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March 14, 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 this hotlink.

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.

FERC Investigation of Capacity Release Rule Violations

FERC has resolved two Staff investigations of violations of its capacity release rules. The first case involved a retail gas marketer that discovered violations of Commission policy after the company's own internal review. The company self-reported the violations to FERC, which included engaging in "flipping" to circumvent posting and bidding requirements for released capacity, shipper must have title violations, and prohibited buy-sell transactions. The company will pay a five million dollar civil penalty and disgorge unjust profits of nearly two million dollars, plus interest. The company also agreed to implement a compliance monitoring plan. FERC noted the company's "highly proactive approach to self-reporting and remedying its violations" in determining an appropriate penalty. The full text of the Retail Gas Marketer Order is available on the NEM Website.

The second investigation involved an electric and natural gas distribution company's violations of the shipper must have title rule. The company failed to hold title to gas that was shipped on its No Notice capacity on a particular pipeline. The company will pay a $400,000 civil penalty. FERC noted that the company took quick action to self-report the violations and take corrective action and that there was no demonstrable harm to third parties caused by the violations. The full text of the LDC Order is available on the NEM Website.

FERC Form 552 Technical Conference

FERC's Order 704 and corresponding Form 552 require annual reporting of wholesale natural gas transactions. Form 552 is due on an annual basis beginning May 1, 2009, for the 2008 reporting year. As had been requested by NEM, Commission Staff will convene a technical conference for the purpose of discussing issues related to preparation and submission of Form 552. The conference will be held April 22, 2008. The conference will be organized to address questions from natural gas buyers and sellers. Questions may be submitted in advance and are due March 31, 2008. Registration for those that wish to participate by phone is due April 11, 2008. The full texts of the Notice of Technical Conference and NEM's Petition for Clarification are available on the NEM Website.

New York City ICAP Market Investigation and Order

The Commission has released the results of an investigation into the New York City Installed Capacity Market and also adopted a revised ICAP market structure. The Commission approved a proposal by the NYISO to retain its current ICAP market structure, including the current set of ICAP auctions and use of ICAP Demand Curves, with modifications to market power mitigation measures. The full text of the NYISO ICAP Order is available on the NEM Website.

FERC Staff conducted an investigation as to whether any suppliers, alone or in concert, engaged in market manipulation in violation of Commission rules. The investigation was premised upon allegations that Keyspan-Ravenswood had engaged in economic withholding as it consistently offered its capacity at its bid cap, thereby raising market prices. Staff concluded that there had been no violation of the Commission's anti-manipulation regulations. Staff noted that economic withholding does not constitute a per se violation of the anti-manipulation rules. Staff reasoned that, "Under the unique circumstances of the ICAP market and the Commission's explicit expectation in the 1998 Order Keyspan's offering at its bid cap was based on its legitimate business purpose of maximizing a relatively predictable revenue level and minimizing risk, consistent with its assessment of its risk/reward ratio." Indeed, Keyspan adopted the strategy as corporate policy approved by its senior management. The full text of the Staff Report is available on the NEM Website.

NERC LSE and Compliance Workshop and Draft Compliance Registry Criteria

NERC recently submitted a filing with FERC for the development of a uniform approach for the application of appropriate reliability standards to retail marketers. NERC recommended a two step process: 1) in the short-term, initiate a comment process for the purpose of defining "Non-Asset Owning LSEs," and the reliability standards applicable to these entities; and 2) in the long-term, possible change of definitions, requirements and applicability sections of reliability standards may be needed.

NERC will begin this process with a LSE and Compliance Workshop to be held April 15, 2008, to gather stakeholder input. NERC has also issued a draft Statement of Compliance Registry Criteria for comment addressing non-asset owning LSEs. The full texts of the Workshop Notice and Draft Statement of Compliance Registry Criteria are available at this hotlink.

GAO Report on FERC Oversight of Potential Utility Cross Subsidization

Prompted by the enactment of EPAct 2005 and associated changes in FERC's authority to regulate corporate structures and transactions, GAO examined the extent to which FERC has changed its merger/acquisition review process and postmerger/acquisition oversight to prevent harmful cross-subsidization by utilities. GAO also examined state commissions related ability to oversee utilities. GAO concluded that, "FERC has made few substantive changes to either its merger review process or its postmerger oversight since EPAct and, as a result, does not have a strong basis for ensuring that harmful cross-subsidization does not occur."

GAO recommended that FERC develop a risk-based approach to affiliate transaction audits in holding companies and other entities. The risk-based approach should include monitoring utilities financial condition and collaborating with state regulators to leverage resources. GAO also recommended that FERC reassess whether it has adequate audit resources. GAO noted that FERC Chairman Kelliher disagreed with the GAO's recommendations in review of a draft of the report. The full text of the GAO Report is available from NEM headquarters.

New York
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NEM Comments on Proposed Marketing Standards

The New York State Consumer Protection Board and the New York City Department of Consumer Affairs filed a petition requesting that the Commission adopt a Section 10 to the Uniform Business Practices (UBP) to set forth mandatory ESCO marketing principles applicable to marketing to residential and small commercial customers. In response, NEM recommended that the voluntary statement of principles developed collaboratively by the industry with Commission Staff be adopted into the UBP as the uniform and mandatory standards applicable to ESCO marketing practices in the State of New York.

NEM requested that the Commission consider the following in the process of reviewing ESCO marketing standards:
1) The scope of the rules adopted in the proceeding should be limited to marketing principles;
2) Utility-specific marketing rules should be avoided in favor of a consistent UBP-based approach, and utility enforcement of marketing rules would be inappropriate;
3) The voluntary statement of principles developed collaboratively by the industry with Commission Staff should be adopted as the uniform and mandatory standards applicable to ESCO marketing practices in the State of New York as contrasted with Petitioners’ proposed additional substantive provisions;
4) Consumer complaints about marketing practices should be resolved in an informal process by the Commission; and
5) A collaborative working group process would enhance expeditious resolution of this and other stakeholder issues.

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

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Commission Reviews Uniform Purchased Gas Adjustment Clause Rules

As required by statute, the Commission reviews its rules every five years. The Commission has initiated a proceeding to review its rules pertaining to the uniform purchased gas adjustment clause. The Commission noted that Staff recommended that the rules continue without amendment. The relevant rules establish the utilities' gas cost recovery process, processes to investigate the derivation of the gas cost recovery rate, and the utilities' production and purchasing policies as they affect the gas cost recovery rate. Comments are due April 21, 2008. The full text of the Order is available on the NEM Website.

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