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August 31, 2007
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Governor Signs SB1592

The Governor signed SB1592 earlier this week. SB1592 creates a $1 billion electric rate relief program for ComEd and Ameren customers. The legislation creates the Illinois Power Agency for the procurement of electricity, including renewables, through a competitive process. The prices established through the process will be evaluated against a market-based price benchmark. The power procured will be for customers on utility fixed price bundled service. The legislation declares electric service delivered to customers with peak demands of 400kw or more to be a competitive service. It also requires electric utilities to use "cost effective" energy efficiency and demand response measures. The full text of SB1592 is available on the NEM Website.

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Investigation of Alternatives to Standard Offer Service Procedures

The Commission initiated a proceeding to investigate alternatives or modifications to the current Standard Offer Service (SOS) procedures. The Commission noted SMECO's managed portfolio approach yielded lower prices than BGE's SOS procured through the bid process. Similarly, the Commission noted that the Pennsylvania PUC recently adopted a managed portfolio approach for its electric utilities. The Commission requested input on whether it should implement an actively managed portfolio for residential and small commercial customers and how such a program should be administered. The Commission also requested input on benefits that could be achieved for Electric Universal Service Program participants served through aggregation. Interventions are due August 31, 2007. Initial testimony is due September 14, 2007, and reply testimony is due September 28, 2007. Hearings will be held October 4-5, 2007. The full text of the Order Initiating Proceeding is available on the NEM Website.

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Commission Approves MichCon Storage Gas Settlement

The Commission approved a settlement related to MichCon's request for approval of the sale of excess system gas supply and related accounting changes resulting from enhancements made to its gas storage system. The settlement provides 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 in 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. NEM previously filed a position statement in the case cautioning that MichCon's storage facility enhancements and associated storage gas sales should be structured in a competitively neutral manner. The full texts of the Order and Settlement are available on the NEM Website.

Commission Approves Consumers Gas Rate Partial Settlement

The Commission approved the partial settlement agreement entered into by NEM and other parties to Consumers gas rate case. 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 the Commission order approving the settlement and is to be completed, with a Staff recommendation to the Commission, within 90 days. The full texts of the Order and Settlement are available here.

New York
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Electric Utility Portfolio Volatility Guidelines

As a result of the Commission Order on utility commodity supply portfolios, the electric utilities were requested by Staff letter to provide information on "current management principles, including volatility measurement and management practices to limit it, as well as data illustrating the historical performance of the utility's portfolio using those volatility metrics." This information was meant to inform a collaborative process, "for the purpose of developing standards for measuring price volatility, goals for limiting price volatility, and mechanisms for reporting, on a quarterly basis, utility supply portfolio price information in an aggregate form." The utilities submissions describe current hedging practices. Going forward, National Grid, ConEd/O&R and Central Hudson propose the use of a coefficient of variation metric for measuring electric price volatility. The utilities also discuss compliance with quarterly data reporting requirements. Comments on the utilities' letter responses are due October 15, 2007. The full texts of the Utilities' Letter Responses are available on the NEM Website.

Specifically with respect to ConEd and O&R, a technical conference will be convened to discuss their electric volatility portfolio guidelines. The conference will be held September 24, 2007, at 10:30AM in Hearing Room A of the Commission's offices at 90 Church Street in Manhattan. At the conference, ConEd and O&R will give an overview of their proposed approaches to constraining volatility through supply portfolio management.

Commission Approves NYSEG Electric Commodity Options

The Commission approved a joint proposal on NYSEG's electric commodity offerings. By the terms of the JP, NYSEG's current Default Service Option and Variable Price Option will continue as presently calculated. NYSEG's Fixed Price Option will also continue with two components of the calculation methodology updated - a 6 mill/kWh adder will replace the current 4 mill/kWh adder and the conversion factor to derive the retail market supply price will be reduced from 17.5% to 16.9%. The FPO will be offered for a three year term beginning on January 1, 2008.

The Commission noted the, "potential tension between a program of fixed prices continuing for three years, on the one hand, and efficiency efforts that might be based on sending more accurate, time-sensitive market price signals to consumers to encourage conservation, on the other hand." Relatedly, the Commission instituted a revenue decoupling mechanism proceeding for NYSEG coincident with this Order. As a result, in approving the Joint Proposal, the Commission also noted, "the potential for reopening its provisions as necessary to accomplish other important policy objectives."

The Commission-approved Joint Proposal also provides that parties will develop an ESCO Introduction Program applicable at customers' initiation of service in replacement of NYSEG's previously-filed ESCO Referral Program that the Commission had not ruled upon. A "price to compare" methodology for customer bills will be developed by the parties. NYSEG will continue its Purchase of Receivables program, and the discount will be fixed at 1.15% for a three year period beginning January 1, 2008. NYSEG will utilize a fixed nonbypassable charge for all customers that will be trued up annually and reset annually.

Large C&I customers will be moved to mandatory hourly pricing in an expedited fashion. Customers with a peak demand of 500KW or larger move to mandatory hourly pricing in 2008, customers with a peak demand of 400kW or more move in 2009, and customers with a peak demand of 300kW or more move in 2010, subject to certain exemptions.

The full text of the Order is available on the NEM Website.

