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September 30, 2005
NEM Fall Industry Leadership Roundtable

The NEM Fall Leadership Roundtable will be held October 20th and 21st. All NEM members are invited to attend the Leadership Roundtable. Companies that have expressed an interest in joining NEM will also be invited as guests of the association. NEM is hosting the event - there is no attendance fee. Use this hotlink to register.

The Roundtable will begin in the Small Business Committee Room, located in the Rayburn House Office Building, Room 2360, on Thursday, October 20th at 10AM. A working lunch will be served and a cocktail reception will follow the conclusion of the day's events. Invitations have been extended to Maryland PSC Chair Schisler as well as other MDPSC Commissioners and Staff. Maryland's Lieutenant Governor Michael Steele has confirmed his attendance. On Friday, October 21st, we will conclude our meeting in the Science Committee Room in Rayburn House Office Building, Room 2325. The Agenda is hotlinked here.

NEM National and Regional Policy Chairs are scheduled to update the General Membership on the issues of import and present updates on each region. Topics for NEM leadership discussions and membership briefing include: 1) Federal/Wholesale issues - a) implementation of Energy Policy Act, b) Order 888 reform, c) best practices for ISO credit policies, d) capacity constructs; 2) Retail issues - a) impact of gas and electricity prices on restructuring policies, b) standardized retail contracts and retail referral programs, c) gas storage and pipeline capacity allocations, d) proper role of utilities in a competitive marketplace - when is a utility an agent of the state - protected conduct under state action doctrine - utility offerings of competitive products - modification of obligation to serve; 3) Technology issues - a) real time meters and pricing, b) demand response solutions.

Please mark your calendars and plan to join us!

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PG&E Requests Authority to Engage in Additional Hedging

PG&E has petitioned the Commission requesting that it be allowed to engage in an expanded level of hedging natural gas purchases on behalf of its core gas customers. Such hedging would be in addition to that approved in the utility's current Core Procurement Incentive Mechanism (CPIM). PG&E requests the change on an emergency basis due to price increases caused by Hurricane Katrina. PG&E argues that its Hedging Plan should be confidential. "Market participants, however, should not be privy to the hedging plan, as this would substantially compromise the interests of PG&E's core gas customers."

PG&E further explains that it, "has hedged its core gas puchases to some extent both this year and last, [but] the Company's risk of a major financial penalty for hedging large portions of the portfolio can be significant under the current CPIM, and its authorization to hedge for multiple years is limited. Specifically, if PG&E's spending on hedges (option premiums) exceeds the upper level of the deadband, then PG&E shareholders face the risk of large financial penalties." Under PG&E's proposal, "both costs and benefits should flow entirely to PG&E's core gas customers." The full text of PG&E's Petition is available on the NEM Website.

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Order in Nicor Gas Rate Case

The Commission issued an Order in Nicor's gas rate case. The Order provides that: 1) the monthly tolerance level should be increased from 2% to 5%; 2) Nicor should not be required to allocate a pro rata share of upstream capacity to suppliers at this time; 3) Customer Select customers should be assessed a balancing charge for Nicor's balancing service; 4) administrative charges associated with billing and gas supply should be included in rate base; 5) Nicor should not be required to provide a customer mailing list to suppliers; 6) either an account number or a meter number should be required for Customer Select sign-ups; 7) the maximum number of accounts for each Rider 13 group should be increased to 150; 8) credits associated with Hub services should be provided to all customers, including Sales, Transportation, and Select customers; and 9) commodity-related uncollectibles expense should be collected through rate base. The full texts of the Order and Appendix are available on the NEM Website.

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Commission Standard Offer Service Report

The Commission approved Staff's Report on the Procurement Improvement Process for 2005-06. In the Report, Staff proposed changes to the Request for Proposals (RFPs), Utility Bid Plans, Full Requirements Service Agreement (FSA) and related documents previously approved by the Commission. The proposed changes will take effect prospectively beginning with the issuance of the RFPs on October 3, 2005. The proposed FSA changes will have no effect on FSAs currently in effect. Staff reported that most of the proposed changes were non-substantive clarifications, corrections or additions. The full texts of the Order and Staff's Report are available on the NEM Website.

New York
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Order Requring Utility Real Time Pricing

The Commission issued an Order directing the utilities to file draft tariffs making real time pricing (RTP) mandatory for their largest customer classes under mandatory time-of-use rates. NIMO was also ordered to file draft tariffs placing its SC3 customers on RTP rates. Additionally, the utilities must incorporate plans for making interval metering available to these customers and report on the ability to provide customers with tools to measure usage and other consumption date in real time. Comments on the draft tariffs are due sixty days after filing.

The Commission's rationale for the requirement is that the, "increased peak period LBMP electric prices driven by higher gas costs forces upward the average price for electricity for all customers. Conversely, reducing peak demand will reduce the need for generation fueled with natural gas, alleviating overall price increases. Under RTP arrangements, however, large customers can benefit themselves by responding to RTP pricing signals and avoiding high-cost peak usage. If enough large peak usage customers avail themselves of that benefit, overall peak period usage will fail, natural gas consumption will decline, and all customers will benefit from lower LBMP prices." The full text of the Order is available on the NEM Website.

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DEO Testimony on Application to Exit Merchant Function

DEO filed testimony in support of its application to exit the merchant function. DEO says it was motivated to file the Application because it, "concluded that remaining in the GCR business impeded the development of a truly competitive commodity market. The distortion caused by the unrecovered gas cost portion of the GCR rate has made it challenging for suppliers to develop competitive offers and made it difficult for customers to easily compare supplier offers to the regulated sales rate. In addition, the market certainty created by an ever-changing sales-to-choice migration rate has made it increasingly difficult for DEO to plan future capacity and commodity purchases. Since, by law, DEO cannot earn a profit on its GCR sales, a transition out of the merchant function enables DEO to focus on its fundamental role as a local distribution company."

DEO maintains that its phased approach to exiting the merchant function will support a competitive market by: 1) implementation of an auction process that ties the commodity price to the NYMEX settlement thereby eliminating the unrecovered gas cost which is the biggest contributor to customer confusion about choice; and 2) providing pricing certainty as a result of the auction, therefore permitting suppliers to be better able to offer long term, fixed price products. DEO maintains that system reliability will be maintained through a requirement that suppliers demonstrate that they hold comparable capacity and DEO's continuation of its Provider of Last Resort role. The full texts of DEO's Testimony Part 1 and Part 2 are available on the NEM Website.

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PUC Approves Demand Management and Energy Efficiency Standards

As required by the state's Alternative Energy Portfolio Standards Act, the Commission has adopted standards to track and verify demand management, energy efficiency, and load management programs and technologies. Compliance will be measured in terms of an "Alternative Energy Credit" representing one megawatt hour of alternative energy generation. Credits can also be earned for each megawatt hour of electricity conservation resulting from adherence to demand side management and energy efficiency standards.

The standards approved by the Commission include: 1) a catalog approach to establish the number of credits available for standard energy savings measures available to customers through retail consumer products such as energy efficient appliances, light bulbs and heating and air-conditioning equipment; and 2) custom or metered measures requiring actual metered usage or self-generation. "Custom measures include time-of-use pricing programs that determine savings by comparing actual metered usage to typical load profiles of similar customers. Metered measures include distributed generation where the value of generator output, for example, can be directly measured." The full text of the Order will be posted on the NEM Website when made available electronically.

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