Met-Ed and Penelec Default Service Program January ... - FirstEnergy

Met-Ed and PenelecDefault Service ProgramJanuary 1, 2011 to May 31, 2013Dean Stathis, Director Regulated Commodity Sourcing,FirstEnergyChantale LaCasse, Senior Vice President, NERAAmparo Nieto, Senior Consultant, NERAKush Patel, Consultant, NERA12 November 2009Philadelphia, PA

Background• Met-Ed and Penelec filed their Default Service Program onFebruary 20, 2009 to procure supply for their customersafter the expiration of the rate caps on January 1, 2011• A default service customer is a customer that does notchoose service from an Electric Generation Supplier (“EGS”)• The Pennsylvania Public Utility Commission (“Commission”)approved the Petition for Settlement on November 6, 2009• The Order is found here:http://www.puc.state.pa.us/general/search.aspxUnder Docket Nos. P-2009-2093053 and P-2009-2093054and Public Meeting Date 11/6/09Met-Ed and Penelec Default Service Program2

Scope of Presentation• This Bidder Information Session is for the Auctionsfor purchases of full-requirements service• There are two parallel procurement processes thatare part of the Default Service Program but thatwill not be discussed today:• RFP for solar renewable credits (10 years)• RFPs for block power supply products• Part of NERA’s role is to serve as the interfacewith bidders• Please direct all questions relating to the Auctions toNERA and not to FirstEnergy personnelMet-Ed and Penelec Default Service Program3

Agenda• Overview of Met-Ed and Penelec’s Default Service Program• Overview of the January 2010 Solicitation• Supplier’s role and standard contract• Bidding in the Auction• Proposal submission processMet-Ed and Penelec Default Service Program4

Disclaimer• Any statements describing or referring to documents andagreements are summaries only, and are qualified in their entiretyby reference to such documents and agreements• The governing documents are:• Joint Petition for Settlement in the Joint Petition of MetropolitanEdison Company and Pennsylvania Electric Company for Approval oftheir Default Service Programs, Docket Nos. P-2009-2093053 and P-2009-2093054, August 12, 2009• Opinion and Order, Pennsylvania Public Utility Commission, DocketNos. P-2009-2093053 and P-2009-2093054, November 6, 2009• Metropolitan Edison Company/Pennsylvania Electric Company DefaultService Program Fixed Auction Process and Rules 2011-2013• Metropolitan Edison Company/Pennsylvania Electric Company DefaultService Program Hourly Auction Process and Rules 2011-2013• Met-Ed and Penelec Default Service Supplier Master Agreements forthe Residential, Commercial, and Industrial Customer ClassesMet-Ed and Penelec Default Service Program5

Overview of the ProgramMet-Ed and Penelec Default Service Program6

The Met-Ed and Penelec DefaultService Program is Comprehensive• Covers all classes of customers for each Company• Residential or R Class• Commercial or C Class (up to 400 kW)• Industrial or LI Class (above 400 kW)• Starts when generation rate caps expire on January 1,2011 and ends on May 31, 2013• Specifies three bidding processes for different portions ofthe supply• Full requirements products through two descending clockauctionsMet-Ed and Penelec Default Service Program7

What Does Full Requirements Mean?• The requirements for a portion of Default ServiceSupply for a Class including energy, capacity, ancillaryservices, applicable Transmission Services, any otherservice as required by PJM• Full requirements excludes Network IntegrationTransmission Service (“NITS”), which is paid by theCompany and passed through to customers• The Supplier will be expected to be a PJM LoadServing Entity (“LSE”) by the start of the supply periodMet-Ed and Penelec Default Service Program8

Two Different AuctionsFor Two Different Price Plans• Fixed Auction is for a fixed price plan• Industrial opt-in: payments and rates based on the final auction pricefor each MWh served• Residential:• Stub period: payments and rates based on: 1) the final auction price for 95%; and2) the real time PJM price and a fixed $9/MWh adder for 5% of each MWh served• Starting June 1, 2011: 100% final auction price• Commercial: payments and rates based on: 1) the final auction price for90% of each MWh served; and 2) the real time PJM price and a fixed$9/MWh adder for 10% of each MWh served• Hourly Auction is for service priced to the hourly market• Industrial: payments and rates based on the final auction price, thereal-time PJM price, and a fixed $2/MWh adder (for ancillary services)Met-Ed and Penelec Default Service Program9

