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February 21, 2003
Interstate Gas Supply Elected to NEM's Executive Committee

NEM is pleased to announce that Interstate Gas Supply (IGS) has been elected to the Executive Committee. IGS is one of the largest independent natural gas suppliers in the Midwestern United States. IGS is engaged in natural gas producing, marketing, and energy management. IGS now serves more than 450,000 residential and small commercial end-users through various Customer Choice programs in addition to more than 1500 industrial and large commercial end-users in Ohio. IGS will be represented within NEM by Scott White, President, Doug Austin, Vice President, and Dave Burig, Director of Customer Choice Programs.

NEM's Annual Membership Meeting and National Restructuring Conference for 2003

This year’s Annual Membership Meeting and National Restructuring Conference will be held April 3 and 4, 2003, at the Hyatt Regency on Capitol Hill. Congressman Joe Barton, Chairman of the House Energy & Air Quality Subcommittee, Chairman Patrick Wood of the FERC, Chairman James Newsome of the CFTC, SEC Commissioner Campos, NARUC President David Svanda, Chair Klein of the TX PUC, Chairman Vasington of the MA DTE, Chair Spitzer of the ACC, and Commissioner Jones of the PUCO are all confirmed to be speakers at the event.

Our VIP reception will be held in the Senate Russell Caucus Room on the evening of April 3, 2003. This is one of the nicest rooms in the Capitol. Many thanks to LODESTAR, Itron, IMSERV and Constellation NewEnergy for sponsoring the reception.

The Agenda is hotlinked here for your convenience. A registration form is also hotlinked here for your convenience.

NEM Conference Call on Retail Marketing and Related Technology Implementation Issues

NEM will convene biweekly conference calls to discuss retail marketing and related technology implementation issues. The next call will be held Thursday, February 27, 2003, at 1PM EST. The call will focus on the development of an NEM public relations campaign on the benefits of competition. Members are asked to send bullet points on this topic and media distribution lists to headquarters ASAP. The dial-in number is 703-788-0600, and the pass code is 209353. An agenda for the conference call will be circulated prior thereto.

FERC Addresses MISO Issues About Rate of Return and Transfer of Transmission Facilities

At the February 20, 2003, Agenda Meeting FERC acted on several orders involving MISO. First, FERC addressed Illinois Power Company's (IP) request for authorization to transfer its transmission assets to Illinois Electric Transmission Company (IETC), an independent transmission company (ITC) created to own these assets. FERC concluded that IP's rate formula, which would set IETC's revenue requirement based upon a levelized gross plant original cost method and a 13% rate of return on equity that may result in recovery of a premium above book value that exceeds the benefits of the transaction. FERC ordered a hearing to be held to explore the proposed rate treatment and approved the proposed disposition of transmission assets subject to the rate hearing.

FERC also authorized International Transmission Co.'s (a wholly owned subsidiary of DTE Energy) transfer of jurisdictional transmission facilities to ITC Holdings, concluding that ITC Holdings is independent. FERC approved the companies' proposed 13.88% rate of return on equity. FERC also accepted the applicants' proposed transmission rate of $1.075/kW-month adjusted for credits of point-to-point (PTP) transmission service revenues, effective on the closing date through December 31, 2005. The applicants assert that the effective transmission rate, net of the PTP revenue credits, would be approximately $0.983/kW-month in 2003. The effective proposed rate is lower than the current rate of $1.075/kWmonth being charged under the MISO OATT and JOATT. In addition, FERC accepted for a limited term, certain operating and interconnection agreements between ITC and Detroit Edison. The full text of the IP Order and ITC Order are available on the NEM Website.

ALJ Issues Proposed Order in Market Value Index Proceeding

The ALJ in the Market Value Index (MVI) proceeding has issued a proposed order approving the following adjustments to the market value index calculation: 1) a capacity backed adjustment to account for the requirement that Retail Electric Suppliers (RESs) procure generation capacity; 2) a placeholder in MVI tariffs for PJM/MISO changes that impact the capacity value in the utilities' MVI filings; 3) an upward adjustment to the MVI of $0.55 per MWh to account for the cost premium borne by RESs to acquire "odd lot" schedules; 4) a uniform adjustment of 0.026 cents per kwh for the allocation of sales and marketing expenses; 5) the substitution of realistic positive hourly price values for zero and negative values in PJM price data used to calculate price shape; and 6) an adjustment of $0.88 per MWh to account for Illinois retail market illiquidity risk. The Proposed Order also approved the floating adder approach for Illinois Power, setting the capacity demand credit at $13 per KW-year, setting the initial floating adder at 3.5 mills per kwh and requiring that the adder never be less than $0/MWh or greater than $10/MWh.

The Proposed Order rejected the proposed 8 mill residual adjustment meant to account for MVI model deficiencies reasoning that, "studies do describe a discrepancy in market value rates, but do not precisely translate into an 8 mill/kwh adder." The Proposed Order also rejected proposed MVI adjustments to account for risk associated with customers exiting their contracts early and to synchronize price shape data from the PJM market with load shape data from the ComEd market. The full text of the Proposed Order is available on the NEM Website.

DTE Order on Default Service Rates

DTE issued an Order on the effects of congestion costs and locational marginal pricing on default service rates. The Order is in response to the March 1, 2003, implementation of a Congestion Management System (CMS) by ISONE that will divide New England into eight zones and hundreds of nodes. Upon implementation of the CMS, the location of customers will effect the cost of providing generation service. The Department recognized that, "in order to avoid introducing distortions into the competitive market, default service prices in each load zone should include the same level of congestion costs that suppliers serving load in that zone would incur." The Department directed the utilities to procure default service supply on a zone-specific basis and to establish zone-differentiated default service prices for medium and large C&I customers. However, for residential and small C&I customers the utiilties are to establish a territory-wide default service rate that is averaged across load zones. The utilities are to procure default service supply for residential and small C&I customers on a zone-specific basis. The Department noted that it intended to reexamine this treatment of residential and small C&I customers after having gained experience with the CMS. The full text of the Order is available on the NEM Website.

