1. M. Novak 12/13/05 Presentation to NAESB Board of Directors 1 Retail Structure Review Committee Report Retail Structure Review Committee (RSRC) Retail Structure Review Committee (RSRC)  At the June 2005 NAESB Board of Directors meeting the Board requested volunteer board members to form a committee to address the retail quadrant membership issues and make recommendations to board of directors by the end of 2005.

2. M. Novak 12/13/05 Presentation to NAESB Board of Directors 2 Retail Structure Review Committee Report RSRC Mission Statement RSRC Mission Statement  The Retail Structure Review Committee functions solely at the pleasure of the NAESB Board of Directors and reports to the NAESB Board of Directors through the NAESB Board Managing Committee. The Committee will make recommendations to the full board to address the membership levels in the retail electric and retail gas quadrants through possible changes to NAESB By-laws, structural changes to the quadrants or their segments including merger of the two quadrants.

3. M. Novak 12/13/05 Presentation to NAESB Board of Directors 3 Retail Structure Review Committee Report RSRC Options: RSRC Options:   Increase of retail quadrant membership to bylaw requirement levels.   Change the bylaws to reduce the membership requirement.   Combine the two Retail Quadrants to reach the bylaw membership levels.   Delay any structural changes until the original work plan of developing business practices for the customer choice retail markets is completed.

4. M. Novak 12/13/05 Presentation to NAESB Board of Directors 4 Retail Structure Review Committee Report Option: Increase of Retail Quadrant Membership to Bylaw Requirement Levels.  Other Board Committees have been working to promote REQ/RGQ with the goal of increasing membership:  Retail Awareness Committee  Resources Committee  These efforts have not been as successful as comparable WEQ efforts but may need more time to work.  Efforts to expand the scope of the REQ/RGQ have been made and should continue.

5. M. Novak 12/13/05 Presentation to NAESB Board of Directors 5 Retail Structure Review Committee Report Option: Change the Bylaws to Reduce the Membership Requirement.  Lower membership requirements to less than current requirement of 40 per quadrant  Current level: REQ 27, RGQ 29  If membership requirement is lowered do we still have critical mass of industry for MBP development?  This may only be a short term solution if membership continues to decline.

6. M. Novak 12/13/05 Presentation to NAESB Board of Directors 6 Retail Structure Review Committee Report Option: REQ/RGQ Consolidation Proposal Combine into Combined Retail Quadrant (CRQ) which would have 4 segments of 7 members each. Combine into Combined Retail Quadrant (CRQ) which would have 4 segments of 7 members each.  28 seats is a workable number between the size of the WGQ (25) and WEQ(35).  Quadrant membership would initially be 56 members  Probable loss of dual RGQ/REQ memberships Bylaws and segment procedures would need to be changed. Bylaws and segment procedures would need to be changed.  Committees (Parliamentary, ad hoc Board and segment taskforce) would meet to develop changes.  Estimated Time to Completion of 6-9 months.

7. M. Novak 12/13/05 Presentation to NAESB Board of Directors 7 Retail Structure Review Committee Report Option: REQ/RGQ Consolidation Proposal While the two retail quadrants would be combined into one retail quadrant, efforts would be made to: While the two retail quadrants would be combined into one retail quadrant, efforts would be made to:  Preserve individual commodity identity, e.g. the CRQ would still develop and maintain distinct REQ and RGQ Model Business Practices.  Create an organizational structure that prevents one commodity from dominating the other.  Build off the cooperation REQ and RGQ have had to date.

8. M. Novak 12/13/05 Presentation to NAESB Board of Directors 8 Retail Structure Review Committee Report Option: Delay Any Structural Changes Allows for completion of customer choice MBPs without disruption. Allows for completion of customer choice MBPs without disruption. Allows time to measure effect of MBPs for both markets. Allows time to measure effect of MBPs for both markets. Allows time to compete a strategic study on retail needs beyond customer choice. Allows time to compete a strategic study on retail needs beyond customer choice. Does nothing about potentially negative optics concerning vacant Board and EC seats. Does nothing about potentially negative optics concerning vacant Board and EC seats.

9. M. Novak 12/13/05 Presentation to NAESB Board of Directors 9 Retail Structure Review Committee Report The CRQ Proposal was presented to the RGQ/REQ Executive Committee at its 11/30/05 Meeting The CRQ Proposal was presented to the RGQ/REQ Executive Committee at its 11/30/05 Meeting  A few EC members supported the proposal, however, most were skeptical about the potential effectiveness of the CRQ Proposal.  There was some concern voiced about the optics of having several vacancies within some RxQ segments – reducing the number RGQ seats (24) to match REQ seats (16) was seen as a potential solution.  Many EC members felt the proposal was at least one year premature, at best.

10. M. Novak 12/13/05 Presentation to NAESB Board of Directors 10 Retail Structure Review Committee Report RGQ/REQ EC Member Comments RGQ/REQ EC Member Comments   A discussion with NARUC needs to take place – they’ve previously indicated a preference for two quadrants.   Time spent changing bylaws and procedures detracts from focusing upon what is needed in the marketplace.   The focus should be on providing value so that more will see the benefit of NAESB.   Most Model Business Practices (MBPs) should be completed by the end of 2006. A change in membership level seems more likely after the MBPs are done and have been well communicated.   Combining the quadrants will not solve the primary issue, membership level.

11. M. Novak 12/13/05 Presentation to NAESB Board of Directors 11 Retail Structure Review Committee Report RSRC Findings: RSRC Findings:   None of the available options will have any appreciable effect on the finances of the NAESB organization.   It is believed that the Retail Quadrants are operating as efficiently as possible.   Only a major increase in Retail Quadrant membership will have any significant improvement in NAESB finances.

12. M. Novak 12/13/05 Presentation to NAESB Board of Directors 12 Retail Structure Review Committee Report RSRC Recommendation RSRC Recommendation   The NAESB Board of Directors should delay any structural changes to the Retail Quadrants at this time and allow the Retail Quadrants to complete their original work plan of customer choice business practices and continue work on the three business practices for both customer choice and regulated retail markets in 2006.

13. M. Novak 12/13/05 Presentation to NAESB Board of Directors 13 Retail Structure Review Committee Report The RSRC also recommends the NAESB Board: The RSRC also recommends the NAESB Board: Direct the RSRC to complete a strategic planning exercise in 2006 to determine the direction of the two retail quadrants after completion of the original work plan of development of business practices for customer choice retail markets in 2006. This strategic planning exercise should include input from the NAESB Advisory Committee at their scheduled February 2006 meeting.

14. M. Novak 12/13/05 Presentation to NAESB Board of Directors 14 Retail Structure Review Committee Report The RSRC also recommends the NAESB Board: The RSRC also recommends the NAESB Board: Direct the RSRC to complete a review of the need for structural changes to the two Retail Quadrants in 2006 based on quadrant membership levels, progress and interest in the three initiatives for business practices for both retail customer choice and regulated markets and the results of the Retail Quadrants Strategic Planning Committee with a final recommendation to the Board at the December Board meeting. Questions? Questions?