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March 8, 2002
NEM Master Margin and Netting Agreement Taskforce

NEM will convene a meeting to draft a Master Margin and Netting Agreement. Chris Bernard from Entergy-Koch has offered to coordinate this effort and host the first meeting. The meeting will take place on March 29, 2002, at 8:30AM at 20 Greenway Plaza, Suite 100. Given the various agreements currently in use, the Enron collapse underscores the importance of standardizing margin and netting requirements to avoid future credit crunches in the energy wholesale marketplace. All industry participants interested in attending should call NEM headquarters at 202-333-3288 or Chris Bernard at (713) 544-5433 or email us at info@energymarketers.com.

NEM Annual Membership Meeting and National Restructuring

Senators, FERC, PUC and FTC Commissioners have confirmed for NEM's Annual Membership Meeting and National Restructuring Conference to be held June 20 and 21, 2002 at the Marriott Metro Center in Washington, DC. An agenda for the conference is hotlinked here. A quick registration form and an electronic brochure are also hotlinked here.

Please contact NEM headquarters if you are interested in sponsorship or table-top space at the conference, as space will be limited.

NEM Risk Valuation, Management and Financial Accountability Taskforce Meeting

NEM's Risk Valuation, Management and Financial Accountability Taskforce will hold a one day meeting at the Georgetown Club in Washington, DC on April 18, 2002, beginning at 11AM and lasting no later than 5:30PM. The purpose of the meeting is to forge consensus on accounting and disclosure standards to promote the proper valuation of energy assets, equity securities and forward energy contracts, including derivatives.

Maximum industry participation is encouraged. Those planning to attend the meeting should respond ASAP to info@energymarketers.com.

NEM Meeting with Chairman Wood

NEM's meeting with Chairman Wood is still tentatively scheduled for May 1, 2002. Your suggestions for an agenda would be appreciated, and we will hold a conference call for attendees on April 16, 2002, at 1PM EST. The dial in number is 703-788-0600, and the passcode 209353.

NEM Meeting with Commissioner Brownell

NEM met with Commissioner Brownell on March 6, 2002, to discuss RTO-technology related issues, standard wholesale market design issues, and FERC's derivatives rulemaking. Commissioner Brownell noted that a White Paper would be issued by FERC next week to precede the upcoming standard market design "Giga-NOPR" and requested NEM to submit comments on the White Paper. Specific areas she requested NEM discuss include market clearing price and resolution of the FTR debate. Commissioner Brownell said FERC needs to fully understand operational details, whether it should look at experience from financial markets, and how it can avoid the telecommunications model. Commissioner Brownell noted that the "Giga-NOPR" White Paper won't be fully developed and requested that comments address what is included as well as important concepts that are not. She also requested a focus on the real value to the market, not just legal issues. The full text of the White Paper will be posted on the NEM Website when made available electronically. Members should submit their comments on the White Paper to headquarters ASAP. Notes from the Commissioner Brownell meeting are available upon request from NEM headquarters.

NEM Comments on FERC's Derivatives Accounting and Reporting NOPR

NEM submitted comments on FERC's derivatives accounting and reporting NOPR urging that the Commission should continue to grant entities with market-based rates waivers from Uniform System of Accounts reporting as well as Part 34 blanket approvals for future issuances of securities and assumptions of liability. NEM argued that the cost-based ratemaking purposes of the reporting requirements will not be advanced by their imposition on entities with market-based rates and that imposition of the requirements on these entities could have multiple negative impacts including increasing costs of doing business, discouraging entry into the competitive market, and negatively impacting market development. NEM also argued that imposition of the reporting requirements will not likely prevent future Enron-like situations. NEM urged that a full cost-benefit analysis of the NOPR should have been performed and that the NOPR should be rescinded. The full text of NEM's Comments is available on the NEM Website.

Wholesale Electric Standards Organization

NEM needs member comments on a single industry standards setting organization (either NAESB and NERC or FERC) for the wholesale electric market. There is serious concern about the timing of any consensus process that is developed. While everyone wants a one stop shop it may not happen, and there is concern that the participants will likely predominate from the regulated sector as this will likely be a very time intensive process. Members are requested to forward their comments to headquarters ASAP.

U.S. Supreme Court Issues Decision on FERC Order 888

The U.S. Supreme Court issued an opinion on the scope of FERC's jurisdiction over retail transmissions. New York and several other states as well as Enron had sought review of FERC's Order 888. Contrary to the arguments of the states, the Supreme Court found that FERC had not exceeded its jurisdiction by including unbundled retail transmissions within the scope of its open access requirements in Order 888. While recognizing that FERCís jurisdiction over the sale of power is specifically limited to the wholesale market, FERCís jurisdiction over electricity transmissions is subject to no such limitation. The Supreme Court also upheld FERCís decision not to regulate bundled retail transmissions. However, the Supreme Court said that if FERC were to investigate alleged discrimination in the retail electricity market and make findings concerning undue discrimination, ß206 of the Federal Power Act would require FERC to provide a remedy for that discrimination.

Three Justices dissented and stated plainly that FERC has jurisdiction over all interstate transmission. The dissenting opinion would have remanded the case to require FERC to make a determination of whether there was discrimination on the use of transmission between bundled and unbundled sales and fashion a remedy that was supported by a finding of fact. In NEM's opinion, this can be viewed as granting FERC both the authority and the discretion to regulated any transmission used for either wholesale or retail transactions. The full text of the Supreme Court Opinion is available on the NEM Website.

