Presented to: 19 th World Energy Congress Sydney, Australia September 8, 2004

1. National Energy Market Monitoring in the United StatesSurveillance Nationale Des Marches D’Energie Aux Etats-Unis William F. Hederman, DirectorOffice of Market Oversight and Investigations Federal Energy Regulatory Commission Presented to:19th World Energy CongressSydney, AustraliaSeptember 8, 2004 WH-9-8-04

2. To recover from the aftermath of California and Enron, energy markets in the U.S. require: • Integrity • Confidence

3. The relevant energy markets are complex.Natural Gas & Electric Market Space Nat Gas & Electric Derivatives Nat Gas & Electric Clearing Trading Venues Futures (NYMEX) Electronic Platforms Physical Nat Gas Phys Electric Power Voice Brokers Bilateral Trading RTO’s & ISO’s Generation Gas Supply Players Transmission & Pumped Storage Pipelines & Storage • Price Contributors • Fixed price • buyers & sellers • Speculators Price Takers -Indexed price buyers & sellers Delivered Market Delivered Market Gas to fuel power generation Source: FERC-OMTR&OMOI

4. The FERC strategy to provide dependable, affordable energy through sustained competitive markets has 3 elements. Infrastructure Effective Rules Strategic Approach Rules Competitive Markets Just & Reasonable Outcomes Enforcement

5. OMOI has already accomplished much. 2002 2003 2004 Jan Jan Jan 1st State of the Markets Report Hotline Promotion Launched Feb Feb Feb Critique of CPUC Report Issued OMOI Fellows Lectures Begin Mar Mar Mar Transco and Nicor Settlements Apr Apr Director Hired ISO/RTO Monitors Present 1st Common Metrics Apr 1st Price Index Technical Conference May Observed CFTC Market Surveillance May Price Index Survey Report May Calif Anomalous Bidding/Physical Witholding Handoff to OMOI June June 1st Market Surveillance Report Summer Seasonal Assessment June July July Price Reporting Policy Statement 1st Seasonal Assessment report Williams Settlement July Cleco Settlement Aug Storage Data Settlements Aug FERC Re-organization: OMOI Official Summer Assessment New Auditors Join OMOI Aug BLACKOUT* FERC California Office Opens Sept Sept Storage Data Technical Conference Sept OMOI e-library Oct Oct Energy Engineering Ethics Conference (http://energyethics2004.nd.edu) Oct Reliant Settlement Nov Nov Standards of Conduct Order Nov Dec Dec Behavior Rules Order 1st Winter Assessment Report Winter Assessment Dec Duke Settlement * OMOI does not claim the blackout as an accomplishment. 5

6. The market has recognized FERC’s progress. • The Desk: “OMOI hit the ground running on this one – that the size, speed and depth of the investigation would have made an SEC ‘tiger team’ proud.” (July 25, 2003) • Edison Electric Institute: “They’re clearly developing a good analytical model to monitor gas and electricity markets, and we commend them for that and encourage it.” (in Dow Jones, January 22, 2004) • Restructuring Today: OMOI “has a significant team and yesterday…they showed off what they can do and how well they are plugged in.” (January 23, 2004) • Restructuring Today: “How different the world is today from the early days of the California meltdown when OMOI didn’t exist and FERC had little idea of what was going on.” (January 27, 2004) • The Desk: “…a colossal effort…the sort of report your office of strategy or market analysis would typically pay tens of thousands of dollars....It is by far the most in-depth document to come out of FERC in a very long time.” (March 19, 2004) • American Public Gas Association: “The Commission took important and forceful steps this week to improve the fairness and effectiveness of the competitive natural gas market…the abuses uncovered by OMOI and acted upon by the commission reinforce the need for effective market rules…” (in Platts Inside FERC, August 9, 2004) • FERC Chairman Pat Wood III: The State of the Markets report is “everything I dreamed of” in setting up OMOI. (January 22, 2004)

7. Office of Market Oversight and Investigations Organization Chart Division of Management & Communication Director Deputy Director Market Oversight & Assessment Deputy Director Investigations & Enforcement Division of Energy Market Oversight Division of Financial Market Assessment Division of Integrated Market Assessment Division of Information Development Division of Enforcement Division of Operational Audits Division of Financial Audits

8. Audits -- targeted -- random Educating regulators about markets -- OMOI own staff -- Other FERC -- State regulators -- International Market intelligence gathering -- ‘signals’ (data/alarms) -- ‘human’ Empowering key players -- compliance and risk officers -- engineers -- board members OMOI has become pro-active.

9. Monitor staff characteristics for success. • Diverse (econ, finance, law, engineering, accounting, public policy) • Highly skilled (79 advanced degrees) • Public-spirited • Team-oriented • Self-motivated • Motivated by challenges • Sense of humor

10. OMOI Next Steps • Integrating into FERC processes • Continuous improvement -- market surveillance reports -- oversight meetings -- seasonal look-aheads -- definitions of market power, abuse, etc. • Enhanced auditing and other intelligence gathering • Empowering key market participants • Rapid response to observed anomalies • More intense scrutiny of less transparent markets • Expanded teaming -- MMUs -- states -- other federal agencies -- North American colleagues