Securities Law & Instruments

IN THE MATTER OF
THE SECURITIES ACT, R.S.O.1990,
CHAPTER S.5 AS AMENDED (THE"ACT")

AND

IN THE MATTER OF
INDEPENDENT ELECTRICITYMARKET OPERATOR

EXEMPTION ORDER

UPON the applicationof the Independent Electricity Market Operator (the "IMO")to the Ontario Securities Commission (the "Commission")for an order pursuant to section 147 of the Act exempting theIMO from recognition under section 21 of the Act'

AND UPON the applicationof the IMO to the Director (as such term is defined in section1 of the Act) for an order pursuant to section 15.1 of NationalInstrument 21-101 exempting the IMO from the operation of NationalInstrument 21-101;

AND UPON consideringthe application and the recommendation of the staff of the Commission;

AND UPON the IMO havingrepresented to the Commission that:

Background:

1. the IMO is an independent,not for profit, non share capital corporation created pursuantto Part II of the Electricity Act, 1998 (Ontario) (the"Electricity Act");

2. the Government of Ontariohas assigned the responsibility for creating and administeringthe IMO-administered markets the IMO;

3. the IMO has been allocatedthe statutory mandate of meeting the following objects asset out in subsection 5(1) of the Electricity Act:

(a) to exercise and performthe powers and duties assigned to the IMO under the ElectricityAct, the Market Rules and the OEB License as issued by theOEB;

(b) to enter into agreementswith transmitters giving the IMO authority to direct theoperations of their transmission systems;

(c) to direct the operationsand maintain the reliability of the IMO-controlled gridto promote the purposes of the Electricity Act;

(d) to establish and operatethe IMO-administered markets to promote the purposes ofthe Electricity Act;

(e) to collect and provideto the public, information relating to the current and futureelectricity needs of Ontario and the capacity of the integratedpower system to meet those needs;

(f) to participate in thedevelopment of standards and criteria relating to the reliabilityof Ontario's transmission systems; and

(g) to work with the responsibleauthorities outside of Ontario to efficiently and effectivelyco-ordinate the IMO's activities with their activities;

4. the markets administeredand operated by the IMO in accordance with the ElectricityAct consist of both physical and financial markets;

5. the physical markets governthe real-time operation of the power system, allowing loadand generation to be balanced, flows on the transmission systemto be within limits and voltage and frequency to be maintained;

6. the financial markets,which are the subject matter of this Application, consistsof: (i) the Energy Forward Market (the "EFM"),wherein market participants can acquire financial contractslinked to the real-time hourly energy market on a forwardbasis; and (ii) the Transmission Rights Market (the "TRM"),wherein market participants can acquire financial contractslinked to locational price differences across the interties.The first auction of rights within this latter market is scheduledto occur on April 1, 2002;

7. in carrying out its objects,the IMO is empowered to and has developed a codified set ofrules to govern the wholesale electricity marketplace in Ontario(collectively the "Market Rules");

8. the provisions of the MarketRules are intended to be complete codes, covering the formand content of the transactions (collectively the "Contracts")to be entered into by market participants in the EFM and theTRM (collectively, the Financial Markets");

9. the Contracts are issuedby the IMO;

10. all persons interestedin becoming authorized market participants in either or bothof the Financial Markets (whether as electricity industryparticipants or otherwise) must be approved in advance bythe IMO. The IMO does not require prospectus and registrationrelief in Ontario, since all authorized market participantsin the Financial Markets will be required to meet financialthresholds that are at least equal to those to be appliedunder Commission Rule 45-501 dealing with "accreditedinvestors";

Regulatory Oversight

11. the IMO operates pursuantto the license (the "OEB Licence") grantedto it by the Ontario Energy Board (the "OEB")under the Ontario Energy Board Act, 1988 (the "OEBAct") . The OEB is the sole regulatory board underthe Electricity Act vested with the powers of oversightin connection with the business and/or aim of the IMO, includingits operation of the Financial Markets;

12. the IMO is bound to makecertain reports to the Minister of Energy, Science and Technology(the "Minister") pursuant to the ElectricityAct and to the OEB pursuant to the OEB Licence;

13. the IMO, its operationof the Financial Markets and the Financial Markets themselvesshall not be subject to the regulatory oversight of any provincialsecurities commission or security regulatory authority;

14. section 32 of the ElectricityAct permits the IMO to make rules"...establishing andgoverning markets related to electricity...". As partof its efforts, the Market Design Commission prepared a setof "Market Rules for the Ontario Electricity Market"in early 1999. Since that time, the IMO has been refiningthose rules. The approval process at the present time requiresany new rule or rule amendment to be approved by the Boardof Directors of the IMO by at least a two-thirds majorityand then submitted to the Minister for final approval. TheMarket Rules are publicly available and are accessible onthe Internet and may be downloaded from the IMO's websiteat:

15. pursuant to subsection32(6) of the Electricity Act, upon opening of the IMO-administeredmarkets, the Minister will transfer formal rule making authorityto the IMO, subject at all times to the appeal rights to theOEB, as set out in the Electricity Act. In addition, the IMOhas the power to amend the Market Rules on an urgent basispursuant to section 34 of the Electricity Act, subjectat all times to the rights to the OEB, as set out in the ElectricityAct;

16. all Contracts concludedwithin the Financial Markets will conform to the Market Rules,and all market participants will receive transaction confirmationsfrom the IMO in accordance with the provisions thereof;

17. the IMO has the mandateto administer, supervise and enforce all aspects of the IMO-administeredmarkets and has put in place employees and diagnostic softwareto fulfill this function.

AND UPON the Commissionbeing satisfied that to do so would not be prejudicial to thepublic interest;

IT IS HEREBY ORDEREDby the Commission that, pursuant to section 147 of the Act,the IMO is exempt from recognition under section 21 of the Act,provided that the IMO continues to operate pursuant to a validlicence issued by the OEB.

March 6, 2002

"D.A. Brown"                    "PaulM. Moore"

IT IS FURTHER ORDEREDby the Director that, pursuant to section 15.1 of National Instrument21-101, the IMO is exempt from National Instrument 21-101 inwhole, provided that the IMO continues to operate pursuant toa valid licence issued by the OEB.

March 6, 2002.

"C. Macfarlane"