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June 30, 2006
NEM Summer Executive Committee Meeting

Mark your calendars for NEM's Summer Executive Committee meeting to be held July 25-26, 2006, in Chicago, Illinois at the Congress Plaza Hotel and Convention Center. Please contact the hotel at 312-427-3800 and request the NEM reservation rate of $119/night.

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. We will also discuss: 1) post-transition period regulatory/legislative reactions to consumer rate “shock” including rate stabilization plans; 2) short and long-term best practices to facilitate consumer migration – what’s new, what works and what doesn’t; 3) design and implementation of cost-effective regulated and deregulated price and usage reporting practices that do not mislead consumers, or undermine new and innovative customer-focused product development and competitive pricing; 4) market-based utility rates to encourage demand response and state-of-the-art enabling technologies; 5) defining a “competitive market”; 6) bottom line business practices and rules that must be standardized on a national basis; 7) pro-active public relations strategies; 8) designing and implementing “retail wheeling rates”; and 9) identification of independent quantitative analysis that NEM teaming partners can provide that would be of maximum value to the members on the anti-competitive impact of utility long-term fixed prices, laddered contracts and competitive market alternatives.

Please register at this hotlink.

New Jersey
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Preliminary Basic Generation Service Auction Schedule

The Board issued a preliminary BGS auction schedule as follows:

7/10/2006 - Proposals for BGS Auction Modifications for 2007
7/24/2006 - Discovery request deadline
8/07/2006 - Discovery response deadline
8/18/2006 - Initial Comments on proposals
TBA - Legislative-type Board Hearing
TBA - Public Hearing
9/22/2006 - Final Comments
10/12/2006 - Expected Board decision on proposals
10/20/2006 - EDC Compliance Filing
11/09/2006 - Expected Board decision on Compliance Filing
Feb. 2007 - BGS Auctions

New York
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NEM Brief in NYSEG Electric Rate Case

NEM submitted a brief on the ALJs recommended decision in NYSEG's electric rate case. NEM argued that the record in the case supported a finding that a fixed rate product is a competitively available product and/or a competitively priced fixed rate product has not developed into a fully workably competitive product in the NYSEG market because NYSEG has been the default supplier of this product. Furthermore, no evidence was offered why NYSEG’s affiliate cannot and should not properly be the entity that provides the public with a fixed price product. Additionally, the record in the case supports a factual conclusion that NYSEG takes virtually no risk in providing such a product. NEM argued that just and reasonable rates for NYSEG to charge its customers should be based on its risk-weighted returns.

NEM noted that a public service corporation is different than other for-profit corporations because the social compact with a utility gives utility shareholders a reliable rate of return thereby mitigating the risks of loss in the marketplace. In fact, it is this guaranteed cost recovery that make utility companies different from other public companies and have historically kept the cost of capital to a utility lower than other companies. The purpose of a Public Service Company and indeed the public interest served by such a company are not served by structuring rate designs so that a utility can compete in a price competitive marketplace as a utility but without the financial risk of loss that all other competitors must take.

As long as utility prices are so complicated that very few can really understand what they are in fact buying, the consumer will continue to be forced to purchase energy and related products, services, information and technology that they do not want, cannot afford or both. NEM urged the Commission to use those portions of the variable rate design that produce a realistic utility price to beat. A wholesale price pass through plus a one mill adder as the marginal costs of utility service (backed by commodity related non-bypassable charges (NBC) and future true-ups) could yield significantly less competitive results than the Commission worked so hard to accomplish.

NEM argued that the precedential value of this case would be significant if the Commission ensured that the base distribution rates begin with a bare bones “retail wheeling rate” plus non bypassable charges that are clearly related to utility functions. Instead of a pass through and adder, the commodity component should equal current market prices plus all utility costs associated with serving retail load plus the past and future stranded commodity costs that will be hidden in a NBC. If the costs of auditing a fully allocated embedded cost of service are too high, then the “retail wheeling rate” could be estimated with the utility given an opportunity to prove they under-recovered.

If the Commission designs a realistic, no-risk, fully recoverable variable utility price to beat and holds off offering a utility fixed price option in order to allow a competitively priced FPO to emerge, the ratepayers will get a just and reasonable transitional rate design and a competitively priced energy resource as well. If the marketplace does not produce a competitively priced fixed price option within a reasonable time frame, then the Commission can always rely on a stakeholder process to design a utility solution that would supply this missing competitive product by next spring. The Commission always has the authority to fix a non-competitive market, but it should refrain from doing so until a competitive market is given a chance to exist and perform. The full text of NEM's Brief is available on the NEM Website.

Inquiry into Delivery Rate Disincentives Against Energy Efficiency, Distributed Generation and Renewables

The Commission is reinitiating its inquiry into delivery rate disincentives against the promotion of energy efficiency, distributed generation (DG) and renewable technologies. The inquiry has been expanded to include the gas utilities as well as electric utilities. The Commission requested comments on the following issues:

1) do current delivery rates still include a net lost revenue and profit effect the discourages promotion of energy efficiency, renewables and DG? do current delivery rates encourage utilities to promote incremental use of electricity?; 2) If there is a disincentive effect, is it more prevalent certain types of customers; 3) should utilities adopt delivery rate changes based on Commission standby rate policy that rates "avoid reliance on measurements of energy consumed (kWh) for charges for delivery service"; 4) should other delivery rate redesign approaches be considered to further these goals; 5) what corresponding changes in low income and low usage programs should be implemented in conjunction with proposed delivery rate design changes; 6) is a utility revenue mechanism necessary to offset the disincentive against energy efficiency, renewables and DG; 7) how should utilities rates of return be adjusted; and 8) how quickly could changes be into place for the different rate classes.

Initial comments are due August 28, 2006, and reply comments are due September 11, 2006. The full text of the Request for Comments is available on the NEM Website.

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OCC Seeks Review of DEO Auction Methodology

OCC is seeking review of the Commission's decision approving the use of descending clock auction through which DEO will procure suppliers for its new Standard Service Offer (to replace the current GCR process). OCC opposed the descending clock auction in favor of taking the weighted average of all bidders. OCC argued this is preferable because it would yield the lowest price for consumers. The full text of OCC's Application for Rehearing is available from NEM headquarters.

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Staff Report on Pike County

As directed by the Commission, Staff prepared a report on the electric market conditions in Pike County. Based on Staff's review it offered the following recommendations: 1) consideration should be given to integrating procurement activities with Pike County's New York or New Jersey affiliates; 2) an independent study of the costs and benefits of Pike County's interconnection with the PJM system should be performed; 3) an independent study of the costs and benefits of the sale of Pike County to another Pennsylvania utility or rural electric cooperative should be considered; 4) stakeholders should be afforded more time, i.e., twelve months, to consider the utility's next default service plan, and it should therefore be filed no later than December 31, 2006; 5) the utility should consider filing an updated marketer referral program proposal; 6) if the utility is to remain in NYISO for the long term, an indefinite waiver of EDI rules should be considered; and 7) the utility's service territory should be studied for alternative energy and renewable energy potential. The full text of the Staff Report is available from NEM headquarters.

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