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December 20, 2002
NEM Winter Executive Committee Meeting to Be Held in San Diego on January 16 and 17, 2003

NEM's Winter Executive Committee Meeting will be held in San Diego at the Sheraton San Diego Hotel & Marina, West Tower, on January 16 and 17, 2003. The meeting will start at 9AM on January 16 and adjourn before noon on January 17. This meeting will be for NEM Executive Committee Members only. As in the past, the Executive Committee will establish the policy positions and priorities for NEM for the coming year. A registration form is hotlinked here for your convenience. A block of rooms has been reserved at the rate of $189 per night. Place your reservations at 619-291-2900 or 888-625-5144. Reservations must be received by December 16, 2002, in order to guarantee the discounted rate.

All Executive Committeee Members are requested to attend. A draft agenda is hotlinked here for your convenience.

NEM's Annual Membership Meeting and National Restructuring Conference for 2003 - Invitation for Speakers, Sponsors and Exhibitors

Next year’s Annual Membership Meeting and National Restructuring Conference will be held April 3 and 4, 2003, at the Hyatt Regency on Capitol Hill. We have arranged for additional space to accommodate more attendees with a special room for exhibits and added sponorship opportunities. Breakfast and all breaks will be in the exhibition room that is adjacent to the general session. The Agenda is hotlinked here for your convenience. A registration form is hotlinked is hotlinked here for your convenience.

Members who wish to be speakers, sponsors or exhibitors should contact headquarters immediately. Government officials and PUC commissioners have already RSVP'd.

NEM Member Opportunity

Energy Markets magazine will convene an industry forum entitled, "Executive Forum: Credit Risk in the New Energy Arena." The forum will be held January 29, 2003, at Le Parker Meridien, 118 West 57th Street, New York, New York. The full text of the Forum Brochure is available on the NEM Website.

FTC to Implement National Do-Not-Call Registry

Contrary to the arguments of NEM, the FTC issued a final rule to implement a national do-not-call registry. The national registry will supplement company-specific do-not-call lists. Exemptions to the national do-not-call registry prohibition include the existence of an "established business relationship" with the seller on whose behalf the call is made and when a consumer has given permission to call to a specific seller by an express written agreement. Consistent with NEM's recommendation, the Commission modified the proposed rule to remove the prohibition on the acquisition and use of preacquired account information. Accordingly, the practice of utilizing customer lists for enrollment purposes is still permitted. The full text of the Final Rule is available on the NEM Website.

FERC Issues Orders Increasing the Size and Scope of the Midwest ISO

FERC acted on four interrelated orders, which increased the size and scope of Midwest Independent Transmission System Operator (MISO). In the First Order FERC conditionally accepted: (1) an independent transmission company (ITC) agreement between Grid America Participants and MISO; (2) a master agreement by and among Grid America Holdings LLC, the Grid America Companies and National Grid USA regarding transfer of transmission facilities to the ITC; and (3) operation agreements by and among the GridAmerica Companies and Grid America. The agreements will be effective December 31, 2002. FERC also determined that National Grid is sufficiently independent to serve as the managing member of Grid America-a for-profit ITC. FERC approved on an interim basis with some caveats, the proposals of Grid America to provide consulting services, certain RTO functions under contract to MISO and certain delegated RTO functions. FERC believes that it is acceptable for some functions with predominantly local characteristics to be delegated to an ITC so long as the RTO has oversight in the event that local actions have a regional impact. FERC also noted that the ITC Agreement provides for the reassessment of delegated functions and associated costs once SMD is implemented or if the Commission changes its policy regarding TRANSLink. In the Second Order, the Commission accepted, with modification, MISO's revised open access transmission tariff (OATT). The tariff will be effective on December 23, 2002 and is revised to allow ITCs to assume certain RTO functions within MISO. The Third Order addresses the consolidation of MISO and the Southwest Power Pool. FERC conditionally accepted the companies' agreement and tariff. In the Fourth Order, FERC accepted, with modifications, proposed rate schedules to MISO's OATT for service on the TRANSLink system. The rates are effective on December 24, 2002, and subject to refund, pending the outcome of a hearing.

FERC Grants RTO Status to PJM

FERC granted RTO status to PJM noting that many developments over the last few months have enlarged PJM's scope and configuration. PJM has completed its merger with Allegheny Power and formed PJM West. PJM is in the process of forming PJM South with Dominion Virginia Power. FERC noted the significant progress PJM has undertaken to resolve interregional coordination issues, but stated that there is still work to be done on seams issues. FERC denied rehearing on the Transmission Enhancement Plan proposed by transmission owners (TOs). FERC encouraged PJM and its TOs to develop a proposal to encourage infrastructure construction that ensures that construction decisions are made in a non-discriminatory manner. The full text of the Order will be posted on the NEM Website when made available electronically.

