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Date: Fri, 28 Dec 2001 12:58:01 -0800 (PST)
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To: vkaminski@aol.com
Subject: FW: ALLIANCE FERC BEAT: Generators/Power Marketers December 19 FERC
     Post-Meeting Memo
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 -----Original Message-----
From: =09bounce-alliance_info-90961@listserver.eei.org@ENRON   On Behalf Of=
 "The Alliance of Energy Suppliers" <alliance@eei.org>
Sent:=09Friday, December 28, 2001 12:33 PM
To:=09Alliance Information
Subject:=09ALLIANCE FERC BEAT: Generators/Power Marketers December 19 FERC =
    Post-Meeting Memo


[IMAGE]
=20
Generators/Power Marketers December 19  FERC Post-Meeting Memo
=20
Introduction =20
At the last Commission meeting of the year, FERC approved  the first RTO in=
 the Midwest and issued some critical orders on RTO development,  announced=
 plans to defer action and the effects of its November market power  orders=
, modified mitigation measures for the Western Systems Coordinating  Counci=
l, reaffirmed price mitigation measures for the California ISO markets,  an=
d challenged industry to develop a "single" industry consensus organization=
 by  March 15, 2002 to be the standards-setting body for commercial busines=
s and  communications protocol standards.=20
To that end , the Alliance of  Energy Suppliers and EEI encourages industry=
 to actively participate in its  national meetings being held in four regio=
ns of the country to advance the  development of principles for which to fo=
rm this organization. The  first of the four regional meetings will be held=
 on January 15, 2002 in  Phoenix, AZ with the remaining meeting in Cincinna=
ti, OH, New  York City, and Atlanta, GA .  An e-mail with all of the necess=
ary  logistical information has been circulated.  If you are interested in =
 attending or sending a company representative and did not receive the earl=
ier  e-mail, please let us know.=20
In addition, FERC announced  a series of technical conferences on standard =
market design and structure,  market based rate /market power, and energy i=
nfrastructure.=20
=20
If you would like copies of any orders, please do not hesitate to  contact =
us.
Midwest ISO Receives FERC's  Approval as an RTO=20
In a series of inter-related RTO  decisions, FERC approved the nations firs=
t RTO, granting the Midwest ISOs  proposal to become an RTO, while rejectin=
g a similar plan from the Alliance  Companies to form the Alliance RTO. In =
reversing prior policy, FERC concluded  that the ARTO proposal lacked suffi=
cient scope and size to exist as a  stand-alone RTO and told the Alliance C=
ompanies to explore how their business  plan can be accommodated within the=
 [MISO] structure. Allowing two RTOs in the  Midwest would be a second-best=
 solution that would compromise customers'  interests, FERC stated.=20
In related developments, FERC also approved  International Transmission Com=
pany's request to transfer operational control of  its transmission facilit=
ies to MISO and accepted an agreement between MISO and  International Trans=
mission that would allow the company to be an independent  transmission com=
pany that would share certain RTO functions with MISO. Finally,  in a relat=
ed docket FERC granted in part National Grids request for a  declaratory or=
der that it is not a market participant, but dismissed the  Alliance Compan=
ies business plan without prejudice as unneeded given the other  Alliance o=
rder, thus nullifying Grids proposal to manage ARTO. (More  detailed RTO su=
mmary provided below)=20
FERC Delays Implementation of New Market Power Rules =20
FERC announced that it would delay the effects of its November 20 market  p=
ower orders. In FERC's December 19 order, it recognized the Alliance of  En=
ergy Suppliers' filing requesting FERC to vacate or stay the effects  of it=
s market power orders and initiate a rulemaking proceeding to allow for  co=
mments by affected industry participants, as basis for its change in policy=
  action. We should claim this as a victory--for FERC has announced an upco=
ming  technical conference to discuss said orders and allow industry to voi=
ce its  concerns over the implications of such measures on the competitive =
wholesale  markets. Although a date for this technical conference has not b=
een announced,  Chairman Wood said that details of the conference will be r=
eleased in a  notational order. FERC has also delayed implementation of cer=
tain aspects of the  new Supply Margin Assessment (SMA) market power screen=
 test. =20
FERC Sets Schedule for Electric Market Design;  Industry Told to Select Who=
lesale Market Standards Body or FERC Will Do  So.=20
FERC outlined a schedule for a rulemaking in the  Electric Market Design do=
cket and announced the release of a staff white paper  to serve as a strawm=
an piece for continued collaboration with interested parties  on standardiz=
