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December 3, 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 Study on Carbon Market Oversight

The Dodd Frank Act required the formation of a CFTC-headed working group to examine the, "oversight of existing and prospective carbon markets to ensure an efficient, secure, and transparent carbon market, including oversight of spot markets and derivative markets." In furtherance of this task, CFTC has issued the following questions for comment:

"1. Section 750 of the Dodd-Frank indicates that the goals of regulatory oversight should be to ensure that
carbon markets are efficient, secure and transparent. What other regulatory objectives, if any, should guide the oversight of such markets?
2. What are the basic economic features that might be incorporated in a carbon market that would have an effect on market oversight provisions—e.g., the basic characteristics of allowances, frequency of allocations and compliance obligations, banking of allowances, borrowing of allowances, cost containment mechanisms, etc.?
3. Do the regulatory objectives differ with respect to the oversight of spot market trading of carbon allowances compared to the oversight of derivatives
market trading in these instruments? If so, explain further.
4. Are additional statutory provisions necessary to achieve the desired regulatory objectives for carbon markets beyond those provided in the Commodity Exchange Act, as amended by the Dodd-Frank Act, or other federal acts that may be applicable to the
trading of carbon allowances?
5. What regulatory methods or tools would be appropriate to achieve the desired regulatory objectives?
6. What types of data or information should be required of market participants in order to allow adequate oversight of a carbon market? Should
reporting requirements differ for separate types of market participants?
7. To what extent is it desirable or not desirable to have a unified regulatory oversight program that would oversee activity in both the secondary carbon
market and in the derivatives markets?
8. To what extent, if any, and how should a U.S. regulatory program interact with the regulatory programs of carbon markets in foreign jurisdictions?
9. What has been the experience of state regulators in overseeing trading in the regional carbon markets and how would that instruct the design of a federal oversight program?
10. Based on trading experiences in SO2 and NOX emission allowances what regulatory oversight would market participants and market operators, respectively, recommend?
11. Who are the primary participants in the current primary environmental markets? Who are the primary participants in the current secondary allowance and derivatives environmental markets?"

Comments are due December 17, 2010. The full text of the Request for Comments is available on the NEM Website.

Petition on Pipeline Reservation Charge Credits

A group of trade associations petitioned FERC to exercise its authority under Section 5 of the Natural Gas Act and require pipelines to conform their tariffs with Commission policy on pipeline crediting during outages. The Petition argues that pipeline tariffs are largely not in compliance at present. The Petition requests that:

"(1) All pipelines incorporate into their tariffs an acceptable sharing mechanism that allows for partial reservation charge credits during outages that are due to unexpected and uncontrollable force majeure events, and
(2) All pipeline tariffs explicitly require full reservation charge credits to shippers during outages that are not due to unexpected and uncontrollable force majeure events."

The Petition also recommends that pipeline definitions of force majeure should be reviewed in order to ensure that shippers receive full credits for non-force majeure outages. The full text of the Petition is available on the NEM Website.

New Jersey
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Order on Retail Margin and Lowering CIEP Threshold

The Board issued its final order eliminating the BGS retail margin and lowering the CIEP threshold. The 5 mill retail margin applied to BGS-FP customers of 750kw or greater and all CIEP customers. The Board determined to eliminate the retail margin effective June 1, 2011. The Board reasoned that, "the purpose in imposing the Retail Margin was to stimulate formation of a competitive market for TPSs in New Jersey, not to maintain an artificially leveled playing field. The Board notes that N.J.S.A. 48:3-57(a)(1) does not require the Board to impose the Retail Margin, but merely permits the Board to impose the additional charge to encourage customers to shop among competitive suppliers of electricity with the goal of creating a competitive TPS market. The Board also agrees with the EDCs that the high switching rates and proliferation of competitive suppliers show that TPSs are able to cover their costs of doing business. Based on the information provided, the Board is persuaded that the Retail Margin is no longer needed as a proxy for these costs based on the proliferation of TPSs in New Jersey and the resulting economies of scale and scope available as a result of the additional load being served."

The Board also determined to lower the CIEP threshold to 750kw as of June 1, 2011. The Board found that, "This reduction should further encourage shopping and bolster the TPS market by enabling customers to see real-time pricing. It is this exposure to the actual costs of energy consumption that, the Board believes, serves as the prime mover in shopping and energy awareness. The Board believes the continued, incremental increase in the number of customers exposed to real-time pricing, coupled with the success and vigor of the TPS market, will minimize any rate impact to the customers subject to this change. Furthermore, the Board expects that the net rate impact will be minimal and can be effectively mitigated by customers through a combination of energy efficiency, shopping, demand response and conservation. The Board does, however, recognize that thrs reduction may have a rate impact upon the customers now subject to BGS-CIEP, and that incremental movement has value to ensure that the rate impact is minimized. Accordingly, the Board sees value in limiting the reduction to 750kW and not immediately moving to the 500kW range. Prospectively, the Board, upon review of the outcome of this change, may seek to further reduce the CIEP threshold in the future based upon the facts and circumstances at that point in time, Given the record presented herein, the Board believes that an incremental step is reasonable, prudent and warranted at this time."

The full text of the Order is available on the NEM Website.

Utilities File BGS Compliance Plans

The utilities filed joint and individual BGS compliance plans with the Board for procurement of power to serve Commercial and Industrial Energy Pricing (CIEP) and Fixed Price (FP) customers. Descending clock auctions will be used to procure power for both CIEP and FP load. The utilities explain that they will, "procure full-requirements service for their Commercial and Industrial Energy Pricing (BGS-CIEP) loads in a single, statewide Auction for a one-year term from June 1, 2011 to May 31, 2012. . . . BGS-CIEP is not a term-price service, but a service that is priced to the hourly market. Suppliers will be bidding for the right to serve a portion of BGS-CIEP Load for one or more EDCs."

With respect to FP load, "Approximately one-third of each EDC’s Basic Generation Service Fixed-Price (“BGS-FP”) Load was procured in an Auction held in February 2010 and is under contract until May 31, 2013. Approximately one-third of each EDC’s BGS-FP Load was procured through an Auction held a year earlier in February 2009 and is under contract until May 31, 2012. The remainder of each EDC’s BGS-FP Load was procured through an Auction held in February 2008 and these contracts will expire on May 31, 2011. The EDCs will procure full requirements service for the period June 1, 2011 to May 31, 2014, through a single, statewide Auction to be held in February 2011. . . . Suppliers will be bidding for the right to serve a portion of BGS-FP Load for one or more EDCs over the three-year period from June 1, 2011 to May 31, 2014." The full texts of the Compliance Plans are available at this hotlink.

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