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March 9, 2007
NEM Tenth Annual Global Energy Forum and Membership Meeting

Please mark your calendars for April 24-25, 2007, for NEM's Tenth Annual Global Energy Forum and Membership Meeting. The meeting will be held in Washington, DC at the Marriott Metro Center. The White House, Presidential candidates, senior congressional leaders and CEOs of other deregulated industries have tentatively confirmed attendance. An agenda will be forthcoming. Day one all the headliners appear and the VIP reception will take place. On day two, PUC Chairs and Commissioners and NEM members will have a roundtable on all the issues affecting NEM members. FERC and PUC Chairs have confirmed.

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ComEd and Ameren Electric Rate Design Investigations

The Commission has initiated investigations into ComEd and Ameren's electric rate designs. The inquiry will focus on all delivery services, all electric supply services and other tariffed aspects of electricity service. The Commission indicated it would not revisit its recent decisions in the procurement dockets or utility revenue requirements in this case. The Commission instituted the investigation because of customer complaints about bill increases and a subsequent staff report indicating particularly steep rate increases for residential space heating customers. The full texts of the Orders Initiating ComEd and Ameren Electric Rate Investigations are available on the NEM Website.

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Commerce Energy Files Complaint Against Detroit Edison

Commerce Energy filed a complaint against Detroit Edison alleging violations of the utility's tariff, retailer agreement, choice implementation plan and Commission precedent. By the terms of the retailer agreement, Detroit Edison does the billing and payment collection for Commerce Energy. The complaint stems from Detroit Edison's withholding of approximately $400,000 in payments to Commerce Energy based on Detroit Edison's internal finding that it had overpaid Commerce Energy for customer collections dating back to 2002. Commerce Energy argues that Detroit Edison has failed to be forthcoming in providing documentation that would permit it to reconcile its accounts to substantiate the overpayment. Commerce Energy further alleges that Detroit Edison has shown a significant lack of internal controls in its processing of customer data. Commerce Energy also protests Detroit Edison's alleged practice of entering into payment arrangments with Commerce Energy's customers without notice to Commerce and the utility's instruction to these customers not to send past due amounts to Commerce. The full text of Commerce Energy's Complaint is available on the NEM Website.

New Jersey
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BGS Working Group

Staff was directed by the Board to convene a BGS working group to examine the incorporation of a BGS portfolio approach, incorporating longer-term contracts, as part of the BGS-FP supply mix, to provide customers with increased price stability. The BGS working group will also examine inclusion of demand-side resources and renewable energy as part of the BGS supply mix.

Stakeholders are requested to circulate proposals regarding the use of longer term contracts, demand response and renewable energy as part of a portfolio of resources for BGS-FP service. Proposals should address the following: 1) use of longer-term supply contracts to provide greater price stability for BGS-FP customers; 2) the appropriate procurement period for longer-term supply contracts that will provide greater price stability for BGS-FP customers; 3) inclusion of longer-term supply contracts as a bid product in the current BGS-FP Auction; 4) incorporation of longer-term supply contracts into the current BGS-FP Auction format; 5) attractiveness of longer-term supply contracts as a bid product to BGS suppliers; 6) appropriateness of employing a different type of procurement process for the inclusion of longer-term supply contracts as part of the BGS supply mix and what type of procurement process should be used; 7) amount of utility load that should be designated for longer-term contracts in order to achieve greater price stability; 8) other reasons for longer-term contracts besides price stability, such as more economical pricing; and 9) appropriate length of longer term contracts that will send the right price signals for demand response projects; 10) use of demand response and renewable energy to reduce a supplierís responsibility to acquire peak resources; 11) inclusion of demand response and/or renewable energy in the BGS supply mix for BGS-FP; 12) types of demand response programs and/or renewable energy programs that can be employed with the goal of reducing a supplierís peak resource needs; 13) amount of utility load that should be designated for demand response and renewable energy with the goal of reducing suppliersí responsibility to acquire peak resources; and 14) any other additional relevant BGS issues.

