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January 11, 2008
2008 NEM Winter Executive Committee Meeting and Annual Spring Membership Meeting

NEM will hold its Winter Executive Committee and Policy Development Meeting on January 17 and 18, 2008, at the South Carolina Research Authority in Charleston, South Carolina for a third time. Please register at this hotlink. Hotel accommodations have been arranged at the rate of $109 per night at the Hilton Garden Inn, Charleston Airport, 5265 International Blvd., North Charleston, SC 29418. Please call (843) 308-9330 to make your reservations. An agenda for the meeting is available at this hotlink.

NEM booked the new Embassy Suites Hotel Washington D.C. Convention Center for the Annual Spring Membership Meeting and Restructuring Conference on April 29 and 30, 2008. Hotel accommodations have also been arranged at this facility located at 900 10th Street, NW, Washington, DC 20001. NEM has secured preferred hotel rates of $259.00 per night. Please call (202) 739-2001 to make your reservations.

Please call headquarters for sponsorship opportunities for the Spring Event as advertisements are currently being developed. Your attendance, participation and sponsorship of these events are needed and would be greatly appreciated as would your input on speaker invitations and discussion topics.

FERC Requires Annual Reporting of Wholesale Natural Gas Transactions

FERC issued Order 704 and corresponding Form 552 requiring annual reporting of wholesale natural gas transactions. FERC explained the new reporting requirement as requiring that, "any buyer or seller of more than a de minimis volume of natural gas report aggregate volumes of relevant transactions in an annual filing using a new form, Commission Form No. 552. A market participant buying or selling less than a de minimis volume that operates under blanket sales certificate authority pursuant to [section] 284.402 or [section] 284.284 of the Commission's regulations must also submit a Form No. 552 for identification and certain reporting purposes, but is not required to report aggregate volumes of relevant transactions. A market participant that buys or sells less than a de minimis volume but that does not operate under blanket sales certificate authority need not submit a Form No. 552." Forms will be due on an annual basis commencing May 1, 2009, for the 2008 reporting year. A de minimis volume is defined as less than 2,200,000 MMBtus annually.

Form 552 filers will report information pertaining to: "a. the total volume of transactions for the previous calendar year; b. the volume of transactions that were priced at fixed prices for next-day delivery and were reportable to price index publishers; c. the volume of transactions priced by reference to next-day gas price indices; d. the volume of transactions that were priced at fixed prices for next-month delivery and were reportable to price index publishers; and e. the volume of transactions priced by reference to next-month gas price indices."

A significant decision made by the Commission in the Order was to exclude retail transactions from the reporting requirement, as had been requested by NEM. The Commission explained, "restricting reporting only to clearly wholesale transactions should provide a reasonable set of data for assessing wholesale price activity, without burdening retail or end-use customers. Consequently, the Commission does not require end-use customers or retail buyers to report transaction information unless they also make wholesale sales or purchases of natural gas greater than the de minimis threshold. Likewise, a transaction made to an end-user is not be included in the volumes reported on the form."

The full texts of FERC Order 704 and Reporting Form 552 are available on the NEM Website.

New York
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Consumer Petition on ESCO Marketing Practices

The Consumer Protection Board (CPB) and Department of Consumer Affairs (DCA) filed a petition with the Commission on marketing practices of electric and natural gas ESCOs. CPB and DCA suggest that, "All ESCOs offering service to residential and small business customers in New York should be required to abide by a minimum set of marketing rules to ensure that consumers are protected from deceptive sales practices, and those rules must be enforced by the PSC with a range of sanctions including termination of a company's authorization to do business in New York. This can be accomplished by adding a new Section 10 to the UBP setting forth a Statement of Principles for ESCOs marketing to residential and small commercial customers, modeled after the voluntary Statement of Principles, with certain modifications." CPB and DCA recognize that "many ESCOs" conduct their business in an "appropriate manner." Nevertheless, they allege that, "the vast majority of consumers who are unhappy with their experience with an ESCO because of the marketing practices or conduct of a sales representative do not complain to us, the PSC or any other consumer agency."

Interestingly, CPB and DCA note, "under existing PSC rules, there does not appear to be any mechanism by which the Commission itself can sanction an ESCO on the basis of its marketing tactics other than to resort to the general prohibitions against deceptive acts and practices and false advertising incorporated in Sections 349 and 350 of the General Business Law." CPB/DCA argue, "the PSC should have clearly defined legal authority for acting directly to sanction ESCOs whose marketing practices it deems to be detrimental to consumers and to prevent further harm."

