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March 22, 2002
Amerex Nominated to NEM's Executive Committee

NEM is pleased to announce that Amerex has been nominated to the Executive Committee. Amerex is a leading over-the-counter commodity brokerage, providing voice and electronic brokerage services to the energy and other related markets. Amerex will be represented within NEM by Steven W. Town, Co-CEO of the Amerex group of North American Companies and Michael Prokop, CIO of the Amerex group of North American companies. Steve Town can be reached at 281-340-5201 or Mike Prokop can be reached at 281-340-5290 or

NEM Master Margin and Netting Agreement Taskforce

NEM will convene a meeting to start the drafting of a Master Margin and Netting Agreement. The first NEM meeting on a Master Margin and Netting Agreement will take place by conference call on March 27, 2002,at 2PM.(The Meeting in Houston for March 29 has been cancelled as it is Good Friday.) The bridge number for the conference is 703-788-0600, and the passcode is 209353. Chris Bernard from Entergy-Koch has offered to coordinate this effort. 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. Maximum participation is encouraged. Those interested in participating should call NEM headquarters at 202-333-3288 or Chris Bernard at 713-544-5433 or email us at A draft document will be circulated to those who are interested before the meeting.

EEI will discuss this topic at a Standard Contract Working Group meeting on April 11, 2002 at EEI's Washington, D.C. offices. The Agenda for the EEI Meeting is available on the NEM Website. NEM and its members will also be present for this meeting.

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. We need a firm headcount to order food at the Georgetown Club. Please RSVP as soon as possible. Call (202) 333-3288 or email

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.

NAESB Wholesale Electric Quadrant Meeting

NAESB will hold a meeting on April 5, 2002, in Houston, Texas to discuss segment identification and definitions for the wholesale electric quadrant. The full text of the Meeting Announcement is available on the NEM Website.

Feinstein Derivatives Bill

Senator Feinstein introduced modifications to her derivatives bill this week after attempting to negotiate langauge with Senator Gramm. Senator Gramm wants exemptions for energy swaps and electronic exchanges, but Feinstein disagrees. The modified bill would: 1) give regulatory oversight to the CFTC over all energy and metals derivative transactions (with no delivery); 2) require electronic exchanges that trade derivatives to be subject to the same requirements as formal trading exchanges like the NYMEX or MERC; and 3)require everyone who trades to keep records of the transactions. The full text of Feinstein's Modified Derivatives Bill is available on the NEM Website.

FERC Issues Working Paper on Transmission Service and Wholesale Electric Market Design

FERC has issued a "Working Paper on Standardized Transmission Service and Wholesale Electric Market Design," as a precursor to the standard market design "Giga-NOPR" it intends to issue this summer.

Significant provisions of the working paper include: 1) transmission providers should offer non-discriminatory, standard transmission service called "Network Access Service" to all customers that will combine existing open access transmission services, universal access of network integration transmission service, and the reassignment rights of point-to-point service. Customers will have the right to transmit power between a source and a sink and will have access to all sources and sinks on the system; 2) Locational Marginal Pricing (LMP) is to be used as the system for congestion management; 3) the two options for consideration for the initial assignment of transmission rights are either: a) direct allocation to customers that pay the embedded costs of the system followed by an auction for any unclaimed rights or b) conduct an auction to apportion the rights and allocate the proceeds to the customers that pay the embedded costs of the system; 4) the transmission provider must run a voluntary, bid-based, security-constrained day-ahead energy market and a bid-based, security constrained real-time energy market; 5) the LSE has the obligation to procure regulation and operating reserves or to pay for the reserves procured by a transmission provider on its behalf; 6) A bid cap and mitigation rules that limit bidding flexibility will initially be needed until sufficient demand response develops; 7) each RTO should have a market monitoring unit (MMU) that is independent of RTO management, and the MMU will monitor all markets in its region; 8) the standard market design rule will be implemented on a phased-in basis. The first phase will include offering physical trading hubs and application of pro forma tariff clarifications issued over the years on a consistent basis; and 9) the software to implement standard market design should be modular to allow multiple vendors to provide the components of the overall platform, and standardized data formats and data transfer protocols may also be appropriate.

Comments on the Working Paper are due March 27, 2002. NEM's draft comments on the Working Paper will be circulated for comment next week. Member comments should be forwarded to headquarters ASAP. The full texts of the Notice of Working Paper and Working Paper are available on the NEM Website.