Energy Efficiency Portfolio Standard Proceeding

Staff prepared a preliminary proposal for energy efficiency program design and delivery. The underlying premise of Staff's approach is that the State currently has an effective system for energy efficiency programs that should be leveraged to meet the Administration's 2015 goal. Staff proposes a two track process for meeting energy savings targets. In the first instance, proven programs that can be ramped up quickly without market disruption and consumer confusion should proceed on a fast track. An extended process would be used for implementing long term programs to fulfill the remainder of the program portfolio needs by 2015. Staff describes the utilities role as the customers "gateway" to energy efficiency services whereby utilities provide customers with information about available programs, encourage participation, and "bundle cost-effective services together in a package that customers find easy to use and attractive, and offer targeted programs to meet the needs of their service territory that are not covered by existing energy efficiency programs." With respect to marketers, Staff recognizes that ESCOs can offer packages featuring energy efficiency savings that might include low cost customer loans, share-the-savings plans or savings associated with advanced metering technology. Staff states that, "creative thinking is welcome on the role that energy marketers might play in delivering energy efficiency services." The full text of Staff's Preliminary Proposal is available on the NEM Website.

A collaborative will be convened by the ALJ in the proceeding to seek consensus on key topics drawing from the Overview Forum, Staff's Preliminary Proposal and other proposals received. The collaborative will take place September 17, 2007, at 11AM in the 4th floor Board Room of the Commission's Manhattan offices on 90 Church Street.

Gas Curtailment Guidelines

The Commission previously initiated a proceeding to review short and long-term gas curtailment policies in light of the increasing number of customers, particularly non-core customers, taking ESCO supply service or supply service under another firm arrangement and the resultant possibility that, in the future, utilities would no longer control non-firm and utility-owned supplies sufficient to meet the needs of core customers during a curtailment. As a result, the Commission has adopted revised curtailment criteria. The revised criteria eliminate the distinction between short and long-term curtailments. The criteria also specify that curtailment be used as a last resort, be limited in scope and duration and be localized to the extent possible. The criteria also provide that, "When necessary to meet high-priority customer demand, LDCs will acquire gas intended for lower priority customers at the citygate. ESCOs/Direct Customers whose gas is diverted by the LDC will be required to continue making nominations of gas throughout the curtailment period up to their maximum delivery obligation as directed by the LDC, unless qualified upstream force majeure interruptions or curtailments prevent ESCOs/Direct Customers from securing or delivering such supplies." ESCOs/Direct Customers will be compensated for diverted gas at the current market price in effect at the time of curtailment unless it can be shown with "adequate support" that a contract calls for a higher price. The utilities must file tariff amendments to incorporate the revised criteria, and comments on the amendments are due within 21 days thereafter. The full text of the Gas Curtailment Policy Order is available on the NEM Website.

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Governor's Plan on Energy, Jobs and Progress

Governor Strickland released his plan for Energy, Jobs and Progress for Ohio. The plan sets forth seven principles.

First, "establish a stable balance between the protections of regulation and the opportunities of competitive markets." Recognizing the legal obstacles inherent in a full return to a regulated electric market, utilities would be required to provide a Standard Service Offer under either a "market rate plan" premised on a Commission finding that the market is efficient and competitive or an "electricity security plan" that could include rate basing of generation assets.

Second, "policies to stimulate renewable and advanced energy production in Ohio are instrumental in attracting investment in related energy technology manufacturing." Strickland proposes adoption of an advanced energy portfolio standard, such that by 2025 a minimum of 25% of the electricity sold in the State is generated from advanced energy technologies.

Third, "transparency and accountability are priorities." Consumers should be empowered with the accelerated availability of real-time pricing and time-of-use tariffs.

Fourth, "customers deserve equal footing with utilities." Electric rates should reflect ratepayer investment in utility assets. Additionally, the availability of demand response should be accelerated including means to facilitate demand response aggregation. A Federal Energy Advocate function should be created at the Commission and examination should be made of Ohio's current participation in RTOs.

Fifth, "modernizing Ohio's electric infrastructure must be a high priority." Utilities that submit electricity security plans, should be required to develop long-term delivery infrastructure plans, as well as a return to the practice of integrated resource planning.

Sixth, "energy efficiency must be a central element in addressing electric regulation." The Administration supports an energy efficiency standard that would require utilities to acquire no less than 25% of projected growth in electricity use and 10% of total peak demand by 2025 through energy efficiency measures. Additionally, utilities should make historical usage data for the past three years available to customers upon request. Utility revenue decoupling should be considered if other measures fail to pomote energy efficiency.

Seventh, the "electric power sector must be prepared for the ever-growing influence that will be exerted by environmental issues, especially global climate change." Greenhouse gas emissions reporting for all electric power generation facilities should be required.

The full text of the Energy, Jobs and Progress Plan is available on the NEM Website.

Comment Schedule for FirstEnergy Competitive Bidding Process Proposal

The Commission established a comment schedule in reference to FirstEnergy's proposed competitive bidding process for the procurement of electric supply beginning January 1, 2009 for its Standard Service Offer customers. The schedule is as follows:

September 5, 2007 - comments by any interested persons on FirstEnergy's proposal and any alternative methodologies;

September 14, 2007 - Staff comments on FirstEnergy's proposal and Staff alternative methodologies; and

October 5, 2007 - responses to comments and alternative proposals.

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