Market-Based Rates Conference

FERC issued a proposal to revise market-based rate tariffs to include a provision prohibiting anticompetitive behavior or the exercise of market power and requiring violators to pay refunds or subject to other remedies. The focus of the March 11, 2002, conference will be whether the proposed tariff condition can be modified to adequately protect customers on an interim basis until FERC adopts other measures to ensure competitive markets, including standard market design rules and RTO market monitoring units are established. Staff issued a white paper setting forth issues for consideration at the conference. These issues include modification of the proposed definitions of economic and physical withholding such as clarification of the term "full incremental cost" to include opportunity cost, clarification of the term "market price" as to time, product and geographic market, and consideration of environmental, operational and reliability factors in a determination of physical withholding. Issues to be discussed will also include exempting sales in fully competitive markets with effective market monitoring, exempting suppliers in an approved RTO market with FERC-approved bid caps, exempting power supply agreements of a specified duration or agreements where parties waive refund obligations, exempting all bilateral contracts, and the creation of safe harbors for certain transactions. Limiting the tariff condition to the specific market(s) in which a seller has market power, exempting generators that are unable or unlikely to exercise market power will also be discussed and limiting the refund potential window as well as clarification of the manner in which sellers can respond to allegations will also be addressed. Other suggestions for consideration include imposition of temporary price caps along with reserve capacity requirements until a competitive market structure emerges and tailoring mitigation measures to be applied to a particular exercise of market power, class of participant, and sector. The full text of the Market-Based Rate Conference Agenda is available on the NEM Website.

California
Revised Draft Decisions on Retroactive Suspension of Direct Access

There are amended versions of both the ALJ Barnett and Commissioner Brown draft decisions on the retroactive suspension of direct access. The Barnett decision appears to be an attempt to clarify which customer gets to stay DA and which must go back to bundled service. It states SCE, PG&E and SDG&E shall return customer accounts to bundled service unless such customer had (1) an eligible DA contract signed prior to July 1, 2001 and (2) was receiving power from their ESP under that contract as of June 30, 2001. The Brown decision still provides that the direct access suspension date should remain September 20, 2001, but now specifically recognizes that a direct access surcharge or exit fee should be imposed on direct access customers. The full texts of the Barnett Draft Decision and the Brown Draft Decision are available on the NEM Website.

Connecticut
HB 5428 on Default Service Pricing Introduced

HB 5428 has been introduced pertaining to the pricing of default service. The bill provides that the DPUC shall establish the default service price for residential customers to be comprised of: 1) the market cost for generation services, as adjusted by a market index mechanism and subject to the price variation mechanism, 2) administrative costs, and 3) a procurement fee. The procurement fee cannot be set at more than eight-tenths of a cent per kilowatt hour. The full text of HB 5428 is available on the NEM Website.

Maryland
Pepco Submits Proposed Metering Tariff

Pepco has filed a proposed metering tariff to implement advanced metering for certain customers. By the terms of filing, customers with billing demands in excess of 500 kw taking advanced metering service can own the meter as well as third parties representing these customers. Additionally, MGT LV, MGT 3A, GT LV, GT 3A, GT 3B, and TM RT customers can request: 1) customer demand monitoring whereby Pepco will provide on-site pulse outputs to the customer through an isolation relay to allow the customer access to near real-time consumption data; or 2) telephone-based read only access to an advanced meter. Pepco proposes to charge an initial fee of $90 and a monthly charge of $8 for the isolation relay. Pepco maintains that the installed cost of isolation relay is $484.67, but they have decided that rather than collect the full costs up front, they prefer to collect them, "over time immemorial." The full text of Pepco's Proposed Metering Tariff is available on the NEM Website.

Michigan
Retail Energy Imbalance Proceeding

The utilities have filed a response to the supplier retail energy imbalance proposal. The utilities argue that the plan would adversely affect reliability, be too costly and difficult to implement, and is unnecessary because of the forthcoming MISO balancing program as well as the proliferation of alternative suppliers in Michigan. A meeting on March 13, 2002, will be held to review the proposal and the utilities' response. The full texts of Detroit Edison and Consumers' Response and MEGA's Response are available on the NEM Website.

New Jersey
Basic Generation Service Working Group Meeting

Due to a conflict with the PJM Member Committee Meeting, the Basic Generation Service (BGS) working group meeting has been rescheduled. The meeting will now be held March 27, 2002, at 10AM, in the Board's Newark hearing room.

New York
Proposed Schedule for Review of Embedded Cost Studies

The ALJ in the unbundling proceeding has issued a proposed schedule for review of the utilities' embedded cost studies that are due March 15, 2002. By the terms of the proposed schedule, utilities' presentations on their studies would take place in March, discovery would take place throughout April, utility-specific hearings would be held in May, and the utilities would submit revised studies and tariffs (including lost revenue recovery mechanisms) by June 15, 2002. Unbundled tariffs would take effect on July 15, 2002. Comments on the proposed schedule are due March 12, 2002. The full text of the Procedural Ruling is available on the NEM Website.

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