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February 29, 2008
Annual Spring Membership Meeting

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. This year's theme is "Strategic Energy, Security & Advanced Technology Policies - Think Globally, Save Locally." Please register at this hotlink. A final agenda can be viewed at:

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.

Thus far, we have confirmed the following featured speakers for the event: U.S. Senator Jim DeMint (R-SC), Member, Energy and Natural Resources Committee, US House Majority Whip James Clyburn (D-SC), U.S. Congressman Tim Murphy (R-PA), FERC Commissioner Marc Spitzer, FERC Commissioner Jon Wellinghoff, CFTC Commissioner Michael Dunn, Natural Resources Canada Minister Gary Lunn, David Wales, Deputy Director, Bureau of Competition, Federal Trade Commission, Massachusetts DPU Chairman, Paul Hibbard, New York PSC Chairman, Garry Brown, Texas PUC Chairman, Barry Smitherman and Pennsylvania PUC Energy Advisor, Eric Matheson.

APPA Study Denounces RTO-Run Electricity Markets

APPA released a study in which it suggests that RTO-run wholesale electricity markets are not producing just and reasonable rates, and as a result, suggests that FERC has an obligation to institute an investigation. In the interim before such an investigation is completed, APPA recommends that FERC suspend establishment of new RTO-run centralized markets and implementation of new markets for additional products and services unless they are supported by all stakeholder classes and a cost-benefit analysis.

APPA recognizes that RTOs provide valuable services - OATT administration, elimination of pancaked rates, and coordinated regional planning of transmission. However, APPA criticizes alleged "dysfunctional" RTO features including the efficacy of LMP pricing, purported generator withholding incentives, and lack of long-term bilateral contracts.

APPA's long term recommendation for RTO reform is to restructure Day 2 RTOs (those with full centralized power supply markets) back into Day 1 RTOs, focused on transmission related functions. APPA also recommends other interim reforms such as: 1) requiring cost-benefit studies and stakeholder support of RTO market or program changes; 2) revising RTO mission statements and strategic plans to explicitly include the goal of reducing electric power costs to consumers; 3) improving RTO responsiveness to stakeholders; 4) ensuring independence of market monitors; and 5) improving data transparency through availability of generator bid data on a next-day basis, generator identification, cost and operating data.

Order 707 - Cross-Subsidization Restrictions on Affiliate Transactions

The Commission issued Order 707 pertaining to restrictions on affiliate transactions between franchised public utilities with captive customers or that own or provide transmission service over jurisdictional transmission facilities, and their market-regulated power sales affiliates and non-utility affiliates. The intent of the rules is to prevent inappropriate cross-subsidization of non-regulated affiliates by customers of franchised public utilities. The Commission defined "captive customers" as "any wholesale or retail electric energy customers served by a franchised public utility under cost-based regulation." The Commission clarified that customers with retail choice are not considered captive customers. The Commission also stated that, "if a state regulatory authority in a retail choice state does not believe retail customers are sufficiently protected and that our affiliate restrictions should apply to the local franchised public utility, it may file a petition for declaratory order to deem its retail customers to be captive customers for purposes of applying the affiliate restrictions."

The Commission adopted standards for pricing non-power affiliate transactions. When a franchised public utility with captive customers sells non-power goods and services to a market-regulated power sales affiliate or non-utility affiliate, it shall do so at a price that is the higher of cost or market price. Franchised public utilities with captive customers that purchase non-power goods or services from a market-regulated power sales affiliate or a non-utility affiliate are prohibited from doing so at a price above market price. However, transactions with a centralized service company are to occur "at cost." The pricing rules apply on a prospective basis.

The Commission declined to include LDCs and interstate pipelines within the scope of the rules and also declined the suggestion to expand the rules to include preventing a utility or its affiliate from gaining unfair advantage in a market. The full text of Order 707 is available on the NEM Website.

New York
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Order on Electric Supply Portfolio Standards, Goals and Reporting Requirements

The Commission issued an Order on the electric utilities' proposals for measuring volatility and goals for constraining volatility. At the outset, the Commission noted that the electric commodity supply provided to utility customers is less volatile than NYISO hourly wholesale prices because of bill averaging, legacy contracts and use of financial instruments to hedge volatility. The Commission further decided that, "Although, when used together, standard deviation and CoV are appropriate metrics for monitoring the volatility of utility electric supply portfolios, and they give valuable insight into the performance of an individual utility's hedging practices, setting specific goals, targets and tolerance bands for limiting volatility is not appropriate at this time. Experience with the volatility metrics is insufficient to justify adopting strict constraints limiting the degree of volatility utilities can tolerate. Indeed, sole reliance on the standard deviation and CoV metrics to set strict standards could create perverse incentives. The metrics should be used to establish goals instead of strict standards."

The Commission also required quarterly utility reports on electric commodity hedging portfolio performance to be filed that would cover the previous twelve-month period. Reports are to include electric market prices, utility portfolio prices for each applicable customer service classification, including energy and capacity prices, and standard deviation and CoV for each service classification. The reports are to be posted on the utilities website to faciliate stakeholder access. The full text of the Order is available on the NEM Website.

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NEM's Goodman at Ohio Energy Management & Restructuring Conference

Craig Goodman, President of NEM, delivered a keynote address at the Ohio Energy Management and Restructuring Conference this week. Goodman's remarks were titled, "Why Competitive Energy Markets Work - Lessons Learned in Competitive Energy Markets Throughout the U.S." Goodman discussed the benefits of energy competition; rising fuel input prices and competitive pressures on prices; availability of choice in other industries and nations; the role of technology in facilitating choice; the national policy in favor of wholesale electric competition; examples of successful retail energy markets (Texas electric, Georgia gas, New York, Ohio gas); and the extension of choice benefits to Ohio electric consumers. The full text of the Presentation is available on the NEM Website.

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