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December 10, 2010
NEM Winter Executive Committee Meeting

NEM's Winter Executive Committee will take place January 17-19, 2011, at the Doral Hotel and Resort in Miami, Florida. An agenda will be forthcoming. Many thanks to Doug Marcille and U.S. Gas and Electric for hosting the Winter Meeting. Hotel reservations should be made at this hotlink.

You may register for the Winter Executive Committee Meeting at:

CFTC Implementation of Dodd Frank Act

CFTC continues to hold open meetings on the consideration of proposed rules to implement the Dodd Frank Act. Significantly within the past week, CFTC has issued proposed language on the definition of "swap dealer," the de minimis exemption from the definition of "swap dealer," "major swap participant," and the end-user exemption.

With respect to the definition of "swap dealer" CFTC intends to closely follow the statutory language in Dodd Frank but also distinguishing them as follows:
"• swap dealers tend to accommodate demand for swaps from other parties;
• swap dealers are generally available to enter into swaps to facilitate other parties’ interest in entering into swaps;
• swap dealers tend not to request that other parties propose the terms of swaps; rather, they tend to enter
into swaps on their own standard terms or on terms they arrange in response to other parties’ interest; and
• swap dealers tend to be able to arrange customized terms for swaps upon request, or to create new types of swaps at their own initiative."

The de minimis exemption from the definition of "swap dealer" would apply to those: 1) whose aggregate effective notional amount of swaps over the past 12 months does not exceed $100 million; 2) whose aggregate effective notional amount of swaps with special entities over the past 12 months does not exceed $25 million; 3) who does not deal with more than 15 counterparties, other than security-based swap dealers, over the 12 month period; and 4) who do not enter more than 20 swaps as a dealer over the past 12 months.

CFTC also issued proposed language on the end-user exemption to the mandatory clearing requirement for swaps when at least one party to the swap is not a “financial entity,” the swap is being used to hedge or mitigate commercial risk, and a notice is provided regarding how it generally meets its financial obligations associated with entering into non-cleared swaps. In determining whether a swap hedges or mitigates commercial risk, factors will include:

"• qualifies as bona fide hedging under CEA rules;
• qualifies for hedging treatment under Financial Accounting Standards Board Accounting Standards Codification Topic 815, Derivatives and Hedging (formerly known as Statement No. 133); or
• is economically appropriate to the reduction of risks in the conduct and management of a commercial enterprise, where the risks arise in the ordinary course of business from:
o a potential change in the value of (i) assets that a person owns, produces, manufactures, processes, or merchandises, (ii) liabilities that a person incurs, or (iii) services that a person provides or purchases;
o a potential change in value related to any of the foregoing arising from foreign exchange rate movements; or
o a fluctuation in interest, currency, or foreign exchange rate exposures arising from a person’s assets or liabilities."

The full texts of the CFTC Fact Sheets and Q&A Sheets on Swap Dealers and the End-User Exemption are available on the NEM Website.

Tennessee Gas Pipeline Rate Case

Tennessee Gas Pipeline filed a new rate case, its first since the approval of its rate case settlement in 1996. Tennessee gas proposes in the case to change to a straight fixed variable rate design. The proposed rates would provide Tennessee Gas with, "An overall rate of return of 10.91 percent based on Tennessee’s actual capital structure of 54.54 percent equity and 45.46 percent debt, with a return on equity (“ROE”) of 13.5 percent and a cost of debt of 7.81 percent. Tennessee’s adoption of a 13.5 percent ROE is in recognition of the overall high risk that Tennessee faces." The filing also includes reservation charge billing determinants, new pooling locations and modified scheduling priorities. It also notes that, "The overriding impact of the rate changes proposed by Tennessee in this case is produced by the rebalancing of Tennessee’s rate structure between the base transportation rates and the fuel retention rates combined with the shift to SFV rate design. The substantial increase in reservation rates is offset by a reduction in usage rates, as well as Tennessee’s anticipated reduction in fuel retention rates." The full texts of Tennessee Gas' Filing Letter and Statement of Basis for Proposed Changes are available on the NEM Website.

Click here to view all past updates.
Nicor Gas and AGL Resources Announce Merger

AGL Resources has announced its intent to purchase Nicor Gas. Subsequent to the merger, AGL Resources, will maintain its corporate headquarters in Atlanta, Georgia and gas distribution headquarters will be located in Naperville, Illinois.