Natural Gas Consumers' Relief Act Passes House and Senate

The Georgia House and Senate passed the Natural Gas Consumers' Relief Act this week. The major provisions include: 1) Commission authority to issue emergency directives, such as price regulations, if market conditions are no longer competitive (if more than 90% of customers in a specific delivery group are served by 3 or fewer marketers) or if prices paid by consumers in a specific delivery group are not constrained by market forces and are significantly higher than they would be if constrained by market forces; 2) a continuing requirement that gas marketers have the technical and financial ability to render and offer service; 3) a surcharge on interruptible customers to pay a share of the distribution system; 4) a limit on gas consumer deposits to marketers of $150; 5) a requirement that the Commission consider a plan for assignment of interstate capacity assets to gas marketers; 6) a requirement that no switching charges be assessed against customers that have not changed marketers in the last twelve months; 7) a consumer bill of rights; 8) marketer bills must use results of actual meter readings; and 9) marketers must file changes to terms and conditions of service at least 30 days prior to the effective date. The bill also provides for a regulated provider of natural gas to serve "Group 1" low income customers and "Group 2" firm natural gas consumers whose utility credit or payment history was cited by a marketer as a reason for refusal of service or whose payment history was cited by the regulated provider as reason for transfer to Group 1 or 2. The service is to be let for competitive bid. If no acceptable proposals are received, the Commission must designate an electing distribution company or any other gas or electric utility to perform the service. The rate for low income residential consumers is to be based on actual commodity cost, a reasonable rate of return, and a fair share of the cost of the transportation and distribution system. The rate for Group 2 consumers is to incorporate the risks associated with these customers. The full text of the Natural Gas Consumers' Relief Act is available on the NEM Website.

New York
Commission Supports NEM on Embedded Costs Versus Marginal Costs

In a victory for NEM and its members, the Commission has issued an Order requiring that unbundled rates be based on embedded cost studies and revoking the requirement that utilities file marginal cost studies. If marginal cost studies are filed, the Commission said it would be willing to consider their use in determining rates for jurisdictional competitive services for ESCO purchase and resale. The Commission also determined that migration-related lost revenues should be recovered in part on a current basis in the competitive rate and in part on an after-the-fact basis in a transition cost surcharge. The Commission reasoned that this method would provide the utilities with some current recovery without accumulating all shortfalls for future recovery and would, "more properly allocate cost responsibility between provider of last resort service and service provided to individual customers." With respect to unbundled bill formats, the Commission directed Staff to research and develop the minimum content and format of unbundled utility bills and provide a report on its efforts by October. The Commission determined that a review of the studies and tariffs should be performed on issues of statewide concern before they are examined in utility-specific proceedings.

The Commission has modified the schedule for review of the embedded cost studies. The ALJ must now establish a schedule for implementation of unbundled rates by one upstate and one downstate utility by July 30, 2002, and all other utilities by December 31, 2002. The ALJ has issued a Notice setting a prehearing conference for April 5, 2002, to determine the procedures and schedule to be used to review the utilities' filings.

The full texts of the Order, Procedural Ruling and Notice of Prehearing Conference are available on the NEM Website.

Order on Minimum Stay Requirements

The Commission has issued an Order extending the moratorium on minimum stays for residential and small commercial customers to May 16, 2003. The Commission also directed Staff and the OSPO Taskforce to develop and alternative to minimum stay requirements for submission by August 30, 2002. The alternative should reflect seasonal differences not currently reflected in averaged frozen standard offer rates but not include charges for administrative or other expenses. If an exit fee is proposed, it should include a schedule for customers to compute the fee based on usage levels and number of days on standard offer service during and following the summer period. The full text of the Order is hotlinked here.

Commission Institutes Proceeding on Customer Aggregation

The Commission issued an Order establishing a proceeding to examine the following issues associated with customer aggregation: 1) aggregator licensing; 2) contractual relationships between aggregators and their customers and between aggregators and suppliers or other aggregators; and 3) the impact of the electric utilities' relationships with their aggregator affiliates on the development of effective competition in the state. A work group is to be convened by Staff to examine these issues. Those interested in participating should contact David Eichenlaub at Staff must file a report on the work group's results by August 1, 2002. The full text of the Order is available on the NEM Website.

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