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March 28, 2003
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. Please note that the time of Congressman Barton's appearance may be impacted if his energy bill is in full committee mark-up at this time.

Staff Issues Final Report on Price Manipulation in Western Markets

At the March 26, 2003 Agenda Meeting, the Commissioners discussed various items related to the Western energy crises of 2000-2001. FERC Staff issued a Final Report on Price Manipulation in Western Markets. While Staff found significant market manipulation, FERC's original conclusion, that significant supply shortfalls and a fatally flawed market design were the root causes of the California market crisis, is unchanged. Staff's Report concludes that markets for natural gas and electricity in California are inextricably linked, and that dysfunctions in each fed off one another during the energy crisis. The Report concluded that many market participants provided false reports of natural gas prices and trade volumes to industry publications and recommends that FERC take efforts to ensure that price indices better represent actual prices. Additionally, Staff recommends that the Commission initiate a proceeding to require companies that violated anti-gaming provisions to disgorge profits associated with such violations. The Report also urges FERC to prohibit the use of one-to-many trading platforms such as EnronOnline and to explicitly prohibit wash trading. The Commission said it would make public most of the material obtained in the course of the staff investigation. The full text of the Final Staff Report (Part 1 and Part 2) is available on the NEM Website.

In response to the Final Staff Report, the Commission will take the following actions:(1) initiate a generic proceeding to consider whether to change its regulation to require monitoring and reporting that would mandate companies disclose behaviors within certain defined limits or risk losing their certificates to trade gas. Power marketers would have to meet similar requirements; (2) establish generic and company-specific proceedings to implement Staff recommendations to improve reporting procedures
and internal verification processes for price indices; (3) issue show cause orders and initiate investigations as a result of Enron's various strategies to exploit the California market; (4) establish specific rules banning any form of prearranged wash trading and prohibiting the reporting of any affiliate trading activities through industry indices; (5) condition blanket gas marketing certificates, as well as electric market-based rates, to require that sellers who use trading platforms use only those trading platforms that agree to provide the Commission with full access to trade reporting. The trading platforms must also agree to appropriate monitoring requirements.

Additionally, in a November 20, 2002 Order the Commission allowed parties in the California refund proceeding to conduct additional discovery into market manipulation. The new material submitted by the parties indicates that the generators may have engaged in physical withholding of generation. Staff will send a data request to the relevant entities regarding allegations of physical withholding.

Finally, in the California refund case, FERC adopted staff's recommendation to use a different set of gas prices to calculate refunds. The new gas prices will increase the energy refunds, however, the total size of the refunds will not be known for several more weeks.

New York
NYPSC Issues Recommended Decision in Unbundling Proceeding

The NYPSC issued a Recommended Decision in the Unbundling Proceeding supporting NEM's view that "the attractiveness of retail options will be diminished, and the development of the retail market impeded, unless the customer can avoid paying the utility for services it no longer purchases." The NYPSC rejected Con Ed and NYSEG's functionalization of 100% of credit, collection, and other costs to delivery service. The Commission adopted NEM and Staff's proposal to allocate credit and collection costs to competitive and non-competitive services on the basis of revenues. Since ESCOs are now subject to HEFPA, the Commission rejected NYSEG's allocation of 100% of customer care costs to the delivery function. The ALJ recommended that NYSEG recalculate its competitive rates and implement the gas rates and recovery mechanism in July 2004 and the electric rates and recovery mechanism (if needed) in January 2005. The ALJ recommended that Con Ed recalculate its competitive rates and implement the gas and electric rates and, if needed, a revenue recovery mechanism as soon as reasonably possible. The full text of the Recommended Decision is available on the NEM Website.

NEM Submits Comments on Renewable Portfolio Standard

NEM submitted comments on NYPSC's Proposed Renewable Portfolio Standard (RPS). NEM stated that imposing a RPS on ESCOs at this stage in the development of New York's retail market will increase the cost of serving New York consumers and decrease the amount of different products and services competitive suppliers will be able to provide. NEM recommended that a RPS be implemented on a voluntary basis for competitive providers that wish to serve this market niche. NEM submitted that if there is a need to procure additional renewable resources to meet a State-wide target, it is essential to conduct a quantitatively accurate cost/benefit study to identify the best means of achieving the target. The full text of NEM's Comments are available on the NEM Website.

NEM Submits Reply Comments on Implementation of HEFPA

The chief issue that NEM addressed in its reply comments was the charge assessed for utility termination of ESCO service. The utilities proposed imposing a litany of costs on ESCOs that choose to exercise their statutory right of termination. NEM submitted that these costs exceed the scope of "reasonable compensation" authorized by the statute for service suspension and should not be imposed on a marketer-specific basis. NEM submitted that the majority of compliance and implementation costs enumerated by the utilities have been retained in rate base and have not been part of the unbundled shopping credits. Consequently, an additional charge will be a double recovery. Therefore, NEM urged that the utilities' recovery of any additional costs not already in rate base be assessed against all customers in a competitively neutral manner since the utilities' and marketers' costs of complying with HEFPA benefit all New York consumers. The full text of NEM's Reply Comments is available on the NEM Website.

NEM Submites Reply Comments on CG&E's Application to Establish a Market Based Standard Service Offer and Competitive Bid Process

NEM submitted reply comments on Cincinnati Gas & Electric Company's (CG&E) Application to establish a Market Based Standard Service Offer (MBSSO) rate and a Competitive Bid Process (CBP) for non-residential end use customers. NEM agreed with the Comments of Staff and competitive marketers that CG&E's proposed MBSSO rate is violative of the state restructuring law encouraging customer choice and should be rejected. NEM submitted that the MBSSO rate must be a standard, "plain vanilla" rate for non-shopping customers. NEM also agreed with Staff and the Joint Marketers that CG&E's proposed CBP is flawed since it would impose a huge amount of unjustified risk on potential competitive bidders without any commensurate benefit. The full text of NEM's Reply Comments are available on the NEM Website.

