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May 17, 2002
NEM Executive Committee Leadership Nominations Sought

The Leadership of the NEM Executive Committee is accepting nominations for the National, Regional and State Policy Chairs and Co-Chairs for the comming year. Please forward forward your nominations to headquarters to headquarters by May 23, 2002. All the nominations will be circulated prior to the June 20 Membership Meeting and Conference, and a special meeting of the Executive Committee is scheduled for the evening of June 19 from 6PM-8PM to vote on the nominations at the Marriott Metro Center.

NEM Annual Membership Meeting and National Restructuring Conference

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 updated agenda, registration form and electronic brochure is hotlinked here for your convenience. All Congressional members and Staff of the conference committee on the energy bill have been invited to the NEM VIP reception to be held on the evening of June 20, 2002, in the Senate Hart Office Building Room SH-216. If you plan to attend the conference and the reception, we need your security information ASAP. Also there are only a limited number of rooms left at our discounted rate of $139/night. An alternative consideration for the evening of June 19 is to attend "The 2002 President's Dinner" to be held at the Washington Convention Center beginning at 5:30PM.

NEM-EEI Master Netting Agreement

A meeting of the Master Netting Working Group will be held on May 30, 2002, from 10AM–4PM at the Omni Houston Hotel (Galleria area), Four Riverway, Houston, Texas. The purpose of the meeting is to present a final version of the NEM-EEI Master Netting Agreement and Collateral Annex. The final agreement will be posted on the NEM website by close of business May 28, 2002. Further details about the meeting will be released shortly.

A revised interim draft of the Master Netting Agreement and Collateral Annex has been prepared. Comments on the revised draft are due by noon CPT on May 23, 2002, and should be forwarded to The full texts of the Revised Interim Draft (Clean) and Revised Interim Draft (Redlined) are available on the NEM Website.

Many thanks to Dede Russo, Marty-Jo Rogers, Chris Bernard, Vince Duane and others for their leadership and hard work on this important project

NEM's Risk Valuation, Management and Accountability Task Force Accepting Suggestions and Proposals for Industry Code for Risk Management and Financial Disclosure

EEI, NAESB, DOE and a group of industry CROs have contacted NEM to offer assistance with this project. Please send comments and suggestions to or contact headquarters with your recommendations ASAP.

Many thanks to Lee Taylor, Harry Fry, Mike Walker, Bob Young, Kim Detiveaux, Dennis Sobieski, Mike Prokop, Ron Lukas, Trip Ray, Gordon Allott, Ray O'Connor, Paul Messerschmidt, Jennifer Feinstein and Greg Towstego for their assistance with this project.

NAESB Wholesale Electric Quadrant Meeting and Retail Electric Quadrant Draft Annual Plan

NAESB will hold a wholesale electric quadrant (WEQ) meeting in Birmingham, Alabama on May 29 and 30, 2002. The purpose of the meeting is to continue discussions on segment definitions and the number of NAESB Board and Executive Committee seats for the WEQ. The meeting will include identification of preliminary definitions for the five WEQ segments as well as identification of sub-segments. Subsequent meetings to finish these discussions will be held on June 20 and 21, 2002, in Columbus, Ohio and on July 15 and 16, 2002, if necessary. The NAESB Board meeting will be held June 28, 2002, in Seattle. The full text of the Meeting Announcement is available on the NEM Website.

A draft annual plan for the NAESB retail electric quadrant (REQ) has been prepared. The draft annual plan is a high-level plan intended to provide direction to the REQ on work priorities once the REQ is formally created. Comments are due May 24, 2002. The full text of the Draft Annual Plan is available on the NEM Website.

NEM Publication Opportunity

NEM members interested in submitting articles for publication in Power and Gas Marketing and Harts magazine should contact headquarters ASAP.

NEM Employment Opportunity

New positions are being created in NEM for individuals with advocacy and marketing experience. Interested persons should email their resumes in confidence to NEM headquarters ASAP.

