Market Participants:



CONTINGENCY ONLY OPERATING RESERVE AND IMBALANCE ENERGY

On March 12, 2001, the ISO notified Market Participants that the ISO was
proposing to give Market Participants the ability to indicate hourly whether
resources selected to provide Operating Reserves should be dispatched in the
absence of a Contingency or a System Emergency. The purpose of the proposal
is to increase the supply of Operating Reserves bid into the ISO markets and
to facilitate the ISO's ability to preserve Operating Reserves for use
during Contingencies and System Emergencies.

Giving Market Participants the flexibility to designate hourly whether
Operating Reserves can be dispatched in the absence of a Contingency or a
System Emergency requires changes to ISO software as well as changes to the
ISO Tariff. The ISO Board of Governors approved of the proposal and it was
included in Amendment No. 38 to the ISO Tariff filed yesterday at the FERC.

INTERIM OPTION FOR MARKET PARTICIPANTS

Prior to FERC action on Amendment 38, the ISO will continue to use its
discretion to dispatch Operating Reserves to supply Imbalance Energy. See
ISO Tariff o 2.5.22.3. The ISO strives to achieve the highest level of
effectiveness for Operating Reserves dispatched to maintain reliability
within the ISO Control Area. To accomplish this goal, the ISO must consider
the amount of Energy that can be dispatched from awarded Operating Reserves.
In order to assist the ISO in this assessment, the ISO asked Market
Participants to indicate, on an interim basis, whether resources selected to
provide Operating Reserves should be dispatched in the absence of a
Contingency or a System Emergency. If a Market Participant elects to so
designate a resource, it will be asked to provide certain operational
information (e.g., the number of available hours of operation, minimum run
time, minimum down time, etc.).

Market Participants will not be able to make this designation hourly as
proposed in Amendment 38. Rather, if a Market Participant designates that
the dispatch of a resource should be limited to Contingencies or a System
Emergencies, the designation will remain in place until the FERC acts on
Amendment 38. For the interim period, beginning March 20, participants were
requested to submit to the ISO any resource or external import (tie point
and interchange id) that was to be used in response to a system contingency
or emergency only. To the extent any such designated resource or import is
awarded Operating Reserve (OR) (Spin or Non-Spin), the energy associated
with the OR will only be called upon during a contingency or emergency.
These same resources are not precluded from submitting supplemental or
replacement reserve bids. However, only in the event the ISO is utilizing
the contingency-only reserves will supplemental and replacement reserve
associated with a contingency-only resource be called upon. If a Market
Participant wants a resource to be dispatched for Imbalance Energy in the
absence of Contingencies and System Emergencies, it should not designate the
resource.

LONG TERM SOLUTION

The long-term solution (as filed in Amendment 38), will allow for
participants to make hourly elections for contingency only designation. This
election will only be available for Spin and Non-Spin bids. Resources and
imports that are not successful in the OR capacity market (contingency only
or not) will still be able to submit bids for replacement reserve and
supplemental energy. Furthermore, to the extent that a resource has been
awarded OR, is designated as contingency only, and has additional capacity
available, that capacity can be bid into the replacement reserve market or
be submitted as a supplemental energy bid. However, any replacement reserve
or supplemental energy made available to the ISO will be used for Imbalance
Energy and not be reserved for contingency only.

The reporting of specific operational data will also be required for the
long-term solution for any resource awarded contingency only OR.



ADDITIONAL CLARIFICATIONS

Some resources are interested in providing contingency only OR because they
have very limited, not less than 2 hours, energy available behind the
resource. If such a resource is bid in for multiple hours, is dispatched,
and if all of its energy is exhausted, that resource is still responsible
for any OR awarded for future hours..

The ISO expects that resources providing contingency-only OR may schedule
Ancillary Service capacity in the Day Ahead Market for which available
Energy is insufficient to support Dispatch in all hours at the full
scheduled capacity. As required by ASRP 5.3.1 and 5.4.2, at least two hours
of Energy must support any scheduled OR. Therefore, the sum of scheduled OR
should not exceed the available Energy in any two consecutive hours. In the
event that the ISO has dispatched all available Energy, and OR is scheduled
in subsequent hours for which insufficient Energy is available, then the
Scheduling Coordinator should buy back in the Hour Ahead market any capacity
for which there is no available Energy.

If a Scheduling Coordinator fails to buyback scheduled OR capacity for which
no Energy is available, then "No Pay" will apply, and the capacity payment
will be eliminated to the extent that a resource is incapable of delivering
all Energy associated with OR capacity that is dispatched. The ISO will also
monitor performance and consider whether the ISO should use its existing
authority to impose additional penalties to encourage suppliers to bid and
schedule consistent with the availability of Energy. As with any OR, bid or
self provided, the ISO may conduct unannounced tests of contingency-only OR
when no contingency exists. Naturally such tests will be conducted in a
non-discriminatory manner. The ISO may also require each contingency-only
resource to specify the total Energy that is available in relation to
whatever capacity is scheduled in the DA market. This information could be
used in determining buy-back obligations.

If you have questions regarding this interim solution, please contact Brian
Rahman, Manager of Markets at 608-5883.

Byron Woertz
Director, Client Relations