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October 13, 2006
Upcoming NEM Meetings

Please note the following upcoming NEM meetings:

Fall 2006 Industry Leadership Roundtable - October 24-25, 2006, Doubletree Hotel, Wilmington, Delaware - Washington Gas Energy Services has generously offered to host the meeting. Vice Chairman Cawley of the Pennsylvania Public Utility Commission is confirmed as a keynote speaker for October 25th. Commissioner Lester of the Delaware Public Service Commission will also attend. Please note that room availability at the Doubletree is limited. (Doubletree reservations - 1-800-222-8733). Please register using this hotlink.

Joskow Assessment of Competitive Electric Markets

MIT Professor Paul Joskow authored an article entitled, "Markets for Power in the United States: An Interim Assessment." Joskow begins with a brief history of the transition to competitive wholesale and retail electric markets. Joskow makes a number of noteworthy observations about the development of wholesale markets, including: 1) between 1999 and 2004, approximately 200,000 MW of new generating capacity was finished of which 80% is accounted for by unregulated generating companies; 2) from 2001 to 2003, more new generating capacity entered the market than in any other period in U.S. history; 3) despite concerns about market power, Northeast wholesale markets appear to be very competitive, with the limited exception of certain small load pockets; and 4) price convergence in "SMD markets" between day ahead, hour ahead and real time markets is reasonably good and has improved over time. Joskow examines the current lack of incentives to invest in generating capacity. Joskow observes that, "Every organized market in the U.S. exhibits a similar gap between net revenues produced by energy markets and the fixed costs of investing in new capacity measured over several years time." Joskow also notes continued seams issues between ISOs and lack of demand response in wholesale markets.

With respect to retail competition, Joskow notes that the promise of lower prices was the principal selling point of deregulation. In order to determine if that has occurred, Joskow argues that, "the only sensible comparison is between what prices are at a point in time under a competitive institutional framework and what they would have been if the prevailing regulated monopoly framework had continued." Based on his analysis, Joskow concludes for the period of 1996 to 2004, "that real residential prices fell more in states that implemented retail competition programs than in those that did not." Joskow found "no consistent pattern in trends in real industrial prices" for states that implemented choice programs and those that did not.

On a more generalized note, Joskow states, "the revisionist history about the 'good old days of regulation' has conveniently ignored the $5,000/Mw nuclear power plants, the 12 cent/kWh PURPA contracts, the wide variations across utilities in the construction costs and performance of their fossil plants, and the cross-subsidies buried in regulated tariffs that characterized the regulatory regimes in many states. As we look at the costs and benefits of competition we should not forget the many costly problems that arose under regulation." The full text of Joskow's article can be viewed through this hotlink.

Dispute Resolution Process Ordered on NYISO Netting Bilaterals Project

NYISO filed a report on the implementation timetable for a netting bilaterals project. NYISO claims because of constraints with its current billing system and market interface system it cannot currently implement the project. Rather, the project should be implemented in conjunction with development and installation of its new billing sytem that will be completed in mid-2008. NYISO suggests that in order to achieve collateral requirements reductions in the meantime, load serving entities should incorporate bilateral transactions into their purchasing strategies. Comments received in opposition to the report note that the proposal has been under consideration for four years and request that NYISO be ordered to implement the program by a date certain (June 30, 2007) or implement a manual workaround until the computer changes can be made. Noting NYISO's resource limitations and the credit requirements faced by those participating in the NYISO market, the Commission ordered the parties to utilize dispute resolution to attempt to reach agreement on the scope of the netting bilaterals project and a timetable for its implementation. NYISO must file a report within 45 days on the status of negotiations. The full text of the Order is available on the NEM Website.