What Portion of Supply Is At Auction?• 100% in the stub period from January 1, 2011 to May 31, 2011• For the remainder of the Program term:Residential Class25% block energy through RFP with Company balancing andother components bought on PJM markets75% full requirements supply through the Fixed AuctionCommercial Class100% full requirements supply through the Fixed AuctionMet-Ed and Penelec Default Service Program10

Suppliers Get Benefit of Solar RFP• Industrial Class straddles the two AuctionsIndustrial ClassUp to 50 MW supply through the Fixed Auction tocustomers that affirmatively opt-inFull requirements supply for the remainder through theHourly Auction• The Companies will conduct a separate RFP for SolarPhotovoltaic Alternative Energy Credits (“SPAECs”) sufficient tomeet the projected requirements for the Program term• Suppliers would be provided SPAECs sufficient to cover theirsolar requirementsMet-Ed and Penelec Default Service Program11

How Many Solicitations? And When?• Four solicitations are planned every year in January,March, May, and October, allowing price diversity in thesupply base• All solicitations have a Fixed Auction while the HourlyAuction is held once a year2010 Fixed Hourly 2011 Fixed Hourly 2012 Fixed HourlyJan Jan Jan Mar Mar Mar May May May Oct * Oct Oct *Solicitation for Fixed Price Industrial productMet-Ed and Penelec Default Service Program12

Auction Web Site• Auction web site opened this week and will be your mainsource of information:www.firstenergycorp.com/mepnauction• Web site is still under construction and will be designedto include:• All solicitation documents and forms• Relevant Commission decisions• Data Room• Web form to submit questions• Frequently Asked Questions pageMet-Ed and Penelec Default Service Program13

Overview of the January 2010 SolicitationMet-Ed and Penelec Default Service Program14

Main Features1. A Fixed Auction and an Hourly Auction heldsimultaneously2. Single supply period of 5 months starting 1 Jan20113. Documents approved by the Commission4. Cross QualificationMet-Ed and Penelec Default Service Program15

The Products of the Hourly Auction• A product has two dimensions: the Company and the Class• The Default Service load for the LI Class is divided into a number oftranches• Each tranche represents a fixed percentage of load for the Class• Each tranche is sized to approximately 100 MWClassTranche Targets and Load CapsTotal Numberof TranchesLoad CapTrancheSize (%)MW-MeasureMet-Ed LI 11 8 9.09 100.00Penelec LI 11 8 9.09 100.00Total 22Met-Ed and Penelec Default Service Program17

Auction Format is a Clock Auction• Multi-product design• Tranches for both Met-Ed and Penelec are procured at once• Multi-round design• Suppliers state how many tranches they want to supply atprices suggested by the Independent Evaluator• Prices tick down if there is excess supply• Suppliers could switch their bids from one product to anotherin a given AuctionFixed• All-in price in $/MWhHourly• Price in $/MWh for “other”componentsMet-Ed and Penelec Default Service Program18

Fixed Auction Example:Prices Tick Down When There Is Excess SupplyProduct Price ($/MWh)Met-Ed R 100.00Met-Ed C 100.00Penelec R 100.00Penelec C 100.00Round 1#bid #to buy27 75 515 520 5ExcessSupplyOversupplyRatio35 0.70000 0.00005 0.100010 0.2000Round 2Product Price ($/MWh) #bid #to buyExcessSupplyOversupplyRatioMet-Ed R 95.00 17 7 10 0.2500Met-Ed C 100.00 15 5 10 0.2500Penelec R 99.22 25 5 15 0.3750Penelec C 96.25 20 5 5 0.1250Met-Ed and Penelec Default Service Program19

Bids in Both Auctions Submitted On-Line During the Same Time Window• Bids are submitted on-line through specializedauction software• Bidders are provided login credentials byIndependent Evaluator• Suppliers participating in both Auctions will have asingle login and will be able to submit bids in bothAuctions in a single time window• Suppliers will have an opportunity to practice thebid submission processMet-Ed and Penelec Default Service Program20

Each Auction Has Its Own Set ofDocumentsThe two Auctions are separate• Two documents for Auction Rules• Two sets of appendices to the Auction Rules• Two sets of Supplier Master Agreements• Different Supplier Master Agreement for each Class,Auction, and CompanyCross-qualification• A Supplier that passes initial qualification requirements for oneAuction can continue the Proposal process for the other AuctionMet-Ed and Penelec Default Service Program21

