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October 11, 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. 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. An agenda will be sent out prior to the meeting.

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 and visible from 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 started to RSVP.

NEM Conference Call on Software Standards and Risk Management

The conference call scheduled for Monday, October 14, 2002, has been changed to Wednesday, October 16, 2002, at 1PM EST. The issues for consideration on the call include:

1) NEM strategy on coordination and publication of NEM's National Guidelines on Credit, Risk Management and Financial Governance with the CRO Group and other industry groups. There are a number of issues related to substance, coordination, timing and content of NEM's positions on this critical set of issues. It is important for each of you to participate in this call as there has been significant movement on these issues and much more is expected to come.

2) NEM is also actively involved in a number of areas of software standardization and there is significant overlap with members who develop software related to credit and risk management, AMR as well as back office and customer care solutions. Your expertise and recommendations for NEM positions and coordination would be greatly appreciated

The dial in number is 703-788-0600. The pass code is 209353. Please take the time to dial into this conference call.

EPRI Activity on RTO Data Standards

EPRI has begun meetings for development of RTO data standards. EPRI has submitted a letter to FERC detailing its activities. EPRI's next meeting on this subject is November 12, 2002, in Columbus, Ohio. NEM has joined the listserver for these activities. Please contact headquarters with your feedback on how NEM can best participate in this activity. The full text of EPRI's letter to FERC is available on the NEM Website.

Many thanks to Gary Michor of the SPi Group for his leadership on this issue.

Senate Governmental Affairs Committee Staff Report on Enron, SEC and the Private Sector

The Senate Governmental Affairs Committee staff released a report entitled, "Financial Oversight of Enron: The SEC and Private-Sector Watchdogs." The report concluded that Enron's Board and its auditors should have functioned as the first line of defense but failed to do so. With respect to the SEC, the report noted that Enron's 10Ks for 1998, 1999, and 2000 were not reviewed by SEC Staff and questioned the treatment of Enron PUHCA exemptions and SEC's no-objection letter issued on Enron's use of mark-to-market accounting. The report recommends that the SEC: 1) review more filings, 2) proactively look for fraud, 3) improve follow-up procedures, 4) supplement aggressive enforcement with proactive measures for prevention and detection, 5) coordinate better with other agencies like FERC, and 6) determine why the Enron windfarm PUHCA application was not acted upon and prevent other similar oversights.

With respect to the role of sell-side analysts, the report noted that the major analysts persisted in rating Enron stock as a buy after widespread reporting of Enron accounting and transactional activities. The report stated that the Sarbanes-Oxley Act and recent NASD/NYSE rules should enhance analyst independence and disclosures. The report recommends: 1) separation of analysts from the influence of investment banking, 2) firms should not be permitted to share research reports with subject companies prior to release, 3) firms should be prohibited from incentivizing positive ratings, 4) disclosures should be made more widely available to the public, and 5) firms should be required to explain why they drop coverage of a company without first downgrading it to a sell rating. As to credit rating agencies, the report concluded that these entities, "did not perform a thorough analysis of Enron's public filings; did not pay appropriate attention to allegations of financial fraud; and repeatedly took company officials at their word, without asking probing, specific questions - despite indications that the company had misled the rating agencies in the past." The report recommends that SEC set conditions on the NRSRO designation through additional regulation. The full text of the Staff Report and Letter to SEC Chairman Pitt are available on the NEM Website.

NEM Comments to FTC on Internet Competition

FTC is examining possible anti-competitive efforts to restrict competition on the Internet. NEM submitted comments urging the Commission to exercise its authority to promulgate uniform, national rules to implement the federal Electronic Signatures in Global and National Commerce Act. NEM argued that the current piecemeal approach of state adoption of electronic signature laws and regulations is contrary to the federal statute and is slowing the growth of the competitive energy market. NEM noted that if the Commission adopts the national do-not-call registry approach proposed in another proceeding it would, in effect, be taking away the telephonic enrollment option to competitive energy suppliers, and so the Commission must ensure that there are other cost-effective means of customer contact. NEM also noted that the energy industry had already adopted internet enrollment procedures as part of the Uniform Business Practices. The full text of NEM's Comments are available on the NEM Website.