SEC NOPR on Management's Disclosure and Analysis About Application of Critical Accounting Policies

SEC issued a NOPR on management's disclosure and analysis (MD&A) about application of critical accounting policies. SEC proposes to amend the MD&A requirements to require disclosure in a new section to be included in annual reports, annual reports to shareholders, registration statements and proxy and information statements called "Application of Critical Accounting Policies." The new section would include disclosure about accounting estimates resulting from the application of critical accounting policies as well as the initial adoption of accounting policies that have a material impact on a company's financial presentation. The test of a critical accounting policy requiring disclosure is proposed as whether: 1) an accounting estimate that requires assumptions about matters that were highly uncertain at the time the estimate was made; and 2) different estimates that could reasonably have been used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on the presentation of the company's financial condition, changes in financial condition or results of operations. With respect to the initial adoption of accounting policies SEC proposes disclosure of the events or transactions that gave rise to the initial adoption, the accounting principle adopted and method of its application, and the impact, in qualitative terms, on the company's financial presentation. Comments are due July 19, 2002. Please send comments on these issues to no later than June 1, 2002. The full text of the NOPR is available on the NEM Website.

Standard and Poors Analysis of Exposure to Contingent Calls on Liquidity

S&P has issued a two-part report entitled, "Identifying Ratings Triggers and Other Contingent Calls on Liquidity." S&P concludes that of the 1,000 U.S. and European investment-grade industrial and utility companies that it reviewed, "there are only 23 companies for which the proximity to ratings triggers or other contingent calls on liquidity and the materiality of the consequences of the provisions could present a serious concern." The full texts of Part 1 and Part 2 of the S&P Report are available on the NEM Website.

Chairman Wood Testifies on Western Energy Markets

Chairman Wood testified before the Senate Energy and Natural Resources Committee on allegations of potential manipulation in western energy markets. The hearing was prompted by the release of the Enron trading strategy memos. Hotlinked here is the latest memo. Prior memos were hotlinked in last week's update. Chairman Wood declined to discuss the findings of the on-going investigation into Enron and western trading practices, but discussed the numerous proceedings that FERC has initiated with respect to the California market. Wood also discussed the failure of the CAISO to timely remedy identified market structure flaws, such as its congestion management system. Wood suggested that Congress grant FERC the power to set a refund effective date as of the date a complaint as well as increase criminal and civil penalties for violations of the Federal Power Act. The full text of Chairman Wood's Testimony is available on the NEM Website.

FERC Staff Report on EnronOnline

A FERC Staff memo dated August 16, 2001, was released on an inquiry into EnronOnline (EOL). Staff was asked to examine the impact of EOL on natural gas and electric markets given its position in the market. Staff concluded that Enron's share of gas and power trading was not high enough to warrant concern at that time. Staff also discussed the competitive advantages that EOL conferred on Enron including better price discovery, lower costs, lower exposure to price fluctuations and better market information. Staff discussed that the one-to-many market model of EOL causes an increased risk to be shouldered by parties to the transaction as compared to a many-to-many market model. Staff recommended that if Enron were to request FERC approval of an index based on EOL transactions that a condition of approval should be posting all transactions in products covered by the index including product name, price, volume, and date and time of each transaction. The full text of the EnronOnline Memo is available on the NEM Website.

Order on Wholesale Electric Standards Organization

The Commission issued an Order on the formation of a wholesale electric standards organization. The Commission found that the NAESB Wholesale Electric Quadrant should be the single organization to develop business practice and electronic communication standards. The Commission also found that NAESB should develop formal procedures to coordinate wholesale electric standards with wholesale gas, retail gas and retail electric business practice standards. NAESB was ordered to file an update on progress in developing the WEQ, including a timetable for completion of the effort, by July 1, 2002, as well as a follow-up report on September 1, 2002. The Commission urged the industry to establish the procedures for ensuring coordination of business and reliability standards after the WEQ is formalized, and asked NAESB to file an update on the coordination process with NERC within 90 days after the WEQ is formed. The full text of the Order is available on the NEM Website.

Order in Consumers Electric Unbundling Case

The Commission issued an Order in the Consumers electric C&I unbundling case approving Consumers filing. The Commission also ordered Consumers to include the functional components of each charge on customer bills beginning with the first billing cycle on or after December 1, 2002. Prior to that time, Consumers must include a percentage breakdown of the unbundled charges by their functional classification, as applicable to the customer’s rate class and must notify customers that detailed unbundled rate information is available upon request. The Commission also ordered Consumers to file unbundled residential rates within the next 60 days. The full text of the Order is available on the NEM Website.