Commission Has Approved the SMAs• The parties to the SMA are the Company and theDefault Service Supplier• Participants in the proceeding had the opportunityto submit comments and to propose modifications• Final Agreements are approved by the PaPUC andare non-negotiableMet-Ed and Penelec Default Service Program22

Although Separate, Auctions Sharethe Same TimelineMonday Tuesday Wednesday Thursday FridayNovember 17Deadline to submit initialAlternate Guaranty form18 19 20December 7 8 December 9Final Decision onAlternate Guaranty10 1114 15 16 17 18Part 1 Date21 22 23Bidders Qualified24 25January 8Bidder Training11 January 12Part 2 Date18 19AUCTIONS BEGIN13 14 15Bidders Qualified20 21 22Met-Ed and Penelec Default Service Program23

Commission Will Consider AuctionResults• Independent Evaluator will submit a report the day afterbidding closes• Commission will consider the results of the Auctions withinone business day• For each Auction separately, either all results are approved(for both Companies and all Classes) or all results arerejected• The Commission may approve the results of one Auction(Fixed or Hourly) and reject the results of the otherMet-Ed and Penelec Default Service Program24

SMA Execution and Beyond• If Commission accepts the results, SMAs executedwithin three business days• If any security is required under the creditworthinessstandards of the Agreement, it is posted uponexecution of the Agreement• Any financial guarantees submitted as part of theProposal process are returned to the Supplier• Power flows on January 1, 2011Met-Ed and Penelec Default Service Program25

Supplier’s Role and Standard ContractMet-Ed and Penelec Default Service Program26

What Is A Tranche?• A tranche is a set percentage of a Company’s DefaultService load for a Class (Residential, Commercial, orIndustrial)• Loads upon which Suppliers are paid are adjusted forlosses to the zonal aggregate load bus and de-rated inaccordance with PJM’s marginal loss implementationprocedures• All Default Service customers are free to come and gofrom Default Service provided that they give notice atleast 16 days before their next scheduled meterreading dateMet-Ed and Penelec Default Service Program27

PJM’s Perspective of SuppliersFrom PJM’s perspective, Met-Ed and Penelec Default Service Suppliers areElectric Generation Suppliers that are Load Serving EntitiesEach DayUnforced capacityobligationEach HourEnergy at zone busEach Company will transmit to PJM the Default ServiceSupplier Responsibility Share of each Supplier’s Peak LoadCapacity obligation which PJM will use to determine thatSupplier’s capacity obligationPJM will know each Company’s total zonal energy andeach Company will transmit to PJM the share of each EGSand each Default Service Supplier Responsibility ShareSuppliers will not be paired with customers. They will be serving apercentage of Default Service Supply for a Company and Class.Met-Ed and Penelec Default Service Program28

Supplier Role and Business OpportunityWholesale Sources include: Generation owners in PJM or in adjoiningregions, wholesale marketers, financial and OTC power and gas markets,PJM markets, weather derivatives marketsFixed Auction• Aggregate supply portfolio fromwholesale sources• Assess and price loadvariability, market pricevolatility and migration risk• Platform for participation infuture auctions• Provide price-risk managementservicesHourly Auction• Assess and price migration risk• Platform for participation in futureauctions• Ability to arbitrage day-ahead andreal-time marketsMet-Ed and Penelec Default Service Program29

BB- Is the Minimum Rating• Security requirements are on a sliding scale on the basis of creditratings and Tangible Net Worth (“TNW”)• Minimum Rating to obtain unsecured credit line is BB- from S&P / Fitch andBa3 from Moody’sCredit Rating of Default ServiceSupplierMax. Credit Limit (lesser of the %of TNW and credit limit cap below)S&P Moody’s Fitch % of TNW Credit Limit CapBBB+ Baa1 BBB+ 16% of TNW $75,000,000BBB Baa2 BBB 10% of TNW $50,000,000BBB- Baa3 BBB- 8% of TNW $25,000,000BB+ Ba1 BB+ 4% of TNW $15,000,000BB Ba2 BB 3% of TNW $10,000,000BB- Ba3 BB- 2% of TNW $5,000,000Below BB- Below Ba3 Below BB- 0% of TNW $0Met-Ed and Penelec Default Service Program30

Credit Provisions for Fixed Auction SMAs• Fixed Auction SMAs: Independent Credit Requirement(“ICR”) as well as Mark-to-Market• ICR declines over the term of each of the SMAs (SeeAppendix B of the SMA)• Initial ICR• $375,000 per tranche for a 5-month product• $750,000 per tranche for a 12-month product• $1,500,000 per tranche for 24-month product• The Independent Credit Threshold (“ICT”) determinedas a function of the Supplier’s credit ratings and % ofTNW is used to either partially or fully cover theaggregate ICR amounts across all Default Serviceobligations to a given CompanyMet-Ed and Penelec Default Service Program31

