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June 2, 2006
NEM Summer Executive Committee Meeting

We are in the process of securing a venue for our Summer Executive Committee meeting tenatively to be held the last week of July. Those members interested in hosting the event should contact headquarters ASAP. It is at the Summer Executive Committee where we elect new leadership for the year and identify midcourse corrections for our regulatory advocacy strategy. Your participation in this meeting is critical.

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Inquiry into Role of Auction Revenue Rights and Financial Transmission Rights in SOS Procurement Process

The Commission opened an inquiry to evaluate the proper function of Auction Revenue Rights (ARRs) and Financial Transmission Rights (FTRs) in the state's SOS procurement process. The Commission posed the following issues for comment: 1) is it in consumers interest to continue the assignment of ARRs/FTRs by load serving entities (LSEs) to suppliers as part of the SOS process? what benefits are realized by consumers?; 2) how would supplier bids be impacted if ARRs/FTRs were not allocated to suppliers?; 3) are suppliers or LSEs more adept at assessing the value of the ARR?; 4) what costs and risks are associated with an LSE exercising ARRs on behalf of consumers?; 5) what issues are associated with LSE participation in monthly FTR auctions?; 6) how do supplier bids reflect benefits of participation in monthly FTR auctions?; 7) what risks and uncertainty are captured in SOS supplier bids due to the conduct of the ARR auction process after the SOS bidding process?; 8) does any party realize a competitive advantage in the SOS bid process because of the design of the ARR allocation/FTR auction?; 9) does the Full Requirements Service Agreement (FSA) clearly set forth the allocation of congestion rights to winning SOS bidders?; 10) what other hedging mechanisms could be included in the FSA to minimize congestion costs?; and 11) what changes in the ARR/FTR programs at the wholesale level would benefit Maryland retail consumers?

Initial comments are due June 28, 2006, and reply comments are due August 4, 2006. The full text of the Notice of Inquiry is available on the NEM Website.

Technical Conference on Retail Market Design, SOS and Default Service

As part if its inquiry into Standard Offer Service/Default Service for small commercial customers and Allegheny, Delmarva and Pepco's residential customers, the Commission has scheduled a technical conference on June 22, 2006, at 9:30AM. The purpose of the technical conference is to receive presentations on current approaches and innovations in retail competition, SOS and default service. The Commission requested that presentations address "all of the elements of SOS service, including, but not limited to, (1) whether utilities should continue to be the SOS provider, (2) whether wholesale bid results should be subject to greater public disclosure, (3) whether Maryland should adopt another procurement model, such as the model used in New Jersey, and, if so, how the proposed model is more effective than the current SOS program, and (4) whether changes should be made to the administrative charge, credit mechanism, the price anomaly threshold, or the volumetric risk adjustment." Comments are also sought on the definition of "small commercial customer" and how a determination could be made that the electric supply market is competitive. Written comments are due June 16, 2006. The full text of the Notice of Technical Conference is available on the NEM Website.

New York
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Commission Considers ESCO Price Reporting Requirements

The Commission is requesting comments on what "requirements, if any, []should be imposed on ESCOs for the reporting to Staff of the prices and price formulas offered to prospective residential customers." The Commission cited the need for the availability of more extensive pricing information to support the development of the retail market. The types of information that could be required include length of time of price arrangement, cancellation requirements, amount of cancellation fee, and historic monthly price data.

The Commission is also considering appropriate enforcement mechanisms to ensure compliance with a reporting requirement. This could include, for example, extending the UBP process for discontinuing ESCO eligibility to sell to retail customers, other changes to the UBP process or other alternative mechanisms.

Initial comments are due July 7, 2006, and reply comments are due July 28, 2006. Requests to be added to the service list are due June 19, 2006. The full text of the Notice Requesting Comments is available on the NEM Website.

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Commission Approves Phase 1 of DEO Plan to Exit Merchant Function

The Commission approved Phase 1 of DEO's application to exit the merchant function. In Phase 1, DEO will eliminate its GCR mechanism and replace it with a new Standard Service Offer (SSO) Gas Cost Rate. DEO will procure gas supplies through a descending clock auction that will determine the SSO rate. Auction bids will be stated as a fixed adjustment to the monthly NYMEX settlement prices.

The $0.0211 per Mcf choice program cost to customers will be eliminated and replaced with a program cost fee of the same amount to be paid by suppliers participating in the choice program and winning bidders in the auction. DEO will purchase supplier accounts receivable at 100% of face value.

A stakeholder process will be used to solicit input into implementation of Phase 1 and the formulation of the Phase 2 application on DEO's eventual exit from the merchant function. The process is to begin within 15 days of Commission approval of the Phase 1 filing. DEO must provide consumers with a bill insert about the change prior to the start of Phase 1.

The Commission found that the statutory requirement of a showing of effective competition or reasonable customer alternatives had been satisfied to justify approval of Phase 1. Factors the Commission considered included number of suppliers in the service territory, migration rate, absence of significant barriers to entry, and differing types of competitive offerings available.

Phase 1 is to last for two heating seasons and will expire September 1, 2008. The full text of the Order Approving Phase 1 is available on the NEM Website.

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