ALJ Determines Dysfunctions in CAISO and PX Do Not Warrant Contract Modifications

An initial decision has been issued on whether the dysfunctional CAISO and PX spot markets adversely affected the long-term bilateral markets, and whether the effect was of a magnitude warranting modification of contracts entered into by Nevada utilities, Sothern California Water Company and Snohomish County (complainants) in the bilateral markets in California, Nevada and Washington. The ALJ determined that the Mobile-Sierra public interest standard of review applies to these contracts rather than the just and reasonable standard of review. The ALJ found that under the Mobile Sierra standard that the complainants failed to establish that the dysfunctions of the CAISO and PX spot markets adversely affected the long-term bilateral markets. Accordingly, the contracts at issue should not be modified. The full text of the Initial Decision is available on the NEM Website.

FERC Issues Discussion Papers on Market Monitoring Units and Liquified Natural Gas Policy

FERC issued a Discussion Paper on the December 3-4, 2002, Market Monitoring Workshop which discussed how to coordinate the joint efforts of the Commission and the market monitoring units (MMUs). The attendees at the workshop created a joint mission statement and standard MMU plan in addition to making advances on market oversight, investigation and enforcement and standard metrics issues. Key issues going forward include: (1) folding the work into the SMD framework; (2) ex parte issues; and (3) delineating the meaning of independence for MMUs. The full text of the Market Monitoring Discussion Paper is available on the NEM Website.

FERC also issued a Discussion Paper about its new Liquified Natural Gas (LNG) policy. In a preliminary determination to approve the Hackberry LNG project in Louisiana, the Commission said it would not require Commission-approved cost-based rates nor an open access tariff for the new LNG terminal service because its sponsors will bear the full economic risk of the project and customers will not be adversely affected by the project's costs. The Commission expressed hope that eliminating such regulatory barriers will encourage more LNG site development and warned that this will not affect its jurisdiction over the project. The full text of the LNG Discussion Paper is available on the NEM Website.

Staff and RES Coalition Submit Testimony in Market Value Index Case

Staff submitted testimony regarding ComEd, IP, and Ameren's Market Value Index (MVI) proposals. Staff stated that IP's proposal to replace the existing 0.061 cents per kWh capacity charge with a schedule of monthly capacity charges (applied before energy losses to the group's firm monthly demand) will modestly lower transition charges. Staff does not support Ameren's three proposed possible additional capacity charges to its MVI formula since they are significantly greater that the existing capacity charge in Ameren's tariff. Staff is opposed to the Ameren and ComEd proposals to modify the price shaping methodology by replacing zero and negative PJM hourly prices with the average of all the positive off-peak PJM prices in the month. Staff supports using the midpoint of the first prior positive hourly price and the next subsequent positive hourly price, on either side of the negative or zero price. Staff, in its testimony, agrees that ComEd's revisions to its MVI formula would have increased the market values (MVs) for the June 2002 to May 2003 applicable Period A by 9% on average, but states that there is no reason to expect similar increases in future years. Staff testimony states that customer specific CTCs enable customers to benefit from PPO and RES-supplied delivery services, but they also reduce the variability of potential savings for specific customers within a class. Staff supports: (1) ComEd's proposal to provide "would-be" MVECs and class CTCs during January and June and (2) ComEd and IP's proposals to compute multi-year CTCs. Staff has no position on: (1) the use of off-peak forwards as the starting point for constructing the off-peak component of the MVI and (2) the use of multiple years worth of PJM West hourly price data and class-specific load data in the price shaping process.

Staff submitted additional testimony that ComEd's plan to restrict the Period A Power Purchase Option (PPO) sign-up period from February 1 through March 31 would take away options from customers and would primarily benefit ComEd's unregulated generating affiliate. Staff stated that ComEd's proposal to restrict the Period B enrollment period would also benefit ComEd's generating affiliate, without any corresponding customer benefit. The full text of the Staff Testimony is available on the NEM Website.

The Retail Electric Supplier (RES) Coalition submitted initial testimony that ComEd, IP and Ameren's current and proposed market value index (MVI) methodologies fail to properly reflect the cost of serving retail load. The testimony states that the current MVI formula under-prices the market value of energy charge (MVEC) by $0.015/kWh in relation to the observed market value of energy in ComEd's retail service market. Despite the Coalition's proposed modifications to the MVI, there would still be an under-valuation of $0.008/kWh, which the Coalition proposes to adress through the use of an adder to the MVI calculation. The RES Coalition submitted a study that illustrated that MVI values are under-priced. The RES Coalition also presented testimony regarding the following: (1) the inadequate reflection of the cost of generation capacity in the Utilities' MVI formulas; (2) the need to use off-peak forwards and revise the methodology used to calculate the basis adjustment to reflect the illiquidity in the market; (3) the need to allow the MVI formula to be revised pending the Utilities' joining RTOs; (4) that certain ComEd proposals (i.e. average load shaping, the January snapshot and the PPO enrollment limits) restricted customer choice; (5) that additional refinements to ComEd's MVEC were needed; and (6) that IP's MVI formula should be revised to incorporate a floating adder to stimulate competition. Members of the RES Coalition are willing to return to a Neutral Fact Finder process in the event that the Utilities do not agree to the proposed revisions to their formulas. The full text of the RES Coalition Testimony can be found on the NEM Website.