Credit Provisions for Hourly Auction SMAs• Hourly Auction SMAs: Credit Exposure of $70,000per tranche• If a Supplier meets the Minimum Rating, no security willbe required as long as the Supplier’s total creditexposure amount to a given Company does not exceedthe maximum credit limit of the Supplier or its Guarantor• Security can be in the form of a guaranty, letter ofcredit, or cash deposit• Security to be posted depends on all Default Serviceobligations to a given CompanyMet-Ed and Penelec Default Service Program32

Supply Payments Vary by Auctionand ClassFixed Auction• Seasonal supplier payments: Finalauction price for a given product times aCompany-specific seasonal factor• Commercial Class is 90% Fixed at thefinal auction price. 10% varies based onthe real-time PJM hourly energy price atthe Company zone plus a fixed adder of$9.00/MWh• Residential Class is 100% Fixed for 12-and 24-month products and for 5-monthproducts is 95% Fixed at the finalauction price and 5% varies based onthe real-time PJM hourly energy price atthe Company zone plus a fixed adder of$9.00/MWhHourly AuctionSupplier receives:• the final auction price paid onenergy volumes• the real-time PJM hourly price forenergy at the Company zone• a fixed $2.00/MWh adder(estimated ancillary service rate)Rates for customers determined on the same basisMet-Ed and Penelec Default Service Program33

Compliance with AEPS through AECs• Compliance with Tier I and II requirements must be demonstrated usingAlternative Energy Credits or AECs issued by PJM-EIS GATS• Suppliers must use PJM-EIS GATS to transfer AECs to the Companies tomeet their AEPS requirements• Prior to using the PJM-EIS GATS, Suppliers must register into GATS andopen a Retail LSE Account• GATS Administrator is available to help Suppliers through process:For information and forms, see: www.pjm-eis.comPhone: 610-666-2245; Fax: 610-771-4114• Suppliers will be responsible for any changes to Tier I and Tier IIrequirements prior to execution of a Default Service SMA• Suppliers will not be responsible for changes to the Tier I and Tier IIrequirements that are implemented following the effective date of theDefault Service SMA(s)Met-Ed and Penelec Default Service Program34

Additional Advantages to Default ServiceSuppliersThe Companies will provide SPAECs to Default ServiceSuppliers to satisfy their solar requirements under the AEPSAct• The Companies will conduct a separate RFP to obtain a fixed amountof SPAECs over a ten-year period• The amount of SPAECs expected to be obtained through the RFP isprojected to meet the Companies’ solar requirements for the periodJanuary 1, 2011 to May 31, 2013• The Companies will purchase SPAECs sufficient to cover fully theSuppliers’ requirements for SPAECs over that periodMet-Ed and Penelec Default Service Program35

Supplier Risk Mitigation Features• Supplier is protected from the following risks:• NITS• Changes in AEPS requirements• Risks of procurement of SPAECs• Supplier assumes other risks of the full requirementsproducts, including migration risksMet-Ed and Penelec Default Service Program36

Bidding in the AuctionMet-Ed and Penelec Default Service Program37

Descending Clock Auction Has FourMain Features1. Bids are binding unless the price ticks down: A biddercannot reduce the number of tranches bid on a product if thegoing price did not tick down2. Total number of tranches bid cannot increase: Bidderscan only maintain or reduce their total number of tranches bidfrom one round to the next3. Auction closes on all products at once: The winners aredetermined for all products at the same time4. Uniform price: All winners on a product are given the samepriceMet-Ed and Penelec Default Service Program38

Round SchematicRound and andBidding StartBids Bids at at Going PricesBids are numbers oftranches for each productthat suppliers are willing toserve at the going prices forthe roundBidding EndsInformation to toBiddersRound Ends EndsMet-Ed and Penelec Default Service Program• Indication of total excesssupply in the round andgoing Prices for nextround(Price for a product ticksdown if number oftranches bid is greaterthan tranches needed)39