Order on Reporting and Accounting Requirements

FERC previously issued a rulemaking seeking comment on the extent to which independent and affiliated power marketers and power producers should be required to follow the Uniform System of Accounts (USA), what financial information should be reported by these entities, how frequently it should be reported, and whether these entities should be subject to reporting the information regarding recognition of changes in the fair value of security investments, items of other comprehensive income, derivative instruments, and hedging activities. FERC also sought comment on whether it should rescind the Part 34 blanket authorizations granted to independent and affiliated power marketers and power producers and require these entities to comply with the filing requirement of Part 34 for all future issuances of securities and assumptions of liabilities. FERC decided to sever this inquiry from the USA changes for jurisdictional public utilities and licensees, natural gas companies and oil pipeline companies that it adopted. FERC said there is a general need to reform the approach used to monitor competitive electric markets and market based sellers and that it will hold technical conferences and outreach meetings to address the subject. The full text of the Order is available on the NEM Website.

Order Issues on SeTrans RTO

FERC issued an Order to provide preliminary guidance on the proposed business model, independent system administrator (ISA), and governance structure of the SeTrans RTO. FERC found that the proposed ISA would have sufficient independence. However, further detail on the stakeholder advisory committee is needed. FERC also stated that the proposal should be modified so that each market participant is only permitted to participate in a single stakeholder group. FERC found that the proposed governance structure satisfies Order 2000. FERC also noted that it would allow participant funding as a part of the general framework of the RTO. The Commission also noted that they "are open to the idea of allowing the transmission owners in the SeTrans footprint the opportunity to earn an incentive ROE when the SeTrans RTO becomes operational." The full text of the Order is available on the NEM Website.

Order Issued on WestConnect RTO

FERC has issued an Order on the proposed WestConnect RTO. FERC approved the "for profit" aspect of the proposal. It also approved the passive transmission owners retention of veto rights but rejected their right to veto equity compensation claims. FERC also found that: 1) the proposed Board selection with certain modifications will result in an independent Board; 2) the proposal satisfies the scope and regional configuration requirements and the short-term reliability requirements of Order 2000; 3) the proposal for ancillary services and a real-time balancing market satisfy Order 2000; and 4) the proposed market monitoring unit is a reasonable interim measure. The Commmission said it could not determine if the WestConnect proposal satisfied the operational authority criteria of Order 2000 without an explanation of the authority of the area operations centers. The Commission approved the proposal to use license plate rates for an interim period and then go to a combined system-wide postage stamp/zonal pricing scheme. The Commission required the Applicants to explain why passive transmission owners have a right of first refusal to own interconnection projects proposed by third parties. The Commission accepted the congestion management proposal as a "Day One" solution but said the Applicants must develop a congestion management system that is market-driven. The full text of the Order is available on the NEM Website.

Order on Gas Utilities Use of Risk Management Programs

DTE issued an ordered on the gas utilities use of risk management programs adopting many of NEM's recommendations. DTE concluded that it will allow, but not require, LDCs to use financial risk-management instruments to mitigate commodity price volatility and that it will review risk-management proposals on a case-specific basis. DTE also ordered that customer participation in a utility’s financial risk-management program must be on a voluntary basis and that the costs associated with these programs can only be recovered from the customers who choose to participate. DTE rejected the use of incentive mechanisms in conjunction with utility risk management programs finding that it could negatively impact the competitive retail market. DTE declined to adopt the prudence or least cost standards of review for utility risk management programs. DTE determined that it would review the reasonableness of each program on a case-by-case basis and that the LDC would bear the burden of demonstrating that its plan is reasonably designed to meet the objective of price stability. The full text of the Order is available on the NEM Website.

New Jersey
Order on Third Party Supplier Fees

The Board approved a settlement whereby the costs underlying Third Party Supplier (TPS) fees would be considered in the electric utilities' 2002 rate cases and included in the utilities' distribution charges. In the interim before the rate cases are concluded, the current $25 MW/month TPS fee will remain in place as argued by NEM. The full text of the Order and Settlement will be posted on the NEM Website when made available electronically.

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