Wright & Talisman, P.C.

WSPP Operating Committee

Page 1

WSPP OPERATING COMMITTEE

March 12, 2004

Hotel Fairfax

Lake Louise, Banff National Park

Proposed WSPP Agreement Amendments

Proposed Amendments to Agreement Text

for OC Vote

1.Section 30: Proposed Revision of Confidentiality Provision to Permit Disclosure of the Identities of Counterparties for Compilation of Energy Price Indices

At the Fall OC meeting in Vancouver, by a slight margin the OC disapproved changes to Section 30 to permit disclosure of transaction terms and conditions to developers of energy indices. Because the matter pertained to compliance with FERC policy, and in light of the closeness of the vote (just shy of 90%), the matter was presented to the EC for consideration. One significant area of discussion before both the OC and the EC was whether identities of counterparties should be subject to disclosure or whether this information should remain confidential. In order to achieve agreement to an amendment that would advance the development of indices and serve FERC policy, the EC approved the amendment currently in effect (Section 30.2). The Agreement now permits disclosure of terms and conditions for development of indices, excluding party identities.

The EC expressed approval of the Contract Subcommittee exploring a system that would permit disclosure of party identities where members, by standing agreement, had waived objections to disclosure (analogous to the standing netting agreements). The Contract Subcommittee evaluated this concept, but found it unworkable and recognized that such a system would need approval of 90% of the members in any event. Rather than present a new system, a vast majority of the Subcommittee decided to present the issue of party identity disclosure anew to the OC for further consideration. The Subcommittee proposes the following amendment:

30.2A Party may disclose the terms of transactions under this Agreement, excluding including the identities of parties, to any developer of any index of electric power prices without violation of the confidentiality obligations under Section 30.1 if: (1) the disclosing Party and the index developer have entered into a written agreement, prior to the disclosure, under which the developer has agreed to use the information solely for the development of an index of electric power prices for publication and not for any other purpose; and (2) the index with respect to which disclosure is made is an aggregation of terms of transactions and does not identify terms of single transactions or the identities of parties to transactions.

2.Amendments Concerning Withholding of Disputed Amounts.

The Agreement requires that if a portion of a bill is disputed, the entire bill shall be paid including the disputed amount. Credits or refunds, if appropriate, will be given only after the dispute is resolved. Some members have maintained that this can be unfair and have sought an amendment that would permit withholding of disputed amounts. On the other hand, other members have opposed permitting withholding of disputed amounts because of credit risk and because they fear that a right to withhold could encourage bad faith disputes. The OC has approved the Contract Subcommittee’s work to find a mid-ground approach to these considerations.

The Contract Subcommittee now proposes the following amendments. The amendments permit the withholding of disputed amounts but only if credit risk is addressed with a letter of credit or as the parties may otherwise agree. If the withholding party wins the dispute, it shall be entitled to collect interest calculated under Section 9.3. The Contract Subcommittee considered many other aspects of this, including payment of costs of the L/C and other forms of security. It rejected these approaches as too complicated or too likely to produce further dispute, or as encompassed under the authority to agree to approaches other than an LC. The proposal reflects quite a bit of give and take among Contract Subcommittee members. The proposed amendment follows:

4.2eDisputed Amount Letter of Credit: As defined in Section 9.4 of this Agreement.

9.4

(a) If a portion of a bill is disputed, the entire bill shall be paid when due, except under the following conditions: a Party may withhold a disputed amount, other than a Termination Payment or any part thereof, pending resolution of the dispute, provided, that no later than three (3) Business Days after the date the disputed amount would otherwise have been due: (i) the withholding Party, at its expense, posts and presents to the other Party, an irrevocable, transferable standby letter of credit (“Disputed Amount Letter of Credit”) for the benefit of the other Party, in an amount no less than the disputed amount, subject to terms and conditions for payment to the other Party, or reduction by the withholding Party, as required under part (b) hereof, and issued by a a commercial bank or trust company organized under the laws of the United States or Canada or a political subdivision thereof having a capital surplus of at least one billion United States dollars ($1,000,000,000.00) and having a credit rating of at least (x) “A -” by Standard & Poors (S&P) and “A3” by Moody’s Investors Service (Moody’s), if such entity is rated by S&P and Moody’s or (y) “A -” by S&P or “A3” by Moody’s, if such entity is rated by either S&P or Moody’s, but not both, or other financial institution acceptable to the other Party; or (ii) enters into some other mutually agreed method of satisfying the other Party with respect to such withholding. The withholding Party shall maintain the Disputed Amount Letter of Credit until draw or reduction occurs in accordance with terms required under part (b) hereof, and if the Disputed Amount Letter of Credit is not so maintained, then payment of the full amount of the disputed amount shall be immediately due. Nothing in this Section 9.4 is intended to modify Section 34 concerning dispute resolution.

(b) The Disputed Amount Letter of Credit shall authorize the other Party to draw thereon no later than five (5) Business Days after presentation of, and in accordance with, (i) an agreement between the Parties authorizing the draw, or (ii) a final judgment, final administrative order, or final arbitral order, that determines the dispute or the parties’ respective entitlements to the withheld amount or portions thereof, and as to which no appeal is pending or the time for filing an appeal has expired. The Disputed Amount Letter of Credit shall provide that if any disputed amount has been paid or has been agreed by the parties or determined by such a final judgment, final administrative order, or final arbitral order not to be due, then the withholding Party may reduce the Disputed Amount Letter of Credit in such amount.

(c) To the extent the dispute is resolved in favor of the withholding Party, the other Party shall be required to pay interest on the disputed amount, such interest to be calculated in the manner set forth in Section 9.3. To the extent the dispute is resolved against the withholding Party, interest shall be paid in accordance with Section 9.3.

(d) Any excess amount of any billsthat, which, throughdue to inadvertent errors or payment of a disputed amount, as a result of a dispute, has been underpaid or overpaid, shall be returned by the owing Party upon determination of the correct amount, with interest calculated in the manner set forth in Section 9.3. The Parties shall have no rights to dispute the accuracy of any bill or payment after a period of two (2) years from the date on which the bill was initially delivered.

Wspp/operating committee materials 030204