UNBUNDLED RETAIL SERVICES AND CHOICES AVAILABLE TO END-USERS

Under retail electricity competition in Ohio, consumers can obtain their power either as "standard offer" customers, the default for non-shopping customers, or by purchasing generation service from a competitive supplier. Consumers that continue to obtain electricity from the electric distribution utility ("EDU") are provided the "standard offer" power service. Under this option, customers are provided electricity service at a price that reflects the sum of the unbundled components. In Ohio, during the Market Development Period ("MDP"), the price for standard offer service is capped at the rates that were in effect as of October 1999. Alternatively, consumers can choose to shop for power generation services in the competitive marketplace. Under either alternative, only the charges associated with generation are subject to competition. The charges for distribution, transmission, and their associated ancillary services, remain regulated. However, regardless of whether the end-user obtains generation service from the EDU or a competitive supplier, the EDU will continue to perform the standard distribution utility functions, such as responding to emergencies, maintaining the EDU-owned distribution grid system, and responding to power outages.

Non-Shopping Customers

Customers that choose not to select a competitive supplier for power generation service are supplied the generation component of electricity service by the EDU as standard offer service. The unbundled generation commodity component of electricity service is referred to as the standard offer rate. Standard offer service is made available under a rate schedule or tariff filed at the Public Utilities Commission of Ohio ("PUCO"). In Ohio, the tariff rate was set pursuant to Amended Substitute Senate Bill 3, which is Ohio's electric industry restructuring legislation. Amended Substitute Senate Bill 3 fixed the price of the standard offer generation service until December 31, 2005, or until the end of the MDP, whichever occurs first for each particular EDU. The MDP may end earlier for some EDUs pursuant to negotiated transition plan agreements approved by the PUCO. After this time, the EDUs will provide standard offer generation service based on a market-based rate. The mechanism to determine market-based rates for standard offer generation service has not been determined at this time. It is presumed that the PUCO will issue Orders prescribing this mechanism prior to December 31, 2005, or the end of the MDP, whichever occurs earlier.

Competitive Shopping

In a competitive market, customers are free to choose a generation supplier based on criteria such as service, price, variety of offerings, and value. As described above, end-users not shopping competitively pay the standard offer rate. On the other hand, competitive suppliers will charge market-based rates, which will permit them to offer shopping choices and options that may not be available from EDUs. For example, by shopping competitively, consumers will have the option to fix their generation price for a term, for example one year, or buy the service based on fluctuating spot market prices. While there are no guarantees, it is expected that end-users choosing a competitive generation supplier will do so because of the potential for savings over the standard offer rate.