What Is A Bid in Round 1?• A bid is a number of tranches for each product at thegoing pricesFixed-Auction Bids at Round 1 PricesMET-R MET-C PEN-R PEN-C3 3 2 1Hourly AuctionMET-LI PEN-LI7 7• Two rules: the total number of tranches bid on all productscannot exceed bidder’s initial eligibility the number of tranches bid on a product cannotexceed the load capMet-Ed and Penelec Default Service Program40

Round 1 ReportBidder sees for each Auction:• Range of total excess supply Total excess supply is the sumof excess supply for allproducts Range provided includes actualtotal excess supply Five-tranche range at start ofAuction• The round 2 prices• The bidder’s own bidHourly AuctionRound 1Total Excess Supply: 55-60ProductRound 2 Price($/MWh)Met-LI 25.25Pen-LI 26.75Bidder has no information aboutothers’ bids, identities or eligibilitiesMet-Ed and Penelec Default Service Program41

Changes in Round 2 Bidding• A bidder will be able to:• Keep the number of tranches bid for each product thesame as in round 1• Withdraw some tranches from the Auction• Switch: Reduce tranches bid on one product andincrease tranches bid on another product• Withdraw and switchIf the price for a product has not ticked down, abidder cannot reduce the number of tranches bidfor that productMet-Ed and Penelec Default Service Program42

What Are The Rules In Round 2?• The total number of tranches bid on all products combinedcannot exceed eligibility in round 2 (number of tranchesbid in round 1)• The number of tranches bid on any one product cannotexceed the load cap for that productMet-Ed and Penelec Default Service Program43

Bidders Must Name an Exit Price WhenWithdrawing a TrancheFixed AuctionProduct Met-R Met-C Pen-R Pen-CPrice Round 1 95.00 95.00 92.50 97.50Bid Round 1 3 3 2 1Price Round 2 91.73 92.02 92.02 96.09Bid Round 2 3 2 2 1Exit Price 94.51• A bidder must enter an exit price (a final and best offer):• Above current going price• Below or equal to previous going priceMet-Ed and Penelec Default Service Program44

A Bidder Could Be Asked to ProvideSwitching Priority InformationFixed Auctionproduct Met-R Met-C Pen-R Pen-CPrice Round 1 95.00 95.00 92.50 97.50Bid Round 1 3 3 2 1Price Round 2 91.73 92.02 92.02 96.09Bid Round 2 4 1 3 1Switching Priority 1 2• When a bidder reduces the tranches bid on one or more products andincreases the number of tranches bid on more than one product, thebidder will be asked for a switching priority• This is used by the Independent Evaluator in case only some of thereductions can be grantedMet-Ed and Penelec Default Service Program45

A Bidder Could Be Asked to IndicateWhich Tranche is WithdrawingExitFixed AuctionProduct Met-R Met-C Pen-R Pen-CPrice Round 1 95.00 95.00 92.50 97.50Bid Round 1 3 3 2 1Price Round 2 91.73 92.02 92.02 96.09Bid Round 2 2 1 3 1Exit Price 93.73• When a bidder decreases the number of tranches bid on morethan one product but switches only part of them, the bidderwill be asked to designate which tranche is being withdrawn• The bidder can name an exit price for the withdrawn trancheMet-Ed and Penelec Default Service Program46

Changes in Round 2 CalculatingPhase• A bidder can request a switch or a withdrawal – but itmay not be granted if necessary to fill the tranche targets• The Independent Evaluator fills tranche target in thisorder:• first with tranches bid at the going price• then by retaining exits (if necessary to fill the target)• then by denying switches (if still necessary)Met-Ed and Penelec Default Service Program47

Changes in Round 2 Reporting• Each bidder gets this information:• A range of total excess supply• The prices for next round• The bidder’s own bid, including:• Any tranches requested to be withdrawn that wereretained (retained at the exit price)• Any tranches requested to be switched that weredenied (retained at the last price freely bid)Met-Ed and Penelec Default Service Program48

Same Rules Apply for Rounds 3, 4…• Total tranches bid (eligibility, load caps):• Eligibility in round 3 equal to round 2 eligibility minustranches withdrawn in round 2 (even if any of thosewithdrawal requests were denied)• Reduce number of tranches bid on a product (throughswitch or withdrawal) only if price has ticked down• Exit price above current going price and equal to orbelow previous going priceMet-Ed and Penelec Default Service Program49

Free Eligibility• In any given round it is possible that other bidders switchtranches to a product where a bidder has deniedswitches• When this occurs, tranches from previously deniedswitches to a bidder may be released and become freeeligibility for that bidder• A tranche of free eligibility must be bid on a product inthe next round or the eligibility for that tranche will belostMet-Ed and Penelec Default Service Program50

