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August 17, 2007
NEM Letter to USA Today Editor

Dear USA Today Editor,

Your August 9, 2007, article "Shocking electricity prices follow deregulation" leaves readers believing that somehow markets, not monopolies, created the price spikes they are currently experiencing. Not true. A global energy market, coupled with a crude oil cartel, two natural disasters and utility regulations created during the Great Depression have passed along monopoly prices even in states that have deregulated. But, recent government reports covering states that have allowed consumers to shop for lower price energy have found that in virtually every month competitive suppliers have beat utility prices despite world energy prices that have tripled in five years.

Indeed, there is mounting evidence of consumer benefits from energy deregulation. A CERA study found $34 billion in savings for U.S. electric consumers. In New York, residential electric consumers experienced a savings of 16% between 1996 and 2004. In Texas, consumers saved $1,440 over a four-year period with the advent of electric competition. Residential and small commercial customers purchasing natural gas from marketers paid less than customers buying from the gas utility in Maryland, New York, Ohio and Pennsylvania over a four-year period.

Can regulators do more for energy consumers? Undoubtedly. Consumers must be empowered with market-based pricing signals for their energy usage to encourage the energy efficiency, conservation and demand response goals our country has embraced. A recent Brattle Group report finds that a modest 5% drop in peak demand, not unrealistic given today's technology, will translate into $3 billion a year in customer savings. Likewise, we have only begun to realize the product innovations such as renewable wind and solar power, distributed generation, and fuel cells that thrive in a competitive environment.

Competitive markets alone cannot force OPEC to lower world energy prices, but competitive markets together with coordinated demand responses, conservation, new energy savings technologies and new venues for global antitrust enforcement may ultimately bring U.S. consumers cleaner, more abundant fuels at lower prices.

Craig Goodman
President, NEM

Court Denies Copyright Protection to NYMEX Settlement Prices

The U.S. Court of Appeals for the Second Circuit issued a decision denying copyright protection to NYMEX's settlement prices. At issue was ICE's practice of modifying NYMEX settlement prices which it forwarded to London Clearing House to clear its customers' trades. When there was trading on an ICE contract and it was not the final day of trading for the particular contract, ICE would adjust the NYMEX settlement price one "tick" closer to the weighted average price of the ICE trades.

A lower court had found the NYMEX settlement prices were not copyrightable because they are facts and are also "non-copyrightable words or short phrases." The Appeals Court found it was a closer question as to whether the settlement prices are "facts" (and therefore non-copyrightable) or an original, creative work (and therefore entitled to copyright protection). However, the Appeals Court found the settlement prices were not copyrightable based on a principle called the merger doctrine. Ideas cannot be copyrighted. In this case, the Court felt that the idea had "merged" into the form of expression, and was not subject to copyright protection. Therefore, ICE's use of the settlement data is permissible. The full text of the Decision is available on the NEM Website.

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Governor Asks PSC to Study Low Income Aggregation Program

The Baltimore Sun reports that Governor O'Malley sent a letter to PSC Chairman Larsen requesting that the Commission examine the use of a low income aggregation program. O'Malley said, "he believes that aggregating the purchasing power of the 93,000 low-income clients of Maryland's Electric Universal Service Program could save them about 8 percent on their rates." O'Malley proposed the use of a bid-based process to provide rates lower than BGE's standard service offer. Participation would be on an opt-out basis. O'Malley argued in the letter that since universal service is under the PSC's authority, that the program can be initiated without new legislation. A Commission spokesperson said the issue would be taken up by the end of September in conjunction with its examination of whether to change the procurement process to achieve savings for residential customers.

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Consumers Gas Settlement on Aggregate Reconciliation

NEM and other parties to Consumers gas rate case entered into a partial settlement of issues. Significantly, the settlement provides for Staff to organize collaborative meetings on possible changes to Consumers' choice program pertaining to the way in which the volumes of gas that are delivered by Gas Customer Choice suppliers are reconciled with the volumes of gas that are consumed by the customers of those suppliers. The collaborative is to be convened within 30 days of a Commission order approving the settlement and is to be completed, with a Staff recommendation to the Commission, within 90 days. The full text of the Settlement is available here.

