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August 3, 2007
FERC Show Cause Orders Issued for Market Manipulation

Pursuant to its expanded enforcement authority in EPAct, FERC issued two show cause orders making preliminary findings of market manipulation and proposing civil penalties totaling $458 million in two investigations involving traders unlawful actions in natural gas markets. With respect to Amaranth, the Commission made a preliminary determination that the Amaranth hedge fund manipulated natural gas markets through trading on the NYMEX Natural Gas Futures Contract that was intended to produce artificial settlement prices for the contracts. FERC is proposing to order disgorgement of unjust profits and civil penalties of almost $300 million.

With respect to Energy Transfer Partners, the Commission made a preliminary determination that the company manipulated wholesale natural gas markets at Houston Ship Cannel and Waha, Texas. It also made a preliminary finding that the company's Oasis Pipeline subsidiary preferred its affiliated shippers and unduly discriminated against non-affiliated shippers and charged non-affiliates more than the maximum rate permitted by the Commission for interstate transportation. FERC is proposing to order Energy Transfer Partners to pay civil penalties and disgorge unjust profit in excess of $167 million and to revoke its blanket certificate authority to sell natural gas. The full texts of the Amaranth Show Cause Order and the Energy Transfer Partners Show Cause Order are available on the NEM Website.

Comment Filing Extension for ANOPR on Wholesale Competition in Organized Electric Markets

FERC issued an ANOPR on potential reforms to improve the operation of wholesale power markets administered by RTOs/ISOs. The ANOPR is in response to information received in two prior technical conferences and pertains to demand response, long term power contracts, market monitoring units, and responsiveness of RTOs/ISOs. An extension of time for filing comments has been granted by the Commission. Comments on the ANOPR are now due September 14, 2007.

The Commission outlined its proposals for consideration as follows:

"Demand Response and Pricing During Power Shortages - proposals
1) Require RTOs and ISOs to allow demand resources to provide certain ancillary services in their markets unless not permitted by state law, modify tariffs to let demand resources provide spinning and supplemental reserves without being required to sell into the energy market.
2) Modify RTO and ISO tariffs to eliminate certain charges for purchasing less energy in real time than in the day ahead market during a system emergency.
3) Amend market rules to permit an entity that aggregates the demand responses of individual retail consumers to bid the aggregate demand reduction directly into an RTO or ISO energy market, unless not permitted by state law.
4) Modify market power mitigation rules so that pricing during an emergency can elicit more demand response.

Long-term Power Contracting - proposals
1) Require RTOs and ISOs to post information that would facilitate long-term contracts.
2) Require or encourage efforts by RTOs and ISOs to develop standardized forward products.
3) Dedicate a portion of the ISO’s or RTO’s website for market participants to post long-term buy/sell offers.

Market Monitoring Policies and Information Sharing - proposals
1) Remove the market monitoring unit from RTO/ISO operations.
2) Require that the MMU advise the Commission and other stakeholders of any design flaws and report to the Commission any tariff violations it believes may have been committed by the RTO or ISO.
3) Regular conference calls among the market monitor, interested state commission and FERC staff.
4) Release of offer and bid data, with a lag period. Release would mask market participants’ identities.
5) Subject to certain limitations, state regulatory commissions within an RTO or ISO may request and receive information from the RTO’s or ISO’s market monitoring unit.
6) Develop a pro forma tariff provision to address all sections relating to market monitoring.

Responsiveness of RTOs and ISOs - proposals
1) Provide RTO and ISO customers with direct access to the board of directors."

The full texts of the ANOPR and ANOPR Fact Sheet are available on the NEM Website.

NAESB e-Tariff Technical Task Force

The first meeting of the e-Tariff Technical Task Force will be held August 23-24, 2007, at FERC's Washington, DC offices in Room 3M4 A&B. The August 23rd session will run from 1:30PM to 6PM EST and the August 24th session will run from 8:30AM to 4PM EST. Discussions at the meeting will include: an overview of the FERC Backend system processing of e-Tariff XML data; a technical overview of FERC’s strawman proposal; a technical overview of the pipeline segment proposal; and the best of breed for the XML strawman.

RSVP to the NAESB office at 713-356-0060 or An agenda and any associated workpapers will be made available soon.

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SB1592 Passes Both Houses

SB1592 passed both houses of the legislature and was sent to the Governor on July 31, 2007, to be signed. The bill creates a $1 billion electric rate relief program for ComEd and Ameren customers. The bill 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 bill declares electric service delivered to customers with peak demands of 400kw or more to be a competitive service. The bill 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.

New York
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Iberdrola Acquisition of Energy East

A petition has been filed with the Commission requesting approval of Iberdrola's acquisition of Energy East Corporation. Iberdrola will pay $4.5 billion to acquire 100% of the common stock of Energy East, which is the parent holding company of NYSEG and RGE. The petitioners request Commission approval within six months. The transaction would be an acquisition by Iberdrola at the holding company level rather than through the combination of the operations of individual operating companies. The petitioners argue that the transaction will benefit New York consumers due to Iberdrola's global energy experience, focus on energy efficiency and environement, financial stability, commitment to customer service and reliability and commitment to local communities. The petitioners also argue that the transaction "will not have any adverse impact on New York" because they will not seek recovery of an acquisition premium or transaction costs in rates, there will be no change in services to customers, and there will not be a change in headquarters or service centers. The full texts of the Petition and Testimony are available on the NEM Website (the exhibits are available from headquarters).

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Technical Conference on FirstEnergy Competitive Bidding Process Proposal

FirstEnergy filed for Commission approval of a competitive bidding process (CBP) to procure supply for its Standard Service Offer (SSO) electric customers to be applied beginning in January 1, 2009. A technical conference will be convened August 16, 2007, at 9:30AM at the Commission's offices to review the filing. The agenda will include an overview of the filing, followed by detailed topic areas such as the procurement process, retail generation rates and retail programs, and a supplier master agreement.

FirstEnergy proposes two CBP alternatives for consideration. The CBP would utilize a descending clock format to procure supply in 100MW tranches. Bidders would provide a full requirements product. Solicitations will be conducted for delivery periods of varying lengths to smooth price volatility. One approach would solicit bids on a load class basis. The other approach would solicit bids on a slice of system basis. If the load class alternative is utilized, the avoidable charge for each load class will be equal to the SSO generation charge plus the reconciliation charge. If the slice of system alternative is utilized, the avoidable charge for each load class will be equal to the lower of the blended competitive bid price multiplied by the supplier seasonal billing factor adjusted for average distribution line losses and applicable taxes, or the customer SSO generation charge.

FirstEnergy will use a quarterly reconciliation mechanism to adjust the retail price to reflect difference between SSO generation service revenues and SSO supply costs. Reconciliation charges will be included in charges to SSO customers approximately sixty days after the conclusion of the calendar quarter.

FirstEnergy proposes to implement an optional hourly pricing service for customers with appropriate interval metering and communication capabilities. FirstEnergy proposes to eliminate demand charges and declining block rates. FirstEnergy also proposes that market pricing for residential customers be phased in if the average customer would experience an increase of greater than fifteen percent.

The full text of FirstEnergy's CBP Proposal (Part 1, Part 2, and Part 3) is available on the NEM Website.

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