1. By: Ed Flippen, Partner, McGuireWoods LLP, and Lecturer at the University of Virginia School of Law and Duke University School of Law US Electric Deregulation after California, Enron and Worst Blackout in US History

2. Electricity for Industry Retail Prices in US Dollars/Unit Slide 2

3. Deregulation Efforts - Drivers Cost drivers – marginal cost of production versus embedded cost of production – effective technology/gas costs Regional costs versus national averages – “the grass is always greener” Political drivers –Economic development California Northeast –Inertia Slide 3

4. Slide 4

5. Slide 5

6. Slide 6

7. Playing Field (Planned Fossil) PJM Coal - Announced Gas – Under Construction Coal – Under Construction Slide 7

8. Energy Policy Act 2005 Expansion of FERC Jurisdiction 1.Explicit authority for FERC to certify and regulate national electric reliability organization (ERO) to enforce mandatory reliability standards on all transmission owners, operators, and system users (Section 1211) 2.New authority for FERC to regulate siting and construction of electric transmission lines where states fail to allow construction of needed lines in “national interest electric transmission corridors” to be pre-selected by FERC after consulting with states (Section 1221) 3.Extension of open access transmission requirements to formerly non-jurisdictional entities, including co- ops, munis and federal agencies like TVA (Section 1231) Slide 8

9. Energy Policy Act 2005 Contraction of FERC Jurisdiction 1.To address tension between states and FERC over access to grid, assures utilities’ entitlement to use their physical and financial transmission rights to serve “native load” obligations (Section 1233) Slide 9

10. Energy Policy Act 2005 Encouragement 1.In implementing FPA, FERC is required to encourage advanced transmission technologies (Section 1223) 2.DOE to establish and support Advanced Power System Technology Incentive Program (Section 1224) 3.FERC required to establish new rules to provide incentive-based and performance-based rate treatments to encourage investment in the grid (Section 1241) 4.Federal power marketing agencies, such as TVA, are authorized to joint regional transmission organizations (Section 1232) Slide 10