1

Presentation to the Wisconsin Industrial Energy Group (WIEG)

T. Graham Edwards

President & CEO

August 9, 2007

2

Value of the Midwest ISO

Production Costing

Congestion Management

Transparency

ReliabilityReduced Reserve

Requirements

Regional Planning

Enhanced Infrastructure Development

Market Access

3

Independent Market Monitor (IMM) 2006 State of the Market Report

IMM stated that the Midwest ISO market has been operating as excellent and continues to improve

IMM specifically pointed to specific areas of performance:• Daily generation commitment – RSG costs decreased by

62%

• Generation dispatch and congestion management

• Reliability – Prices on Midwest ISO seams are well arbitraged

• Midwest ISO/PJM coordination – effectively managed constraints

• Price signals – total congestion costs of $550 million in 2006 vs. $1.07 billion in 2005 (9 months annualized)

4

Reliability

Real Time Operations “Scorecard”

NERC Audit

• Awarded 6 “Examples of Excellence”

• Provided 13 Positive Observations

Contingency Reserve Sharing Group

• Started 1/1/07

• Has resulted in a 39% reduction in reserve obligation

• Projected annual savings between $59-118 million

5

Direct Quotes from WisconsinMarket Participants

Midwest ISO’s system of dispatch has been very beneficial, especially when not all of our generation resources were available

Our company is now on a level playing ground with other WI utilities now that the Midwest ISO market is in operation

Midwest ISO market provides our company access to lower cost wholesale energy supply and increased flexibility to manage fuel cost increases

We have the ability to import three times as many MW during stress conditions than prior to the market – much more liquid

The Midwest ISO LMP market is more efficient at implementing re-dispatch to address an overloaded transmission line than the NERC TLR system

6

Steps to Improve Services

Annual Stakeholders Meeting

Market Operating Committee

IT System Improvements

Ancillary Services Market (ASM)

Improvements to Generator Interconnection Queue

7

ISO/RTO Cost Comparison

Cost per megawatt-hour of Load Served ($/MWh)($/M

Wh)

CAISO ERCOT

MISO

NYISO PJM

ISO-NE

0.20

0.40

0.60

0.80

1.00

1.20

1999 2000 2001 2002 2003 2004 2005 2006

0.00

8

Looking Ahead

Short-Term Priorities• Improving Operational Performance• Implementation of ASM• Moving forward with Resource Adequacy• Maintaining the Midwest ISO’s credit rating

Long-Term Vision• Strategic Plan - Direction to be adopted by our Board next

week• Plan emphasis

– Operational Performance– Value Creation– Positioning for Growth

9

Midwest ISO AspirationsFulfillment of these aspirations drove a new vision,

mission and a series of strategic elements

Vision and Mission

Deliver value to and be valued by our stakeholders

Drive acceptance of market-based mechanisms to minimize congestion costs

Provide requisite stewardship of underlying transmission assets

Become essential to the optimization of infrastructure investments within the region

Enable an efficient wholesale platform

Be integral to further development of the industry

Aspirations

Achieve recognition as the independent infrastructure planning authority

Establish world class market operator credentials

Drive value creation through efficient reliability

/ market operations, planning and innovation

Deliver accurate and timely information to enable improved market performance and investment

Establish a workplace characterized by continual employee development and professional growth

Figure 5

Efficient Wholesale Power

Midwest ISO Aspirations

10

Midwest ISO’s Role in Regional Planning

Coordination of Regional Planning

Midwest Transmission Expansion Plan (MTEP)

• Progress

• What it’s NOT

• Challenges

11

Demand Response

Board of Directors adopted guiding principals

“The Midwest ISO strives to have an open wholesale market where energy can be bought or sold in fair, efficient and non-discriminatory markets, while providing for reliable grid operations”

12

Demand Response – Action Items2007

Remove disincentives to provide demand response in Real Time

• Remove RSG penalty – Complete

• Provide compensation for demand reductions when called during emergency conditions – Stakeholder discussion complete and filing being prepared

Increase accountability and availability of demand response relied upon to satisfy resource adequacy requirements

• Module E update filing in December 2007

13

Demand Response – Action Items2008

Expand opportunities for demand participation

• New products tailored to demand resources – ASM

• Improve price signals to better reflect supply and demand conditions

– ASM

– Modified LMP calculation to reflect marginal resource under development

Resolve market design and technical barriers to provide opportunities for direct market participation from dispersed demand response