The full text of the CPB/DCA Petition is available on the NEM Website.

Order in NFG Rate Case

The Commission issued an Order in NFG's rate case granting the utility a $1.8 million increase in revenues. NFG was directed to convene a collaborative to discuss costs, benefits and best practices for an "optimal" ESCO referral program, including whether ESCOs should pay all or part of the implementation costs. NFG must file a report with the Commission detailing the collaborative effort. The Commission noted that NFG will be providing a POR program for the rate year and that it may not terminate the program without twelve months prior notice. The Commission approved Staff's cost allocations to result in a Merchant Function Charge of approximately $0.5050/Mcf and $0.2479/Mcf for residential and non-residential customers respectively. The Commission approved a billing and processing charge of approximately $1.07. Relatedly, the Commission directed NFG to stop including a billing charge on consolidated bills and to instead charge ESCOs serving said customers. The Commission also determined to retain the "no harm, no foul" rule for deviations from daily delivery requirements. The full text of the Order is available on the NEM Website.

Order on Keyspan Rate Settlement

The Commission approved a rate settlement for Keyspan to implement a number of retail access initiatives. The settlement term is for five years, commencing January 1, 2008, and ending December 31, 2012. The settlement provided that Keyspan NY (KEDNY) will begin a POR program by October 1, 2008, for ESCOs participating in consolidated billing. The Keyspan LI (KEDLI) POR program will begin on or before April 1, 2009. Significantly, the Commission decided, "we might want the two companies [KEDNY and KEDLI] to implement ESCO referral programs." In order to make a determination, the Commission directed that a collaborative be convened to discuss an "optimal" ESCO referral program, with a report required to be submitted to the Commission.

The settlement set forth KEDNY and KEDLI merchant function charges (MFCs). The MFC includes uncollectibles, return on working capital, return on gas in storage, collection costs, and gas procurement/sales promotion. KEDNY's MFC will be as follows ($/dt): 2008 - 0.567, 2009 - 0.565, 2010 - 0.558, 2011 - 0.551, and 2012 - 0.540. KEDLI's MFC will be as follows ($/dt): 2008 - 0.377, 2009 - 0.374, 2010 - 0.367, 2011 - 0.361, and 2012 - 0.352.

KEDNY's billing and payment processing rate will be $0.76 per bill as of January 1, 2008, and this rate will also serve as the ESCO consolidated billing fee. KEDLI's billing and payment processing rate as of January 1, 2008, will be $0.65 per bill, and will also serve as the ESCO consolidated billing fee.

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

Order Initiating Electric Reliability and Infrastructure Planning

The Commission issued an Order requiring that a collaborative process be started to develop a means for it choose amongst electric regulatory backstop proposals. The collaboratives initial task is to focused on regulated backstop projects that may be needed in the near term, including a proposed process and decisional standards for approving such projects. The collaborative is also charged with developing a long term (10 to 15 year) electricity resource plan. The Commission reiterated its support for competitive markets "as the most efficient means to serve the public interest." The Commission clarified that, "even if regulatory intervention is required, we intend to use market mechanisms (e.g., competitive bidding) to achieve those ends to the extent feasible."

The Commission also clarified its policy on long-term contracts. The Commission stated, "it is our policy to continue to encourage the use of voluntary forward contracts of all durations by all parties, together with all other instruments legitimately used in any competitive market." However, "to the extent required, mandatory utility long-term contracts can be used as a last resort to facilitate new investment for reliability or other policy reasons, if the market fails to provide such capacity."

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

ALJs Recommended Decision in ConEd Electric Rate Case

The ALJs in ConEd's electric rate case issued their Recommended Decision (RD). The RD recommends that ConEd implement changes to its Market Supply Charge (MSC-paid by full service customers only) and Monthly Adjustment Clause (MAC-paid by all customers). The following cost elements should be moved from the MAC to the MSC: "1) all costs incurred for financial hedging instruments and the net impact of impact of financial hedging instruments, on and after May 1, 2008; 2) NYISO commodity-related rebills for prior months' costs issued to the Company on or after May 1, 2008; 3) total costs, rather than only market costs, associated with energy and capacity contracts entered into on or after May 1, 2000 to serve full service customers, except for public policy contracts; 4) the monthly amortized cost of TCCs purchased on behalf of full service customers through NYISO auctions, direct sales or from the secondary market, on or after May 1, 2008; and 5) revenues received on or after May 1, 2008, from TCCs held on behalf of full service customers." ConEd must also file a plan for the revision of its MSC to reflect actual day-ahead market prices in effect during each customer's billing period.