PUCO Adopts New GCR Rate for Columbia Gas, CG&E, and East Ohio

PUCO approved: (1) Columbia Gas' amended application to increase its GCR rate from $7.5774 per MCF to $8.7063 per MCF; (2) CG&E's amended application to increase its GCR rate from $5.988 per MCF to $6.605 per MCF; and (3) East Ohio's amended application to increase its GCR rate from $6.006 per MCF to $7.052 per MCF. NEM, Shell Energy Services Company, and Energy America filed motions to intervene in this proceeding. NEM called for reform of the GCR process to make it more reflective of market conditions and suggested moving to a monthly GCR. PUCO agreed in principal with NEM, Shell and Energy America that alternatives to the current GCR mechanism should be explored but declined to open a formal docket to explore those alternatives. PUCO directed staff to meet informally with LDCs and other interested parties to explore alternatives to the GCR process that could be implemented by the next heating season, including moving to monthly Expected Gas Cost adjustments. The full text of the Columbia Gas Order, CG&E Order and East Ohio Order is available on the NEM Website.

PAPUC Holds SOLR Working Group Meeting

Staff of the Pennsylvania Public Utility Commission reconvened the Supplier of Last Resort (SOLR) Working Group on March 25, 2003. Karen Moury, Deputy Executive Director of the Commission, chaired the meeting. Currently, the Natural Gas Distribution Company (NGDC) is the SOLR, but on July 1, 2004, any party may petition the Commission to become the SOLR. A participant of the working group asked if Natural Gas Suppliers (NGSs) could petition to be the SOLR for customers who do not choose a NGS and Moury clarified that the current proceeding was only addressing petitions to be the backstop SOLR (i.e. SOLR for those customers who are refused supply service from an NGS or those whose NGS has failed to deliver their requirements). The working group discussed that the phrase "failed to deliver their requirements" needs to be defined to clarify if it refers to NGS failure on any given day or failure over a longer period of time (i.e. a month). Moury suggested that the alternative supplier should have the choice to petition to be the SOLR for either daily imbalances or imbalances over a standard period. There was disagreement among the participants over the NGDC's responsibility once an AGS came in as the SOLR for certain customers. NEM urged the Commission to encourage the NGDC to exit the merchant function as soon as practicable. The bonding requirements for alternative SOLRs were also discussed. Moury said that she was not convinced that the bonding requirements needed to be stronger for alternative SOLRs than the current AGS bonding requirements. A consumer representative suggested that the review process for alternative SOLR filings as well as the allotted time to protest such filings be extended. Moury stated that she did not want the process to be open-ended. Staff plans to create a strawman before the group meets again. The letter reconvening the working group and the Appendix dicussed at the meeting are available on the NEM Website.

PAPUC Held Working Group Meeting on POLR Service

Staff of the Pennsylvania Public Utility Commission reconvened the Provider of Last Resort (POLR) Working Group on March 25, 2003. In this first phase, the focus of the POLR Working Group was on: 1) defining the EDCs’ continuing obligations to connect, deliver and acquire electricity; 2) establishing a method for determining prevailing market prices; and 3) creating a mechanism for the full recovery of all reasonable costs by the EDCs. Alternative POLRs will be discussed at subsequent meetings. Karen Moury, Deputy Executive Director of the Commission, chaired the meeting.

In response to NEM's inquiry, Moury assured the group that the price for POLR service will not just be a pass through of wholesale prices, but will include the costs to serve retail load. The group discussed the appropriate way to come up with an adder to be tacked on to the whole sale price to incorporate retail costs. In discussing how to determine prevailing market prices, there was strong support for a competitive bidding approach. A working group participant suggested that the POLR price be adjusted to reflect seasonal changes to send customers appropriate price signals. Another participant urged the working group to design the POLR structure to be a plain vanilla service. At the end of the meeting, Moury stated that Staff was not sure what their next step would be on this issue, but there will be another working group meeting in the future. The full text of the letter reconvening the working group and the Appendix discussed at the meeting are available on the NEM Website.

TXPUC Issues Proposal to Revise Customer Protection Rules

The TXPUC proposed new §25.486, relating to Establishment of Service for Customers Disconnected for Non-Payment; §25.487, relating to Obligations Related to Move-In Transactions; §25.488, relating to Termination of Service to a Premise with No Contract; §25.489, relating to Treatment of Premises with No Retail Electric Provider of Record; and §25.490, relating to Moratorium on Disconnection on Move-Out. The Commission stated that the goal of the project is to standardize the move-in and move-out processes to reduce the number of customers without a retail electric provider (REP) of record, reduce the amount of unaccounted for energy (UFE) and implement performance standards to lift the moratorium on disconnections when a customer moves out of a premise. Staff will hold a public hearing on this rulemaking, if requested, on May 7, 2003. Comments on the new sections are due by April 21, 2003 and reply comments are due by April 30, 2003. In addition to the proposed new sections, the commission requests comments on the following: (1) Should the rule allow TDUs to bill retail customers for past transmission and distribution charges who have been receiving electricity but have not been billed because there is no REP of record associated with the premise? (2) If backbilling for past TDU charges is appropriate, should the TDU be required to pass the charges through the customer's REP, or should the TDU be permitted to bill the consumer directly? (3) Should the rule limit the TDU's backbilling to six months? (4) What recourse, if any, should the TDU have if the customer with no REP of record does not pay the TDU for backbilled wires charges? The full text of the Rulemaking is available on the NEM Website.

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