When Does The Auction Close?• When total excess supply equals zero and prices nolonger tick down• Bidding on all products will stop at the same time:• Price of a product with no excess supply will not tickdown in the next round but it may do so later in theAuction if bidders switch tranches from other products• Bidders are paid based on the final auction prices• All bidders that win tranches for a product are given thesame priceMet-Ed and Penelec Default Service Program51

Bids Are Submitted Online• Bidding is done through online Internet bidding• Bidders access an Internet link• Bidders log in to the auction software using a LoginID and password provided by the IndependentEvaluator to the designated representative• Bids are submitted and round results receivedthrough the auction software• Auctions are simultaneous and suppliersparticipating in both Auctions submit their bids inboth auctions in the same time windowMet-Ed and Penelec Default Service Program52

System Requirements Are MinimalStandard PCInternetConnection• Windows 98, Windows Me, Windows NT 4.0,Windows 2000, Windows XP, Windows Vista, orWindows 7• Primary access through a company network• Secondary access through an alternative ISPWeb Browser• Internet Explorer 7 or 8; Firefox 3.0, 3.1, or 3.5;Safari 4; Chrome 2.Backup Systems• Backup laptop and backup connection• Dedicated fax machineMet-Ed and Penelec Default Service Program53

To Be Technically Prepared• Bidding teams in two geographical locations• Reduces the likelihood that disruptions in onelocation will affect your participation• Access to a backup ISP• Backup computer (a laptop with charged batteries)• A dedicated fax machine for backup biddingMet-Ed and Penelec Default Service Program54

Pauses• A bidder can request an extension to the bidding phasetwo times during the Auction• Typically due to technical problems• Bidders will be advised of length of extension (typically 15 min)• All bidders in both Auctions will benefit from the extendedbidding phase• The Independent Evaluator can call a time-out any time• For example, in case of general technical difficulty• Generally no more than 15 minutesMet-Ed and Penelec Default Service Program55

Proposal Submission ProcessMet-Ed and Penelec Default Service Program56

Stages of Proposal Submission Process1. Alternate Guaranty Process (Optional)2. Part 1 Proposal: Basic Contact Information and financialinformation3. Part 2 Proposal: Indicative Offers and Financial Guarantees4. Submission of Bids: Auctions StartMet-Ed and Penelec Default Service Program57

Key Dates17 Nov 2009Deadline for submission of Alternate GuarantyForm and supporting documents9 Dec 2009 Decision on Alternate Guaranty Forms18 Dec 2009 Part 1 Proposal deadline23 Dec 2009 Part 1 Proposal Notification12 Jan 2010 Part 2 Proposal deadline15 Jan 2010 Part 2 Proposal Notification19 Jan 2010 Auctions startMet-Ed and Penelec Default Service Program58

Requirements for Part 11. Applicant’s Contact Information• Designated Representative: point of contact for IndependentEvaluator• Officer of the Bidder makes certifications in Proposal2. Licensing requirements• No state licensing required• Supplier must be an LSE in PJM by start of supply period3. Agree to Auction Rules and SMAs4. Financial Information for creditworthiness evaluation• Annual and quarterly financial statements• Senior unsecured debt ratings5. Comments on Pre-Bid Letter of Credit (optional)Met-Ed and Penelec Default Service Program59

Requirements for Part 2• A Supplier that has a successful Part 1 Proposal may submit a Part 2Proposal for the Fixed Auction, Hourly Auction, or both Auctions• Use two separate forms to participate in both Auctions• Provide an indicative offer and preliminary interest at the maximum startingprice and minimum starting price• Provide a financial guarantee proportional to indicative offer at maximumstarting priceFixed Auction All Bidders: Letter of credit of$125,000 per tranche Some Bidders: Additional amount onLetter of Credit or Letter of Intent toProvide a GuarantyHourly Auction All Bidders: Letter of credit of$125,000 per tranche Some Bidders: Additional amount onLetter of Credit or Letter of Intent toProvide a GuarantyMet-Ed and Penelec Default Service Program60

Role of the Indicative Offers• For the Bidder, the indicative offer at the maximumstarting price sets:• The maximum number of tranches that thebidder can bid in the auction (initial eligibility)• The amount of pre-bid security required with thePart 2 Application• The Companies can use the indicative offers in settingprices for round 1 of each AuctionMet-Ed and Penelec Default Service Program61

QUESTIONS???