MichCon Storage Gas Settlement

MichCon filed an application requesting approval of the sale of excess system gas supply and related accounting changes resulting from enhancements made to its gas storage system. As a result of storage facility enhancements, MichCon claimed it would be able to access previously unavailable Native Base Gas for which it proposed to make a 17 Bcf decrement to its system-wide gas storage accounts. Of that, MichCon proposed to pass on the financial benefit of a 13 Bcf decrement to its GCR customers, which it projected could provide gas cost savings to said customers of approximately $28 million dollars. The remaining 4 Bcf was to be sold to non-GCR customers, and MichCon proposed to keep the financial benefit of those sales.

Parties to the proceeding subsequently filed a settlement providing that, "MichCon shall make a total decrement to its gas storage balance of 17 Bcf. 7.2 Bcf of the 17 Bcf decrement shall be to native base gas and 9.8 Bcf shall be to working gas. . . GCR customers will receive the benefit of the 9.8 Bcf decrement to working gas." As noted by the settlement, "The storage decrement provides a benefit to GCR customers because it displaces a corresponding quantity of gas purchases that are expected to have a cost higher than the storage book cost of $4.70 per Mcf." Additionally, "GCR customers shall receive the benefit of 3.6 Bcf of native base gas as a source of gas supply in December 2007 at a cost of $0.32 per Mcf plus applicable severance tax and privilege fees. This 3.6 Bcf of native base gas will be purchased gas and its cost will be included in the purchased cost of gas. As part of the purchased cost of gas, the native base gas will be used in calculating the jurisdictional rate for the 2007-2008 GCR plan year." Finally, MichCon’s base GCR factor for the 2007-08 GCR year will be set at $8.49 per Mcf subject to a quarterly adjustment, provided that the “NYMEX Increase” used to calculate the quarterly adjustment is capped at $3.00/MMBtu. MichCon also agreed to be subject to a rate case moratorium until 2009. The full text of the Settlement is available on the NEM Website.

NEM filed a position statement in this proceeding cautioning that MichCon's storage facility enhancements and associated storage gas sales should be structured in a competitively neutral manner. NEM noted that all customers (full service/GCR and Choice customers) have paid and are paying for MichCon’s storage improvements. And assets that were utilized to make the base gas available that MichCon proposes to sell were paid for by all customers. Accordingly, all customers should benefit from MichCon’s storage improvements and sale of gas in a competitively neutral manner. Not only does the reduction in the GCR rate provide an unfair competitive advantage to MichCon, but it does so by artificially understating the GCR so that consumers receive inadequate price signals. The full text of NEM's Position Statement is available on the NEM Website.

New York
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Schedule for Energy Efficiency Portfolio Standard Proceeding

The ALJ issued a revised schedule in the energy efficiency portfolio standard proceeding in response to Staff's request for an extension of time to file its draft program design proposal. The ALJ also incorporated a collaborative process into the schedule to facilitate information sharing amongst the parties. The new schedule is as follows:

Draft Staff Proposal - August 28, 2007
Collaborative Meeting (NYC) - September 17, 2007
Comments on Draft Staff Proposal - September 28, 2007
Final Staff Proposal - October 26, 2007
Technical Conference - November 5, 2007
Comments on Final Staff Proposal - November 16, 2007

NFG Initial Brief in Rate Case

NFG filed its initial brief in its rate case maintaining its position that its Marketer Referral Program, Market Match program, Market Expo, residential energy fair, pilot program to promote ESCO fixed price or other hedged services, and Mass Market Migration Program be discontinued. NFG maintained that, "There is no longer any need for their continuation because competition can proceed and flourish without the assistance of the old promotional programs and subsidies." NFG's POR program, customer education and awareness surveys, ESCO satisfaction survey, ESCO ombudsman, and "refinement" of unbundled rates are proposed to continue into the Rate Year. Additionally, NFG maintains that the formula for sharing revenue from off-systems sales and capacity release transactions should be changed, "to provide customers with a credit to the Company’s CMR [Cost Mitigation Reserve] of the first $2 million in net revenues, 80% of additional revenues to ratepayers through the monthly gas supply charge and 20% to the Company." It also advocates elimination of the "no harm, no foul" cash-out procedure for SC13D suppliers. The full text of NFG's Initial Brief is available on the NEM Website.

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