TRANSMISSION AND DISTRIBUTION

FERC Approves Process for Lake Erie Link:
Project Meets significant Regulatory Milestone

FERC's approval, received February 13, 2002 authorizes the Lake Erie Link sponsors to offer all transmission rights over the project for sale via a non-discriminatory "open season" process. The project sponsors expect to begin the open season process during the first quarter of 2002. Project information will be provided to potential bidders prior to the start of the formal open season process.

The Lake Erie Link project will consist of buried underwater cables under Lake Erie connecting the transmission system near Simcoe, Ontario with those in the U.S. at either, or both, of Springfield, Pennsylvania, and Ashtabula, Ohio. The project will provide an increase in transmission capability of up to 975 megawatts between the electric control areas of the Ontario Independent Electricity Market Operator (IMO), the East Central Area Reliability Coordination Agreement (ECAR) in Ohio, and the Pennsylvania-New Jersey-Maryland (PJM) Interconnection.

"We are extremely pleased with the Commission's decision." stated Raymond Coxe, Senior Vice President of Transƒnergie U.S. Ltd. "Today's decision reaffirms the Commission's endorsement of market-driven, entrepreneurial transmission projects that provide needed investment in infrastructure. The decision further represents an important step towards increasing energy trade and cooperation between Canada and the U.S. We look forward to commencing our open season for the project shortly, and meeting our projected goal of an in-service date of Summer 2004."

"Under the approach approved by the Commission, the Lake Erie Link will be financially supported by those customers who see value in the associated transmission rights, rather than through the regulated rates paid by transmission customers in general" said Rod Taylor, Executive Vice-President of Hydro One. "We welcome this decision supporting our efforts to bring the benefits of enhanced transmission links to electricity markets on both sides of the border".

Background On The Lake Erie Link
The Lake Erie Link transmission project will consist of a high-voltage direct-current ("HVDC") transmission system, including buried underwater cables under Lake Erie. The project will connect the control areas of the Ontario Independent Electricity Market Operator ("Ontario IMO") with the PJM Interconnection, LLC ("PJM"), and/or the Alliance Regional Transmission Organization ("Alliance RTO").

The LEL will consist of land-based HVDC converter terminal facilities and approximately 70 miles of buried underwater cables between the Ontario and Pennsylvania terminals and/or approximately 90 miles of buried underwater cables between the Ontario and Ohio terminals, with an anticipated total bi-directional transfer capability of up to a maximum of 975 megawatts ("MW") for both legs of the project. By virtue of its HVDC technology, the LEL will provide fully controllable, bi-directional transfer capability between Nanticoke, Ontario and either or both Springfield, Pennsylvania and Ashtabula, Ohio.

Cable System
The cable system consists of two specialized, underwater direct-current (DC) cables. The cables will be protected by steel armor on the outside. Inside, solid flexible plastic protects and insulates the copper wire. The cable is 4.1 inches in diameter.

The Converter Station
The Converter Station shown here converts the AC electric power to DC before the cables carry the power across the water. At the other side, an identical Converter Station converts the power back to AC for integration with the rest of the electrical system.

The conversion to DC allows for precise control of the power flow in either direction and reduces the required number of cables when compared to more common AC transmission.

Potential Economic Benefits
The Lake Erie Link Project provides a range of economic benefits to Ohio, Pennsylvania, and Ontario. The opening of electric supply to markets and competition will bring benefits, as long as sellers and buyers are able to find choices in the market. Lake Erie Link expands the choices available, as described below and, therefore, attracts more suppliers to serve both regions. If choices and suppliers are too few, buyers do not have the benefit of competition keeping prices low.

Power plant owners make agreements to sell power to buyers that are electrically linked to them, through the electric transmission system. The physical transmission of electricity limits the range of buyers and sellers of electricity. Lake Erie Link will allow more buyers and sellers to connect by overcoming limits in the existing transmission system. Competing power suppliers means lower prices for buyers. Buyers also hope that there will be a variety of choices, to provide diversity to meet a range of needs.

The opportunity to reach a larger market is also important to companies looking to become sellers of electricity. Without Lake Erie Link, fewer opportunities exist to sell power, so fewer solutions to the power needs of the region will come forward and take the risks. Just as good roads and good locations are important to attracting stores, or increasing the value of farmland, a good transmission system is vital to attracting power supplies.

Cable Technology
The Project uses new technology and new thinking to overcome the obstacles that have discouraged electric utility companies from investing in new transmission lines. Experts agree that the amount of investment in new transmission has fallen behind the growth in demand for electricity.

The Project uses HVDC (high-voltage direct current) transmission for several reasons. Most power transmission lines are high-voltage AC (alternating current). Adding another AC transmission line could provide a new path for power to flow, but that path would not be as easily controlled as the Project, with its DC design. The AC/DC converter stations at both ends of the Project will control the flow of power, making it possible to operate the transmission more like a toll road. This control and toll collection makes it possible to charge the actual users of the project. (The old way allowed anyone's power to flow, and all electricity customers had to pay for the transmission line. Making everyone pay was an obstacle because it added the transmission line to the fixed costs in utility electric rates paid by all consumers.) The new financial and technical arrangements employed by the Project require only the users to pay the project's costs.

The second advance is the underwater route. The Project will interconnect areas that were previously blocked from connections by the water. An underwater cable route provides new and additional alternatives to extend the power supply. The path for a traditional land-based power line would adversely impact many more neighbors and towns.

The new technology also helped make this possible. DC power transmission use 2 cables in a single bundle, not 3 cables in separate paths required for AC, allowing a narrower path across the seabed. Also, environmentally-preferred, solid insulation (nothing to leak), high voltage cables using DC are only recently available with this high-power delivery capability.

Installation
The two-cable bundle is precisely laid on the lakebed in the first crossing of a special cable-laying vessel. Once the cable laying process is completed, the cable will be buried by the jet plow tool (see longitudinal and cross section diagram) controlled from the same vessel.

The cable immediately settles into place six feet under the lakebed, as the jet plow fluidizes the lakebed with pressurized water through many small nozzles. Most of the sediment stays in the narrow trench as the jet plow completes the burial.

What are the benefits from the Lake Erie Link (LEL) Project?
The LEL Project will provide many benefits to consumers in Pennsylvania, Ohio and Ontario. For example, the LEL will:

• increase the reliability of the power system by providing additional supply security to consumers
• increase the opportunity for economic trade of electricity between Canada and the U.S. by adding new transmission capacity between Ontario and the U.S.
• give customers more choice of electricity suppliers by providing suppliers greater access to more markets
• potentially reduce the volatility of electricity prices by providing access to additional competitive out-of-region electricity supplies.

Why is this proposal a "merchant" transmission project?
The LEL will be the first competitive transmission network facility built in response to the opening of the electricity markets in Pennsylvania, Ohio and Ontario. It will link the Ontario transmission network with the US transmission network south of Lake Erie. This project is a market-based response in which the investors in the transmission line will assume the entire risk of the project's success or failure by providing access to willing transmission customers in Ontario, Pennsylvania and Ohio. Unlike a regulated transmission line, the users of the line will pay for the right to use it.

As a result, captive transmission service ratepayers in Ontario, Pennsylvania and Ohio will not subsidize the charges for this line (e.g. construction, operation, maintenance, etc.). It is an example of a successful competitive electricity market at work for the region.

For more information visit www.lakeerielink.com. ET