NEM Submits Proposals for Gas Roundtable Report

NEM submitted proposals on payment allocation and uncollectibles and telephonic enrollment for inclusion in the gas roundtable report. NEM recommended that the payment allocation order with respect to receivables should be revised so that payments are applied first to the consumable portion of the bill, then to the non-consumable portion, and finally based on the age of the receivable. Alternatively, NEM suggested that the consolidated billing party should purchase the receivables of the non-billing party until the utility billing function is competitively outsourced or unbundled from utility rates based on the utilities' fully allocated embedded costs of providing billing and collection services. NEM also supported: (1) the application of a reasonable discount rate for the purchase of receivables; and (2) the use of an incentive rate for the utilities to perform this function. NEM supported the utilities' recovery of the reasonable implementation costs for compliance with either a change in payment allocation order or purchase of receivables. NEM also requested clarification of telephonic enrollment rules to permit receipt of consumer education materials to satisfy the written material requirement of the state's Telephone Solicitation Act. NEM's Proposals for Inclusion in Gas Roundtable Report is available on the NEM Website.

New Jersey
NJBPU Decides BGS Auction Format and Retail Adder Issues

NJBPU issued its BGS Order approving the use of a simultaneous descending clock auction format for the procurement of Basic Generation Service (BGS). The Board approved an auction process for two-thirds of the electric distribution companies' (EDCs') BGS-FP load for 10 months and for one-third of such load for 34 months. Auction rules provide for financial guarantees from winning bidders to protect ratepayers from bidder default. Switching restrictions for BGS-FP and BGS-Commercial and Industrial Energy Pricing (CIEP) customers are not imposed for Years One, Two, or Three. A retail adder of 5 mils/kwh is appropriate for BGS-CIEP customers for the first 34 months of the post-Transition Period. The Board did not approve a retail adder on BGS-Fixed Price (FP) customers for Transition Period Year One. For Years Two and Three the NJBPU finds that a retail adder of 5 mils per kwh is appropriate and should be included in the rates of BGS-FP customers with an annual load equal to or greater that 750 Kw. The Board will reconsider the issue of utilizing a retail adder for customers with an annual load less than 750 Kw before Year Two. If the Board decides to use a retail adder for customers with an annual load less than 750 Kw in Years Two or Three, the adder will not be greater than 5 mils per kwh. NJBPU will at a later date, determine how the retail adder collected should be returned to customers, including possibly as an offset to deferred balances. The full text of the NJBPU Order is available on the NEM Website.

New York
NEM Submits Reply Brief Urging Rejection of Utilities' Avoided Cost Arguments

NEM submitted a reply brief in the New York unbundling case urging the Commission to reject the utilities attempts to revive previously rejected avoided cost arguments and implement unbundled rates based on the utilities fully allocated embedded costs. NEM argued that at a minimum the Commission should accept the cost study modifications recommended by ESCO Coalition Witness Hornby, or in the alternative, implement a cost allocation based solely on the percentage of total revenue generated by delivery services as deemed functionalized to non-contestable delivery services for purposes of the embedded cost of service (ECOS) study. All other costs should be properly allocated to contestable services until a fully allocated ECOS study is performed. Additionally, NEM opposed the suggestion to inject another phase of review into this proceeding. NEM urged the adoption and implementation of its embedded cost study methodology on an expeditious basis so that customers can begin to realize the significant benefits of fully allocated embedded cost-based unbundled rates. The full text of NEM's Reply Brief is available on the NEM Website.

Legislative Transition Taskforce Wants Calculation of Stranded Costs

Consistent with the recommendations of NEM, the Legislative Transition Taskforce that examines electric restructing issues in the state has recommended that a determination of the amount of the utilities' stranded costs be made. Despite the fact that a determination of whether or not the utilities in fact had any stranded costs had not previously been made, a wires charge was instituted to permit recovery of those costs. The Taskforce directed the Commission to convene a panel of lawmakers, power suppliers, consumers, and utilities to derive a method to calculate stranded costs by July 1, 2003, and for Commission Staff to complete stranded cost calculations by November 1, 2003.

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