The ALJs recommended certain changes for the retail access program - enhance the ESCO referral program and permit ESCOs to enroll customers in the referral program; modification of the POR program to apply the discount to the sales taxes billed to customers for commodity supplies; and conform the electric tariff to the gas tariff dispute resolution process. Additionally, the ALJs recommended that: 1) ConEd report to the Commission on the feasibility of providing new customer referrals to ESCOs, 2) ConEd provide its view of ESCO access to customer lists, consumption information and usage profiles in its brief on exceptions, and 3) ConEd merge its two merchant function charges (MFCs) into a single charge and that a single MFC and POR discount be calculated including the commodity-related credit and collection costs.

The ALJs recommended expansion of the Mandatory Hourly Pricing (MHP) program to customers with maximum demand greater than 500 kw in any month during an annual period ending September 30, subject to enhanced outreach and education efforts. The ALJs deferred to the Commission on an implementation schedule for expanded MHP.

Briefs on exception to the RD are due January 28, 2008, and reply briefs on exception are due February 12, 2008. The full text of the Recommended Decision is available on the NEM Website.

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DEO, VEDO and Columbia Gas Filings to Exit Merchant Function

DEO, VEDO and Columbia Gas all recently submitted filings with the Commission contemplating an exit from the merchant function.

DEO submitted a filing to implement Phase 2 of its exit from the merchant function. In Phase 2, DEO proposes to hold two auctions. The Standard Choice Offer (SCO) auction will be held to determine suppliers to serve specific, choice eligible customers. Under the SCO option, DEO will continue to take title to the gas and resell it. The second Standard Service Offer (SSO) auction will determine the suppliers of tranches of wholesale load comprised of PIPP and non-choice eligible customers. DEO notes the expectation that SCO service will yield the benefits of eliminating the market distortions created by the former GCR process (also realized in Phase 1) as well as permit suppliers to avoid customer acquisition costs. As before, customers eligible to participate in choice can do so at any time by enrolling with a competitive supplier or government aggregation program. DEO proposes to implement Phase 2 effective with the first appropriate billing cycle in September 2008. It proposes to conduct the SCO auction by July 25, 2008. The term of Phase 2 SCO and SSO service will run from September 1, 2008, through March 31, 2010. DEO contemplates one final SCO auction for the supply term of April 1, 2010, through March 31, 2011, after which time choice eligible customers would be required to select a retail supplier or governmental aggregator. DEO would continue to conduct SSO auctions after Phase 2 to serve PIPP and non-choice eligible customers. The full text of DEO's Filing is available on the NEM Website.

VEDO filed an application to begin a two phase process as a result of which, "VEDO exits the merchant function and all VEDO customers are receiving commodity from non-utility commodity suppliers." Phase 1, the Standard Service Offer phase, will entail use of a wholesale supply auction (consistent with the descending clock auction process used by DEO in its Phase 1) to serve tranches of load. Phase 1 will transition customers from the current GCR mechanism and its inherent distortions. Phase 1.5, the Standard Choice Offer phase, will also utilize an auction process that will result in customers being assigned to specific choice suppliers. Phase 2, the Full Choice phase, entails a direct retail relationship between all customers and competitive suppliers. Phase 2 is not addressed in VEDO's application. The full text of VEDO's Filing (Part 1, Part 2, Part 3, Part 4) is available on the NEM Website.

Columbia Gas filed a settlement addressing certain outstanding GCR and choice program issues. The settlement proposes to institute a transition period running from November 1, 2008, to March 31, 2010, during which Columbia's choice program will be available. During the transition period, stakeholders will work to develop a wholesale gas supply auction to replace the current GCR mechanism, with the intent for Columbia to file a proposed auction process by February 1, 2009, for implementation by April 1, 2010. Stakeholder discussions during the transition will also focus on: 1) choice program services and costs, 2) the choice program enrollment process, 3) educational initiatives, 4) storage costs and access; 5) capacity assignment, and 6) the potential for Columbia's exit from the merchant function. The full text of the Columbia Settlement is available on the NEM Website.

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