Commission Order on Stranded Cost Recovery

The Commission clarified its previous Order on DTE and Consumers' year 2000 stranded costs. The Commission said that by the terms of its previous Order the utilities could offer proposed adjustments to the amount of stranded costs for 2000 but the proposals must be consistent with the Commission's calculation methodology. The Commission found this would be appropriate in the proceeding to consider Consumers' application for approval of stranded cost calculations for 2000, 2001, and 2002. The Commission noted that DTE has not yet filed such an application. The full text of the Order is available on the NEM Website.

New York
ConEd and NYSEG Submit Draft Unbundled Rates and Stranded Cost Recovery Mechanism

NEM and its expert and Staff have gotten together to review ConEd and NYSEG's embedded cost studies in order formulate assumptions by which the wholly inadequate studies should be recomputed. ConEd filed draft embedded cost-based unbundled rates and a proposed stranded cost recovery mechanism based on its initial and unrepresentative study. By the terms of the filing the consolidated bill credit would increase to $0.92 per monthly billing cycle. The credit for electric supply costs would be reduced to 0.025 cents per kwh for residential and religious rate customers and would be reduced to 0.018 for other customers. The gas supply function credit for residential SC1 and SC3 customers would be 0.3660 cents per therm and for non-residential customers would be 0.3271 cents per therm. The gas storage working capital credit would be 0.2125 or 0.2123 for customers taking Daily Delivery Service or Daily Cashout Service, respectively.

ConEd's proposed stranded cost recovery mechanism proposes that a transition adjustment for competitive services be applied to all full-service and retail access customers. This proposal is contrary to the Commission's Order that POLR-related expenses be charged to all customers and that competitive expenses only be charged to full-service customers. The full text of ConEd's Filing is available on the NEM Website.

NYSEG also submitted draft unbundled rates and a proposed revenue recovery mechanism based on its initial and unrepresentative study. By the terms of NYSEG's filing, the consolidated billing credit would be set at $0.77 per bill. The gas supply procurement rate would be $0.155 per dth, and the electric supply procurement rate $0.0004 per kwh for residential and small commercial customers and $0.0003 per kwh for large commercial and industrial customers. NYSEG stated it was not proposing rates for its demand response programs, Energy Profiler Online, delivery and reliability services, repackaged gas service and surge protector sales because the Commission has not yet deemed these to be competitive services. With respect to electric service, NYSEG argues there is no need for it to establish a market transition charge because of the mechanism for revenue recovery in its Price Protection Plan. With respect to gas service, NYSEG proposes to collect "revenue shortfalls associated with strandable unbundled costs" through its existing transition surcharge. The full text of NYSEG's Filing is available from NEM headquarters.

NYPSC Proceeding on Gas Transportation Rates for Distributed Generation

The Commission issued an order instituting a proceeding to consider gas transportation rates for distributed generation units smaller than 50 MW. The Commission noted that utility tariffs include differing rates, terms, and conditions applicable to DG applications and that the rates were generally not designed to apply to DG use. The Commission also noted the lack of uniformity in customer-related or demand costs included in volumetric rates, including the tail block. The Commission concluded that these conditions contribute to make DG uneconomic. Accordingly a series of issues will examined in this proceeding including: 1) how many tariff categories should be developed; 2) what pricing methodology should be used for DG rates for the initial phase; 3) if the existing tariffs for small customers are used for DG applications, if a subclass should be developed to reflect DG-specific load characteristics and cost causation; 4) whether DG rates should be frozen, and, if so, for how long; 5) whether customer participation in DG applications should be capped; and 6) whether certain DG uses should be permitted without separate metering.

The Commission also ordered the development of pilot projects to gather load data and characteristics for the formation of gas transportation tariffs for DG applications. Requests to participate in the proceeding are due June 10, 2002, and comments are due June 24, 2002. Please forward all recommendations on these issues to NEM headquarters at no later than May 25, 2002. The full texts of the Order Instituting Proceeding and Notice Soliciting Comments are available on the NEM Website.

NEM Comments on Electric Retail Competition

NEM submitted comments on the facilitation of effective electric retail competition in the state. NEM recommended that: 1) the Commission should not delay further efforts to foster retail competition pending the implementation of FERC's standard market design or RTO formation; 2) the Commission should expeditiously approve competitive metering and consolidated billing; 3) minimum stay requirements should be eliminated; 4) the wires charge is a significant barrier to entry; 5) price caps do not facilitate competition and do not send accurate price signals to consumers that would encourage demand responsiveness; and 6) the Commission should implement embedded cost-based unbundled rates. The full text of NEM's Comments is available on the NEM Website.

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