ed electric market design. FERC stated it expected to host industry  worksh=
ops in early 2002, tentatively set for January 22 -25 and February 4- 8,  t=
o further develop ideas on market standardization and issue a NOPR in March=
  2002. The NOPR would be followed by additional workshops in April and May=
 to  discuss NOPR inclusions and workshop developments. Written comments on=
 the NOPR  and workshop progress will also be due in May. A final rule is e=
xpected to be  issued in July 2002. Although FERC staff recognized that thi=
s was a very  ambitious schedule, the FERC presenter said they wanted to "g=
et done before  summer break" (2002).=20
Meanwhile, FERC said, interested parties should  evaluate NAESB, NERC and a=
lternative proposals for an organization to develop  wholesale electric ind=
ustry business practice and communication standards, and  agree on a single=
 consensus, industry-wide organization to develop these  standards by March=
 15, 2002. The Order indicated that should industry not agree  on a single =
organization by that date, FERC would either choose an organization  or ins=
titute a proceeding to develop the necessary standards. =20
Commissioner Brownell reiterated her dismay and disbelief with  industry's =
lag in progress: "[l]et's get this done.".. " I can't believe we're  still =
debating the "who". The other three Commissioners indicated their general  =
support for the Order. Commissioner Breathitt believes that this ANOPR proc=
ess  is working well because it "gives industry something to coalesce aroun=
d."  Breathitt was also in favor of industry answering the question of how =
much  standardization do we need and how much do we need to leave to creati=
vity and  innovation?  Chairman Wood concluded his remarks, saying, "[t]he =
GIGA-NOPR  is on its way."=20
The staff white paper covering these issues is available  from the FERC web=
site at: http://www.ferc.gov/electric/rto/mrkt-strct-comments/mrkt-strct-co=
ncept.PDF   .=20
FERC Largely Reaffirms Prior Western  Market Price Mitigation Orders, Modif=
ies Price Cap to Account for NW Winter  Peaking Concerns=20
In a broad rehearing order that addresses a  wide range of issues related t=
o California and the western energy markets, FERC  generally denied reheari=
ng requests and reaffirmed earlier decisions on pricing  and price mitigati=
on measures. The order addresses rehearing and clarification  requests for =
the Commission's August 23, November 1, December 8 and December 15,  2000 o=
rders along with its March 9, June 19, and July 25, 2001 refund and price  =
mitigation orders. Among adjustments made to previous orders, FERC modified=
 the  scope of price mitigation and must-offer requirements, especially as =
applied to  governmental sellers and cooperatives, eliminated the undersche=
duling penalty  established in the December 15 Order, and provided an oppor=
tunity for certain  entities to submit evidence that the refund methodology=
 results in a revenue  shortfall. FERC also modified and provided clarifica=
tions on setting of the  mitigated market-clearing price.=20
In particular, FERC clarified that: =20
government sellers and cooperatives are excluded from price mitigation as  =
its applies to bilateral transactions outside the ISO spot market and also =
 with the must-run requirement outside of California;=20
units operating outside of California may set the mitigated  market-clearin=
g price;=20
the mitigated market-clearing price is to be set by the proxy price of the =
 last unit dispatched, rather than the lower of the proxy price or the actu=
al  bid of the marginal unit;=20
and generators subject to the must-offer requirement should be able to  rec=
over their costs for complying with the ISO's instructions to keep their  u=
nits at minimum load status, and that the ISO must pay these costs,  regard=
less of whether the ISO buys the power.=20

Modification to Western-Wide Price Mitigation  Measures=20
In a separate order, FERC responded to industry  recommendation from its Oc=
tober 29 technical conference and modified the price  mitigation methodolog=
y for spot market transactions for the west-wide market for  the winter sea=
son. FERC stated that changes would support continued price  stability and =
balance in the western markets. The changes were called for in  part, FERC =
said, since the area the California ISO serves is a summer peaking  system =
and a large portion of the 11-state Western Systems Coordinating Council,  =
consists of winter peaking systems. The changes extend from the date of the=
  order through April 30, 2002, at which time the summer mitigation measure=
s will  be reinstated. Most notably, the new cap levels take into account f=
luctuation in  natural gas prices.=20
Modifications to previous mitigation measures  are;
raises cap level from $98 to $108
continues to apply 10 percent credit worthiness adder
sets February 2002 as date that final outstanding payments be made to  West=
ern sellers of power

