MICHIGAN’S RETAIL ACCESS PROGRAMS Not the last Frontier A presentation to The National Energy Marketers Association

History of Electric Restructuring in Michigan Pilot programs began in 1994 Over 300 MW of load in pilot programs Lessons from pilots carried over to permanent programs Act 141 of 2000 provided full customer choice on January 1, 2002

2000 PA 141 Restructure/not deregulation –“Choice for those that want it; Protection for those that don’t.” –Learned lessons from telecom (1995); Grow market before deregulation. Make PSC effective “traffic cop.” Lower rates –Residential (5% reduction for CE and DTE 6/5/00) –Business (5% reduction for DTE 4/14/01) –Increases prohibited for CE and DTE before 1/1/04 for Large Business 1/1/05 for Small Business 1/1/06 for Residential

2000 PA 141, continued Increase Generation/Transmission capability. Attract Competitors. Promote new infrastructure development. Increase Transmission capability by 2,000 MW by July, 2002 Financially sound IOUs Creation of Low Income/Energy Efficiency Fund

Power Plants Under Construction or Built since 2000 Mirant Zeeland LLC830 MW $ 400 million Kinder Morgan550 MW $ 350 million Dynegy 680 MW $ 150 million PG&E Covert1170 MW $ 500 million Bay Windpower 4.5 MW $ 5 million Total 3230 MW $ 1,405 million

PSC orders have solidified ROA program PSC established “zero” transition charge Securitization Offset Rate Reduction Equalization Allows new suppliers to compete Offset for Securitzation and Tax Charges and Rate Reduction Equalization

Customers Being Served

Customers Enrolled

Progress Continues CAEM’s “RED Index” currently identifies Michigan as having the 6 th most progressive retail competition program in the U.S. The RED Index noted Michigan’s program has had the 2 nd most dramatic improvement in the Index scoring in 2001 The first four months of 2002 has seen 90 percent growth in ROA participation, from 465 mw at the first of the year to 885 mw by the end of April

Liquidity is Key to Regional Wholesale Electric Market An open, independent and reliable transmission system is crucial to market development FERC’s RTO and regional market policy initiatives support Michigan’s ROA market by developing a robust wholesale electric market in Midwest Rates, reliability and transmission planning must be addressed at the regional level FERC’s Standardized Market Design initiative seeks to develop consistent wholesale markets to promote seamless trading

Liquidity is Key (cont.) MISO-PJM-SPP single market design forum represents an ambitious, voluntary and cooperative effort to create a mega- market throughout the Midwest and portions of the East

Funding Transmission Upgrades and Expansion Must be Sensible FERC and RTO’s should have flexibility to decide transmission cost allocation on a regional basis to balance standardization with local needs The “Landrieu Amendment” would limit new transmission cost allocation to “Participant Funding” “Participant Funding” requirements stifles financing flexibility and may increase risk of market power undermining competition

Gas Choice Programs No statutory basis for PSC programs Tariff provisions provided for registration by alternate gas suppliers Alternate gas suppliers agreed, pursuant to utility tariff, to abide by code of conduct Allegations of misrepresentations and fraud have surfaced in recent months, causing primary alternate supplier to cease enrollments