You asked how the members of the board of directors of the Independent System Operator-New England (ISO-New England) are selected. You also wanted to know what restrictions are placed on the ties between the members and the industries ISO-New England and how these restrictions are enforced.

SUMMARY

The original board members were selected by the New England Power Pool (NEPOOL), a regional electric industry association that was in certain regards the predecessor of ISO-New England and by members of the New England Conference of Public Utility Commissioners (NECPUC), the state officials who regulate the industry. Subsequently, the board has filled its own vacancies.

Members of the board are subject to a Code of Conduct that bars them from owning securities in or being employed by companies that participate in the wholesale electric market. Directors are barred, with limited exceptions, from accepting gifts from these companies. They are also barred from engaging in outside activities that might impair their impartiality or their ability to perform their duties. Similar restrictions apply to ISO-New England officers and employees. All individuals subject to the Code of Conduct are subject to removal from office for violations of the code, and they must sign a statement indicating their compliance with the code.

FORMATION AND SELECTION OF BOARD MEMBERS

ISO-New England was created in July 1997 and has jurisdiction over electric generators, transmission facility owners, and other participants in the wholesale electric market. ISO-New England is in turn subject to the Federal Energy Regulatory Commission’s (FERC) jurisdiction.

ISO-New England is in certain regards the successor to NEPOOL, an industry group that was established in 1971. NEPOOL established a “tight pool” in which the operations of generators and transmission facilities were coordinated to ensure reliability of electric service. ISO-New England took on these responsibilities and assumed responsibility for administering the wholesale power market, which FERC had opened to competition. In order to be approved by FERC, ISO-New England had to demonstrate that it was independent of participants in the wholesale market.

NEPOOL cooperated with NECPUC in forming ISO-New England and in naming its original board of directors. Under ISO-New England’s bylaws, board members fill vacancies on the board. The board currently has ten members. Most of the members have backgrounds outside of the electric industry, including a retired chief operating officer at Coopers & Lybrand, the former chief executive officer of the Chicago Board of Options Exchange, a professor of electrical engineering at the Massachusetts Institute of Technology, and a professor of law and economics at Yale. However, the chairman of the board is the retired chairman of Dominion Resources and Virginia Power, and the chief executive officer of ISO-England also serves on the board. An ISO-New England Website, http: //www. iso-ne. com/about_the_iso/iso_board. html, provides additional information regarding the current board.

RESTRICTIONS ON BOARD MEMBERS

Members of ISO-New England board of directors are required to comply with its Code of Conduct (attached), which governs their relationships with participants in the wholesale market and certain other persons and entities.

Members, their spouses, and their minor children are prohibited from purchasing securities of market participants or their affiliates. They must divest themselves of securities they already own within one year of the

director’s election to the board. If the director, spouse, or child owns securities in a company that becomes a market participant, he must divest himself of the securities within one year of this event.

An ISO-New England director cannot be a director, officer, employee, or partner of a market participant. Generally, a former executive officer of participant in the former NEPOOL market cannot become an ISO-New England board member. A member cannot have an on-going business or professional relationship with a market participant, other than being a utility customer. The director cannot participate in wholesale market transactions, for example as a broker.

The Code of Conduct also bars activities that could be construed as a conflict of interest. A director or member of his family may not accept gifts or services from market participants and their affiliates and anyone doing business with ISO-New England. However, occasional business- related meals or entertainment are allowed if this does not jeopardize the director’s independence. Directors are also barred from offering anything of more than nominal value to a market participant, its affiliate, or a government official or entity.

Directors are barred from (1) engaging in any outside activity that interferes with or materially decreases their impartiality, judgment, effectiveness, productivity or ability to perform their duties; or (2) engaging ISO-New England employees in such activities. Finally, making illegal political contributions is considered a conflict of interest.

Similar rules apply to ISO-New England officers, employees, and full-time contractors. The board’s Audit and Finance Committee can grant economic hardship exceptions to the above rules to these individuals, but not to directors.

The code is enforced by ISO-New England’s compliance officer. Directors and other people subject to the Code of Conduct must annually sign a compliance form. The signer must indicate that (1) he has complied with the Code of Conduct and is not aware of any violations by other subject to it or (2) or has complied with the code and is aware of potential conflicts by other people, which the signer must describe.

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