Staff's proposed BGS Working Group schedule is as follows:

Proposals - March 30, 2007
Reply comments - April 13, 2007
First Working Group Meeting - April 19, 2007 at 10AM (BPUís Newark Office, 8th Floor Hearing Room)
Working Group Recommendation - end of May 2007

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Stakeholder Comments on Commission's Proposed Default Service Model

Comments were due to the Commission last week on its proposed default service model. The utilities' Energy Association finds the Commission's proposed default service model to be a "reasonable approach." In response to the Commission proposal not to include switching restrictions, the Energy Association argues that, "an absence of switching rules will lead to higher business risks and thus higher electric rates." Allegheny Energy recommends that utilities be permitted to use either the New Jersey auction method or Maryland RFP method for procuring supplies rather than the Commission's proposed portfolio approach. Duquesne Light recommends that bilateral contracts be permitted for default service supply procurement, and the quarterly adjustment of rates for small customers is too frequent. FirstEnergy is concerned with the Commission's use of terms such as "prudent," "lowest cost," "reasonable cost," and "lowest, reasonable long-term cost" in relation to default service cost recovery and its perception that it would create increased regulatory uncertainty. PECO notes its intention to work with other default service providers (DSPs) to develop a joint procurement model. PECO argues that elements of the Commission's proposed default service model were too proscriptive, and did not afford DSPs enough flexibility to design their programs. PPL seeks clarification as to the appropriate level of long-term contracting a DSP can undertake and also expresses concern that the Commission's rate unbundling proposal not lead to the creation of stranded costs. UGI argues there is insufficient evidence to support the proposals for a uniform supplier tariff or common standards for access to customer information and data. UGI also maintains there has been no demonstrated need for a retail ombudsman. The full texts of the Utilities' Comments Part I and Part II are available on the NEM Website.

Although generally supporting the Commission's proposed default service model, the OCA notes its concern, "that the Commissionís proposal to adjust residential rates on a quarterly or more frequent basis will not provide the rate stability for customers that is needed. These provisions unduly focus on short term changes in market prices. Further, the OCA submits that the Commissionís proposal to increase generation rates to include various costs, such as billing, collection, education, regulatory, litigation, tariff filings, working capital, information systems and the like, may not properly recognize that certain costs are not avoidable, resulting in ratepayers paying twice for some costs, or remaining default service customers paying for costs left behind by shopping customers. Finally, the OCA is concerned that any rate design changes, such as the elimination of declining block and residential electric heating rates, not be done in such a way as to produce drastic unforeseen increases to customers or customer classes." The full text of OCA's Comments is available on the NEM Website.

In its comments, the OSBA recommends that the proposed default service model be modified, "to allow wholesale contracts of up to three years to serve non residential customers with peak loads between 25 and 500 kW. In the alternative, the OSBA recommends that the Policy Statement be amended to allow contracts of up to three years under each EDCís first default service program and to delay designating the length of allowable contracts for the second and subsequent programs until the Commission can evaluate the experience with the initial programs." This is in contrast to the Commission proposal to limit default service provider contracts to serve these customers to one year. With respect to utility rate unbundling, OSBA recommends that, "the costs shifted from Distribution to default service are to be only the costs the EDC would be able to avoid if it were not the DSP." The full text of OSBA's Comments is available on the NEM Website.

Large industrial and commercial customers recommend that the Commission's default service policy: "(1) permit the unrestricted use of long-term contracts with affiliates to procure generation supply; (2) mandate the availability of long-term, fixed-price options for C&I customers; (3) authorize the use of declining block rates and demand charges to encourage efficiency; (4) recognize that a Price-to-Compare ("PTC") adjusted on a monthly (or more frequent basis) does not satisfy the business planning needs of large C&I customers; (5) clarify the "phase-in" option proposed in Section 69.1811 to improve its usefulness and ensure that rate shock mitigation measures are available to all customer classes; and (6) clarify that any Commission-initiated cost allocation proceedings will observe existing, approved restructuring settlements, reflect proper cost allocation principles, and result in an appropriate dollar-for-dollar reduction to distribution rates." The full text of the Large Customer Comments is available on the NEM Website.

Governor's Energy Independence Strategy

Governor Rendell issued his Energy Independence Strategy. Rendell projects it will cut energy bills by $10 billion over the next 10 years for Pennsylvanians. The plan is also intended to reduce reliance on foreign fuels, increase clean energy production capacity and expand the energy production and technology sectors thereby creating jobs. Components of the plan include: 1) giving consumers the right to have smart meters installed, and requiring utilities to demonstrate compliance prior to approval of new generation plant building; 2) rebates for consumers turning in inefficient air conditioners and refrigerators and replacing them new models; 3) enabling large consumers to enter into longer term contracts for supply or use "microgrids" to generate their own power; 4) electricity providers must utilize a portfolio procurement approach; 5) Pennsylvania must grow and use one billion gallons of biofuels; and 5) renewable projects must be located within Pennsylvania to meet the alternative energy portfolio standard. An Energy Independence Fund, supported by a system benefits charge, will be used for appliance rebates, venture capital, grants and loans for expansion of energy companies, and clean energy projects. The full text of the Energy Independence Strategy is available on the NEM Website.

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