate Members. The ECAR organization is comprised of an Executive Board, a Coordination Review Committee, a Market Interface Committee, nine technical advisory panels, and various working groups. Over 250 individuals drawn from all the Region’s members participate in carrying out the Region’s reliability mission. A small permanent staff located in Canton, Ohio provides coordination and technical support of the Region’s activities.ECAR organization

16 P U R P O S E “...TO AUGMENT RELIABILITY OF THE PARTIES’ BULK POWER SUPPLY THROUGH COORDINATION OF THE PARTIES’ PLANNING AND OPERATION OF THEIR GENERATION AND TRANSMISSION FACILITIES.”

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18 4ALLEGHENY POWER 4AMERICAN ELECTRIC POWER 4BIG RIVERS ELECTRIC CORPORATION 4CINERGY CORPORATION 4CONSUMERS ENERGY 4THE DAYTON POWER AND LIGHT COMPANY 4THE DETROIT EDISON COMPANY 4DUQUESNE LIGHT COMPANY 4EAST KENTUCY POWER COOEPRATIVE, INC. 4ENRON SE CORPORATION 4FIRSTENERGY 4HOOSIER ENERGY RURAL ELECTRIC COOPERATIVE, INC. 4INDIANAPOLIS POWER & LIGHT COMPANH 4LGE ENERGY 4NORTHERN INDIANA PUBLIC SERVICE COMPANY 4OHIO VALLEY ELECTRIC CORPORATION 4ORION POWER MIDWEST 4VECTREN ENERGY DELIVERY OF INDIANA TOTAL 18

19 CATEGORY A Joint Action Agencies 6 Included Example – AMPO-OHIO CATEGORY B Marketers and IPPs 20 Included Example – Dynegy CATEGORY C Utilities from Other Regions 3 Included Example - IMO CATEGORY D RTOs and ISOs 1 Included Midwest ISO

20 Like most other entities involved in the electric industry, ECAR is actively addressing the many significant issues related to the restructuring of the industry. Among the issues being addressed by ECAR are: ECAR’s governance and organizational structure; funding mechanism; transformation of ECAR from a Regional Reliability Council of NERC to a Regional Reliability Organization of the coming new NAERO; and implementation of a formal compliance monitoring and enforcement process for ECAR. As a result of activities such as these, eventually ECAR will look and function a lot differently than it does today. In a word, we are in a time of significant change. ECAR is taking the steps necessary to ensure the continued high reliability of its bulk electric systems while accommodating the needs and realities of the competitive marketplace that is evolving from restructuring of the industry.

21 Regional Transmission Organizations (includes Independent System Operators, ISOs) Scheduled to be operational by December 15, 2001, per FERC Order 2000 FERC, in a July 2001 announcement, would prefer to see 4 total in the United States (plus ERCOT) –Northeast –Southeast –West –Midwest Now have 15 in various stages of development, plus 2 new ones – PPRTG (TVA) and WestConnect (Desert Star)

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23  The “Old World”: - Approximately 110 Control Areas Nationwide - Had Control Over All Generation, Transmission, and Distribution Facilities for One Company or Pool  The “New World” After Deregulation: - FERC Would Prefer to Have 5 RTOs Nationwide - RTOs Would Operate the Grid with Many Participants

24  Open Access to Transmission Systems Now  Many New Industry Participants  Separation of Reliability and Merchant Functions  Increased Use of Transmission Systems  Voluntary Compliance or “Peer Pressure” Not Sufficient in a Competitive Industry

25  Federal Legislation: - Senate Bill Passed in 2000 in old Congress - House Bill Passed in 2001 in new Congress  “Plan B” - NERC has signed contracts with 7 of 10 Regions (Remaining 3 to sign by end of 2001) - ECAR Plans to sign similar contracts with its members

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