Click here to view all past updates.
MichCon Storage Gas Proposal

MichCon filed an application requesting ex parte approval of the sale of excess system gas supply and related accounting changes resulting from enhancements made to its gas storage system. As a result of storage facility enhancements, MichCon states it will be able to access previously unavailable Native Base Gas for which it “proposes to make, in total, a 17 Bcf decrement to its system-wide gas storage accounts.” As part of the proposal, MichCon proposes to sell 4 Bcf of Native Base Gas to “non-GCR customers at market prices” and “keep the entire financial benefit of these sales,” which it projects as $41.2 million dollars. Furthermore, MichCon states it would pass on the financial benefit of the remaining 13 Bcf decrement to its GCR customers, which it projected could provide gas cost savings to said customers of approximately $28 million dollars. MichCon also notes an $11.8 million annual revenue requirement reduction for implementation in its next rate case. MichCon states that the increased storage space could also provide the opportunity to sell gas storage service to third parties.

NEM intervened in the case noting its concern about the fairness and competitive neutrality associated with MichCon’s proposal to limit the benefit of the 13 Bcf decrement to only its GCR customers when there is a likelihood that all customers contributed to the base gas in their rates. Furthermore, by limiting benefits to gas cost reductions to be realized only by sales customers, MichCon will be distorting pricing signals in a manner that interferes with the functioning of the competitive market. An artificially-depressed GCR rate will not provide MichCon consumers with accurate market-based information from which they can draw comparisons to competitive offerings. Finally, given the nature of the MichCon Choice system, additional available working storage should mean that alternative suppliers can deliver even greater quantities throughout the injection season, since there will be significantly greater deliverability in the heating season based upon the increased working storage available. Under the current structure, this may be difficult to quantify given the flat nature of storage deliveries. As such, all customers, including Choice customers, should be compensated in some manner for the additional storage that will be made available to MichCon. The full texts of MichCon's Application and NEM's Intervention are available on the NEM Website.

New York
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Technical Workshop on Supply Procurement Practices

Staff will convene a technical workshop on supply procurement practices of electric utilities in New York and other states. The Workshop will be held October 20, 2006, at 10AM in the 19th floor board room of the Commission's Albany offices. The workshop will consist of Staff discussion of the background and purpose of the meeting, followed by a panel on supply procurement practices in neighboring states. Another panel, with representatives from ConEd/O&R, National Grid, Central Hudson and Energy East will talk about New York utility supply procurement practices, including the cost elements that comprise utility customer commodity charges and elements of the supply portfolio that can be made public. The meeting will conclude with a discussion of next steps. The full text of the Meeting Notice and Agenda are available on the NEM Website.

A request has made for an extension of the due dates for initial and reply comments to November 17, 2006, and December 11, 2006, respectively.

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Technical Conference on AEP Proposed Competitive Bid Process Plan

As a result of the Ohio Supreme Court decision and subsequent Commission Order, AEP was directed to file a plan to provide customers the ability to purchase electric service at a price determined through a competitive bid process (CBP). AEP filed a CBP plan providing for a "standard power service" option and a green power option. AEP would send customers a mailing in which they would indicate their willingness to opt-in to the standard power service option or green power option from a range of pricing levels, including below, at or above AEP's Rate Stabilization Plan rates. Subsequent to the competitive bid, customers would be offered another 21 day window in which they could opt-in to one of the final offerings. The RFP would seek wholesale bids for all the two supply options and the differing price levels. For each option, the total load for a price level will include the load for all higher price levels. Customers participating in the plan will be billed all of AEP's same standard service rates and riders applicable to non-participants. Participating customers base generation billings will be adjusted up or down in conformance with the option and price level under which they receive service. Administrative costs of the program will be collected from all customers through a non-bypassable charge. Metering requirements applicable to switching customers (customers with maximum monthly billing demands of 200 kw or greater for the most recent twelve months must have interval meters) will also apply to customers participating in the CBP program.

A technical conference will be convened on October 16, 2006, at 1PM in Hearing Room E of the Commission's offices for potential suppliers to ask questions and raise issues about AEP's proposal. Those wishing to participate by phone may call 614-644-1099.

The full text of AEP's Competitive Bid Process Plan is available on the NEM Website.

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