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December 14, 2012
NEM Winter Executive Committee Meeting

Please mark your calendars for NEM's Winter Executive Committee Meeting to be held on January 28-30, 2013. The meeting will once again be held at SCRA located at 5300 International Blvd, North Charleston, South Carolina. Many thanks to Bill Mahoney and SCRA for graciously hosting us. You may register for the meeting at this hotlink. Accommodations for the meeting have been arranged at the Hilton Garden Inn. Please use this hotlink to make your hotel reservations.

Click here to view all past updates.
Commission Adopts Final Electric Marketing Rules

Having cleared the hurdle of the Illinois Joint Committee on Administrative Rules previous rejection of its electric marketing rules by changing a number of rule provisions, the Commission has issued a final order and regulations establishing requirements for consumer education and protection in electric choice programs. The final rules eliminated a number of requirements that had been opposed by NEM and other stakeholders. This includes eliminating the previously proposed $50 cap on the early termination fee; the proposed hour restrictions on door-to-door solicitations; the rule provision that would have had the utilities' maintain a "Do Not Market" list. The final rules also do not include the previously proposed provision that would have prohibited a supplier from marketing using a similar name or logo to that of an electric utility or natural gas utility in Illinois. The Order also directs the Office of Retail Market Development to work with the stakeholders to develop a uniform disclosure statement as required to be furnished to consumers under the new rules. The final rules shall become effective as of January 1, 2013.

The full texts of the Final Order and Rules are available on the NEM Website.

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Retail Electric Market Investigation

Referencing 1999 and 2008 electric deregulation laws passed in the State, the Commission has opened a retail electric market investigation. The Commission explained, "As Ohio electric utilities are making the transition from functional to structural separation, the Commission finds it appropriate to evaluate the vitality of the competitive retail electric service markets supported by these legislative mandates now that the mandates have been in place sufficient time to assess the results." The Commission also cited as a source of concern the generation retirements that may cause insufficient generation capacity to meet reliability requirements.

The Commission noted its, "responsibility to encourage market access for retail electric service, including both supply- and demand-side products, and to protect consumers against market deficiencies and market power," prompting its request for comments on, "the extent to which barriers may exist to a consumer's means to choose a retail electric service that meets their needs." The Commission is requesting comments on a series of questions related to market design and corporate separation as follows:

"Market Design
(a) Does the existing retail electric service market design present barriers that prevent customers from obtaining, and suppliers from offering, benefits of a fully functional competitive retail electric service market? To the extent barriers exist, do they vary by customer class?
(b) Does default service provide an unfair advantage to the incumbent provider and/or its generation affiliate(s)?
(c) Should default service continue in its current form?
(d) Does Ohio's current default service model impede competition, raise barriers, or otherwise prevent customers from choosing electricity products and services tailored to their individual needs?
(e) Should Ohio continue a hybrid model that includes an ESP and MRO option?
(f) How can Ohio's electric default service model be improved to remove barriers to achieve a properly functioning and robust competitive retail electric service electricity market?
(g) Are there additional market design changes that should be implemented to eliminate any status quo bias benefit for default service?
(h) What modifications are needed to the existing default service model to remove any inherent procurement (or other cost) advantages for the utility?
(i) What changes can the Commission implement on its own under the existing default service model to improve the current state of retail electric service competition in Ohio?
(j) What legislative changes, if any, including changes to the current default service model, are necessary to better support a fully workable and competitive retail electric service market?
(k) What potential barriers, if any, are being created by the implementation of a provider's smart meter plans? Should CRES suppliers be permitted to deploy smart meters to customers? Should the Commission consider standardizing installations to promote data availability and access?
(l) Should the Commission consider standardized billing for electric utilities?
(m) Do third party providers of energy efficiency products, renewables, demand response or other alternative energy products have adequate market access? If not, how could this be enhanced?
(n) Does an electric utility have an obligation to control the size and shape of its native load so as to improve energy prices and reduce capacity costs?

Corporate Separation
(a) Whether an electric utility should be required to disclose to the Commission any information regarding the utility's analysis or the internal decision matrix involving plant retirements, capacity auction, and transmission projects, including correspondence and meetings among affiliates and their representatives?
(b) Should a utility's transmission affiliate be precluded from participating in the projects intended to alleviate the constraint or should competitive bidding be required?
(c) How long should a utility be permitted to retain their injection rights?
(d) As fully separate entities, does a utility's distribution affiliate have a duty to oppose the incentive rate of return at FERC?
(e) Is there a potential for consumers to be misled by a utility's corporate separation structure?
(f) Are shared services within a 'structural separation' configuration causing market manipulation and undue preference?
(g) Should generation and competitive suppliers be required to completely divest from transmission and distribution entities, maintain their own shareholders and, therefore, operate completely separate from an affiliate structure?
(h) Are there PJM tariffs or FERC rules that would mitigate market power and/or facilitate retail electric service competition?"

Comments are due January 30, 2013, and reply comments are due February 15, 2013. The full text of the Order is available on the NEM Website.

Click here to view all past updates.
NEM Comments on End State of Default Service

NEM filed comments on the Commission's Tentative Order in its Retail Market Investigation pertaining to the end state of default service. In the Tentative Order the Commission proposed to retain the utilities in the role of default service provider but also proposed changes to the default service pricing structure. NEM warned that so long as the utilities continue to provide default service, the market and Pennsylvania consumers will continue to suffer from a number of inequities, including: 1) a regulatorily-determined price will always be a poor proxy for a true market-based price as it suffers from timing lags, reconciliations, lack of transparency, and does not reflect the full costs of providing 24/7 no-notice commodity service; 2) utilities have multiple unfair competitive advantages as incumbent monopoly commodity providers because they have instant market share without customer acquisition costs as well as guaranteed cost recovery without the risks faced by their competitive supplier counterparts in the market; and 3) by its very nature, characterizing the utility price as the default service “Price to Compare” distorts the consumer perception of what constitutes value in the competitive marketplace, particularly when evaluating products of different time duration, green attributes and/or with other value-added characteristics. A prolonged process of migrating from the utility monopoly model to a competitive market model increases the social costs of the transition as it continues to require a great deal of regulatory intervention, particularly when the utilities are retained in the default service provider role rather than outsource such functions for private capital to enter the market and offer otherwise competitive supply and related products and services.

NEM urged that the Commission find that a fully competitive market structure is both the desired public policy goal of the Commonwealth, and based on the evidence adduced to date, it is also an end-state that best serves the interest of Pennsylvania consumers. In the interim during a transition period until that occurs, it is imperative that the utility default service rate reflect all of the costs of providing 24/7 no-notice default service. This should be accomplished through the embedded cost-based unbundling from delivery rates of all of the costs associated with providing default service so that those costs can be properly allocated to commodity rates and consumers can be presented with a true and accurate basis of comparison when shopping. Alternatively, the Commission should consider the use of a reasonably constructed adder to the proposed default service rate as a proxy to help approximate the absence of such rate unbundling and the proper allocation of default service-related costs.

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

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