NEM Submits Comments on AGS Licensing Proposal

NEM submitted comments on Staff's proposed licensing procedures for alternative gas suppliers (AGSs). NEM supported both: (1) the approach taken in the proposed natural gas rules to mirror the existing rules for the electric market; and (2) Staff's presumption of adequate financial, managerial, and technical capabilities of existing AGSs. NEM urged the Commission to clarify some of the vague or conflicting portions of the licensing proposal to provide clarity and certainty to the application process. NEM also submitted specific suggestions on certain licensing requirements including the following: (1) do not set the bond too high as excessive bonding requirements will increase the costs associated with supplying natural gas; (2) do not require an AGS to maintain a Michigan office; (3) account for human error in penalties for slamming/cramming; (4) do not make proprietary information available to potential competitors; and (5) assure that the paperwork burden in reporting requirements is not too costly or unreasonable. The full text of NEM's Comments is available on the NEM Website.

New York
NEM Comments on ConEd Electric Phase 6 Application

ConEd proposed to reduce the backout credits for Phase 6 of its electric choice program to $0.00025/kWh for residential customers and $0.00018/kWh for all other customers. NEM filed comments opposing the reduction in the credits. NEM argued that backout credits should, at a minimum, be retained at their current amounts pending a Commission Order in the unbundling proceeding. NEM also argued that ConEd's proposed lost revenue recovery mechanism should be rejected inasmuch as it would impose a single transition charge on all customers, rather than a two-part mechanism that recognizes that retail access customers should not be required to pay the utility for services the utility no longer provides. NEM opposed ConEd's proposal to reduce backout credits to purported levels of avoided costs associated with its electric supply function (which ConEd estimated at $0.00008/kWh for residential customers and $0.00001/kWh for all other retail choice customers) as contrary to multiple Commission Orders requiring utilities to implement embedded cost-based rates. The full text of NEM's Comments are available on the NEM Website.

NYPSC Order on Payment Allocation

The NYPSC issued an Order, adopting with modifications Staff's Proposal on customer payment allocation such that customer payments will be allocated first to settle any past due utility charges, second to past due ESCO charges, third to utility current charges, and fourth to ESCO current charges. However, the Order only adopts the changes on a voluntary basis pending adoption of rules to implement the new HEFPA law. Payment allocation can be modified only after the bililng party provides notice to the nonbilling party and customers on or before 15 calendar days prior to such payment allocation. Any excess payments received shall be held for payment on future bills, unless the customer directs otherwise. The full text of the NYPSC Order is available on the NEM Website.

NYPSC Institutes A Proceeding to Develop A Renewable Portfolio Standard

The NYPSC instituted a proceeding to develop and implement a renewable portfolio standard for electric energy retailed in New York State. The matters examined in the proceeding will include new opportunities in renewables technologies as alternatives to fossil-fired generation. A procedural conference will be held on March 4, 2003, at 10:30 AM at the Commission's Albany offices. Interested persons may request active party status by sending an email to or calling Laurie Gibbs at 518-486-2802. The NYPSC requestes initial comments on the following issues: (1) the types of resources that should be considered as “renewable”; (2) whether retail suppliers should be required to sell energy from renewable resources; and (3) the impact on the ability of ESCOs to compete with utilities if they are required to procure renewable resources beyond what their customers request. NEM has intervened in this case, and member comments on the issues should be forwarded to headquarters ASAP. Initial comments are due on March 21, 2003. The NYPSC Order instituting the proceeding, the Notice of Procedural Conference and the Ruling Concerning Procedure and Schedule are available on the NEM Website.

NYPSC Orders Gas Utilities to File Special Delivery Rates for Non-Res DG Customers & Approves NFG's DG Pilot Program

The NYSPC directed the major natural gas utilities to file special delivery rates for non-residential customers who operate their own gas-powered distributed electricity generation (DG) units. The utilities are to tailor the new rates specifically to DG customer gas usage profiles. The rates are intended to be in place for three years. The NYSPC also adopted a process designed to establish such rates for residential customers by January 1, 2004, and voted to approve a DG pilot program proposed by the NFG. The pilot program will provide funding to customers to help defray the cost of installing DG equipment at their facilities served by NFG. The full text of the DG Orders will be posted on the NEM Website when made available electronically.

Comments Sought on Standard Service Offer Procedures

The electric utilities are required to offer customers a market-based standard service offer at the end of their market development periods. Since DP&L is nearing the end of its market development period, Staff has prepared proposed rules on "Processing Applications for Standard Service Offer and Competitive Bidding Process." By the terms of Staff's proposal, utilities would be required to file an application for standard service offer and competitive bidding process by July 1, 2004, for market development periods ending at the end of 2005. The utility applications are to include a market-based variable rate for the standard service offer unless the utility intends to use a competitive bidding process, in which case it can use a market-based fixed rate. The market-based variable rate is to be based on a, "transparent forward market, daily market, and/or hourly market" and the application must specify, in addition to the market-based cost of energy, all of the other costs for providing the service such as administrative costs and costs of hedging. The market-based fixed rate established through competitive bidding is to be a retail rate for retail electric service, and bid prices should reflect the costs and risks of providing such service. Initial comments on Staff's proposal are due March 7, 2003, and reply comments are due March 21, 2003. The full text of the Order is available on the NEM Website.

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