The merged companies will have:
"Seven regulated natural gas distribution companies providing natural gas service to approximately 4.5 million customers in Illinois, Georgia, New Jersey, Virginia, Florida, Tennessee and Maryland, with a rate base of $3.8 billion;
Over 1 million retail customers in the unregulated businesses;"

The merger is conditioned on approval by the shareholders, ICC and FCC as well as the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Act.

Click here to view all past updates.
NEM Comments on Agent Licensing

The Commission requested comment on two specific questions on agent licensing:

"1. Should sales representatives and non-traditional agents be required to obtain a license to operate as electricity or gas brokers? Please explain your reasoning and offer any legal or policy support for your conclusion.

2. If there are circumstances or conditions that would warrant licensing of some sales representatives and non-traditional agents but not all, please state how you believe the Commission should distinguish between those needing a license and those who should not be required to obtain one. Please provide any legal or policy support for this position."

In response to these questions, NEM suggested that the Commission find that agents, including non-traditional agents, that transparently represent a supplier on an exclusive basis should not need a separate license. In other words, an agent that is operating under the identity of an electric or gas marketer so that the consumer associates the transaction with that of the marketer, and that agent is operating under an exclusive agreement with the marketer, should not need to be licensed. Any complaints or inquiries that the Commission might receive would be made under the name of the marketer and the agent’s conduct would be actionable under the marketer’s license with the Commission. This will ensure accountability for agent conduct. Moreover, the adoption and application of a bright line test will facilitate understanding, compliance and administration for suppliers, agents and the Commission.

Likewise, NEM recommended that non-traditional agents such as church groups, rotary clubs and the like, that are making an offer through an exclusive agreement that they have with a marketer should not need to be licensed.

The full text of NEM's Comments is available on the NEM Website.

New York
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NFG Revisions to Cash Out of Imbalances Proposal

NFG filed revisions to its previous proposal to change from the rollover of imbalances to the mandatory cash out of imbalances. Specifically, NFG proposed to utilize a safe harbor from the pricing tier structure such that when the system imbalances for the month are within the range 5% long to 5% short, then imbalance holders would be subject to market pricing. Additionally, NFG would implement, "a safe harbor under which an individual Imbalance Holder would be assigned to the Market Pricing Tier without regard to its imbalance position. If the Imbalance Holder’s allocated deliveries for each of the pools for which it is responsible are within 2% of the ADDQs provided by the Company, then the safe harbor will apply."

NFG also modified the proposed tariff language describing the situation under which rollover of imbalances would be utilized instead of cash out. "Should industry events lead to circumstances under which resolution of imbalances via cash-out is detrimental to the integrity of the Company’s system, as operating conditions permit or require, the Company may suspend the cash-out and resolve imbalances through rollover. In this case, the Company will post notice on its web site as soon as practicable and no later than the beginning of imbalance trading. After imbalance trading is complete, the Company shall adjust the applicable ADDQ for the next following month that operating conditions permit, upward to reconcile a net STBA deficiency in the billing month, or downward to reconcile a net STBA surplus in the billing month."

The full text of NFG's Revised Cash Out of Imbalances Proposal is available on the NEM Website.

Click here to view all past updates.
Commission Begins Proceeding on AEP-OH Capacity Rate

The Commission has initiated a proceeding to examine the capacity rate of AEP-OH. AEP-OH made a related filing at FERC proposing to change the basis for compensation for capacity costs to a cost-based mechanism and including proposed formula rate templates under which it would calculate capacity costs. The Commission noted that it recently approved retail rates for AEP-OH based on the current capacity charges established by the three-year capacity auction conducted by PJM under the current fixed resotirce requirement mechanism. Accordingly, the Commission determined to, "adopt as the state compensation mechanism for the Companies the current capacity charges established by the three-year capacity auction conducted by PJM, Inc. during the pendency of this review."

In order to review the impact of the proposed change in capacity charges, the Commission has issued the following questions for comment:

"(1) what changes to the current state mechanism are appropriate to determine the Companies' FRR capacity charges to Ohio competitive retail electric service (CRES) providers;
(2) the degree to which AEP-Ohio's capacity charges are currentiy being recovered through retail rates approved by the Commission or other capacity charges; and
(3) the impact of AEP-Ohio's capacity charges upon CRES providers and retail competition in Ohio."

Comments are due thirty days from the date of the order and replies are due in forty five days from the date of the Order. The full texts of the Order and AEP's FERC Filing are available on the NEM Website.

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