STATE OF NEW YORK DEPARTMENT OF PUBLIC SERVICE
          THREE EMPIRE STATE PLAZA, ALBANY, NY 12223-1350
Internet Address:  http://www.dps.state.ny.us
PUBLIC SERVICE COMMISSION

    MAUREEN O. HELMER                                LAWRENCE G. MALONE
         Chairman                             General Counsel          

                                                JANET HAND DEIXLER     
                                              Secretary                
THOMAS J. DUNLEAVY
JAMES D. BENNETT
LEONARD A.  WEISS
NEAL N. GALVIN





                                   June 19, 2000


Hon. Gerald L. Lynch
Administrative Law Judge
Department of Public Service
Three Empire State Plaza
Albany, New York  12223-1350

          Re:Case 96-E-0891 - In the Matter of New York State
             Electric & Gas Corporation's Plans For Electric
             Rate/Restructuring Pursuant to Opinion No. 96-12. 
             EXPEDITED PHASE.

Dear Judge Lynch:

          In the Notice issued June 7, 2000 in the captioned
proceeding, parties were invited to comment on proposed
procedures for an expedited process to review New York State
Electric & Gas Corporation's (NYSEG) retail access back-out
credit of 3.71 per kWh.  Parties were also asked to set forth
substantive proposals on seasonally shaping or otherwise
restructuring the back-out credit and methods for determining if
market prices exceed the level of the back-out credit.

          Staff believes the proposed procedures are properly
tailored to achieve the objectives identified in the Order
Denying Motion and Instituting Further Proceedings issued May 26,
2000 in this proceeding.  While Staff is interested in proposals
other parties may make on seasonally shaping or restructuring the
back-out credit, Staff at this time does not have proposals of
its own to offer.  

          Staff believes that it is important to develop a method
for determining if market prices exceed the level of the back-out
credit.  Once the Gross Revenue Tax (GRT) adder is subtracted
from the 3.71 per kWh credit, it is reduced to an effective
level of 3.56 per kWh, on an average annual basis.  Short-term 



market prices have exceeded this level for some hours, and the
credit may be exceeded eventually on an average semi-annual or
annual basis.  Moreover, the filings underlying the Order Denying
Motion demonstrate that disputes over the level of market price
can be expected in the future.

          Determining market price, however, is not easily
achievable.  When the Commission reserved the right to revisit
the back-out credit if market prices rose above the level of the
credit, it was thought that a fully functional electric
generation market would be in place by this time.  Some features
of a fully functional market, however, are still lacking.  

          There is no meaningful futures trading in New York
wholesale generation markets.  Moreover, the day ahead and real
time markets managed by the New York Independent System Operator
(ISO) are immature.  They have been marked by erratic behavior in
prices, problems with market structure, and significant after-
the-fact adjustments.  Consequently, at this time, there is no
one source that may be relied upon for market price data that may
be compared to the level of the back-out credit.  

          Price data, however, may be gleaned from a variety of
sources.  Even though day ahead and real time ISO market price
data may not be fully reliable, historic data from those markets
may provide some guidance on price trends.  Trading has also
developed in forward contracts, usually structured as contracts
for differences (CFD) between ISO prices and prices selected by
the parties.  Although not transparent and too thinly traded to
be completely reliable, forward contracts and CFD prices, where
available, may provide another source of information.  These
prices can be obtained from various brokers and information
services, most often for a fee; issues related to selection of a
source or sources and confidentiality of the information would
have to be addressed.

          Finally, load-serving entities enter into bilateral
contracts with generators, often for significant periods of time. 
Currently, the ISO recognizes, two capability periods -- winter,
running from November 1 through April 30, and summer, running
roughly from May 1 through October 31.  Because capacity is often
sold by capability period, bilateral contracts also often run for
a capability period.  While the prices in these two-party
contracts are generally confidential, they are another potential
source of information for arriving at a market price comparison.



          As a result, three types of data could be accumulated. 
Historic ISO market data could be assessed on a monthly basis, on
a peak, off-peak, and average basis.  Forward CFD prices could
also be accumulated, on a monthly basis, and sorted into
appropriate time periods.  Finally, NYSEG could provide
periodically, on a confidential basis, prices from bilateral
contracts it enters into.  Other sources of bilateral contract
information also could be explored.  

          From these sources, a picture of future electric prices
could be developed.  Staff would monitor the various pieces of
pricing information and translate them into average numbers. 
Staff could then recommend that further proceedings be instituted
when it appears that market prices will exceed the 3.56 level of
the back-out credit for a significant period of time.

          Staff welcomes other parties' comments on this proposal
and invites suggestions for refining the process to arrive at
timely and reliable results.

                                   Very truly yours,



                                   Leonard Van Ryn  
                                   Staff Counsel


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