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September 7, 2007
NEM Letter to New York Times Editor

Dear New York Times Editor,

The September 4, 2007 article "A New Push to Regulate Power Costs" 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. 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 since September 11, 2001.

Indeed, there is mounting evidence of consumer benefits from energy deregulation. A Cambridge Energy Research Associates study found $34 billion in savings for U.S. electric consumers. Additional specific examples of consumer benefits realized with the advent of energy competition include a savings of 16% between 1996 and 2004 for New York residential electric consumers. Likewise, Texas electric consumers saved $1,440 over the four-year period since energy competition was introduced. Residential and small commercial customers purchasing natural gas from marketers paid less than customers buying from gas utilities in Maryland, New York, Ohio and Pennsylvania over a four-year period.

Regulators can do more by empowering consumers with market-based pricing signals to encourage conservation and demand response - a modest 5% drop in peak demand can translate into $3 billion a year in customer savings. And, we have only begun to realize the product innovations such as renewable power 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, and new energy savings technologies may ultimately bring U.S. consumers cleaner, more abundant fuels at lower prices.

Craig G. Goodman, Esq.

PJM Market Monitor to Evaluate NJ and MD Power Procurements

The New Jersey Board of Public Utilities as well as the Maryland Public Service Commission requested that PJM's Market Monitoring Unit examine the performance of the markets underlying their Basic Generation Service auction and Standard Offer Service power procurements. The PJM Board decided to approve the NJBPU and MDPSC's requests and has directed the MMU to undertake the review. The PJM Board noted its reservations associated with such action inasmuch as it, "highlights the awkward situation of having the MMU conduct an investigation for a state regulatory body wherein the MMU, as a division of PJM, ultimately could sustain public policy positions that might deviate from those embraced by PJM and its Board. Although the MMU alone will undertake this investigation, and the MMU alone will be responsible for its own analysis and conclusions, this action nevertheless implicates PJM as an undifferentiated institution. It may expose the MMU, bearing the imprimatur of PJM, as a witness before state regulatory bodies. It exposes the MMU, and by extension PJM, to matters related to retail markets - matters arguably beyond the appropriate scope of PJM's charter. Finally, participation by the MMU, as an employee of PJM, likely will cast PJM as an advocate in a debate between various PJM stakeholder interests." The full text of PJM-NJBPU-MDPSC Correspondence is available on the NEM Website.

New York
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Order on Capacity Release Programs

The Commission approved Staff's White Paper proposal for mandatory assignment of capacity by utilities to retail marketers. Current levels of marketer-owned capacity are to be grandfathered. The policy is intended to address the inefficiency of utilities holding duplicative capacity assets to backstop marketer capacity and to ensure the reliability of the natural gas system in the State. The mandatory assignment policy is applicable to "those residential and small commercial customers who lack access to alternative fuels and for whom marketers must acquire primary delivery point capacity for the five winter months if they do not accept assignment of LDC capacity." The Commission found that firm utility primary delivery point capacity, utilized by a marketer, must be held by a marketer for twelve months instead of the prior policy which only imposed a winter month requirement.

Regarding utility storage assets, the Commission encouraged the utilities to work with pipelines to institute Delivery Point Operator/Citygate Swing Service programs (like Dominion Transmission). The Commission required that current storage offerings be reviewed and enhanced where feasible.

The Commission also determined that local gas production connected to utility distribution facilities should be treated the same as upstream capacity. Accordingly, utilities with local gas production in their service territories must establish plans for use of local gas production connected directly to their distribution facilities as upstream capacity and its availability as a replacement for capacity provided by utilities.

The utilities must make tariff filings in conformance with the Order by October 1, 2007. The full text of the Order is available on the NEM Website.

Prehearing Conference in Iberdrola Acquisition of Energy East

The ALJ will hold a prehearing conference in the proceeding on Iberdrola's acquisition of Energy East. The conference will be held September 10, 2007, at 1:30PM in the 3rd floor hearing room of the Commission's Albany offices. The conference is intended to establish the procedural schedule, resolve procedural questions, identify case participants and their interests, and have an initial discussion of the petitioners' proposal. The full text of Iberdola's Acquisition Proposal is available on the NEM Website (the exhibits are available from headquarters).

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State Supreme Court Overturns FirstEnergy Fuel Cost Deferral Plan

The Commission previously approved a rate certainty plan for FirstEnergy that included provision for the deferral of fuel costs incurred in 2006 through 2008, with these costs to be recovered in distribution rates starting in 2009. The deferred expenses were to be capitalized with carrying charges on FirstEnergy's books of accounts and recovered over a 25-year period as a regulatory asset beginning in 2009. On appeal, the state Supreme Court found that the arrangement was impermissible cross-subsidization in violation of state law. "By allowing that generation-cost component to be deferred and subsequently recovered in a distribution rate case, or alternatively allowing FirstEnergy to apply generation revenues to reduce distribution expenses, the commission violated R.C. 4928.02(G)." The Court reversed the Commission's order on this issue, and the Commission must modify FirstEnergy's rate certainty plan to remedy the violation. The full text of the Decision is available on the NEM Website.

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