FERC's objective through these order was to allow  FERC and affected partie=
s in the West to move forward on calculating  any refunds owed and to provi=
de greater rate certainty and stability to the  market, according to the co=
mmissioners.=20
More information on the  California and western market changes is available=
 in FERC's press release:  http://www.ferc.gov/news/pressreleases/calif1-de=
c192001.PDF   and the full order: http://www.ferc.gov/electric/bulkpower/el=
00-95-001-12-19-01.PDF   , both available in "pdf" format from FERC's websi=
te. =20
RTO Developments =20
MISO Approved As Nations First RTO =20
In approving MISOs RTO application as the nations first RTO, FERC  said tha=
t it complies with the vision and requirements of Order No. 2000, in  parti=
cular the requirement that an RTO be of sufficient scope. FERC cited  favor=
ably MISOs announced merger with the Southwest Power Pool and said that it =
 was particularly encouraged by MISO's planned accommodation of flexible bu=
siness  plans and innovation as well as its considerable geographic span.=
=20
For the most part, FERC found that MISO satisfied the four characteristics =
 for an RTO independence, scope and configuration, operational authority, a=
nd  short-term reliability, as well as key functions. FERC did, however, di=
rect MISO  to submit a number of revisions. FERC found MISO's independence =
satisfactory in  most respects, but said that transmission owners cannot be=
 permitted to have  veto privileges on filings that affect pricing. FERC co=
nditioned MISO's RTO  status on modification of the MISO Agreement to give =
it the authority to propose  rates, terms and conditions of transmission se=
rvice under the MISO tariff. On  the scope and regional configuration chara=
cteristic, FERC told MISO to present  recommendations within 60 days addres=
sing the question of its eastern seam prior  to the integration of the Alli=
ance Companies into MISO. FERC also indicated that  MISO should participate=
 in its recently announced rulemaking proceeding to  standardize market des=
ign rules. However, FERC said, MISO should also address  certain congestion=
 management issues prior to implementation of standardized  market rules. F=
ERC also directed additional changes to ensure the independence  of the mar=
ket monitor and required modification of the planning framework to  reflect=
 that it will consider all market perspectives and to accommodate  third-pa=
rty investment, construction and ownership of transmission  facilities.
=20
Alliance Companies Told to Work Under MISO; FERC Finds  IRCA Efforts Insuff=
icient=20
Citing in part strong support from a majority of the Midwest state  regulat=
ors for a single Midwest RTO and Alliance RTO (ARTO)s failure to achieve  t=
he necessary close coordination with MISO, FERC concluded that the ARTO lac=
ked  sufficient scope to exist as a stand-alone RTO. FERC expressed confide=
nce,  however, that the Alliance Companies' desire to be a viable, for-prof=
it  transmission business can be accommodated under the MISO Appendix I str=
ucture.  FERC emphasized the importance of fostering RTO development design=
ed to provide  a seamless and robust market for millions of customers. Allo=
wing two RTOs in the  Midwest would be a second-best solution that would co=
mpromise customers'  interests, concluded FERC. The Commission ordered the =
Alliance Companies to file  a status report on their efforts to join MISO w=
ithin 60 days. In the Order, FERC  acknowledged the significant time and ex=
pense incurred by the Alliance Companies  to date, adding that it would con=
sider proposals for recovery of all prudently  incurred costs.=20
=20
International Transmission Approved As ITC Under  MISO
In a related order, FERC said that International Transmission Company  (Int=
ernational Transmission), a subsidiary of DTE Energy, could join the new RT=
O  as an independent transmission company that will be able to pursue innov=
ative  business strategies. International Transmission proposes to maintain=
 and develop  transmission while turning over to the RTO such functions as =
congestion  management and curtailments, tariff administration, and securit=
y coordination.  DTE Energy has indicated its intention to sell Internation=
al Transmission to a  third party. FERC gave preliminarily approval for the=
 divestiture of the  transmission facilities. FERC, however, deferred rulin=
g on several contested  RTO/transco function issues until International Tra=
nsmission becomes truly  independent.
=20
National Grid Meets Independence Criterion, as FERC  Dismisses Alliance Com=
panies ARTO Business Plan
FERC granted in part and deferred in part a National Grid proposal to  mana=
ge the RTO transmission system. FERC found that National Grid is not a  mar=
ket participant by virtue of its retail obligations in New York and New  En=
gland. FERC directed the Alliance Companies to explore how their business  =
plan, including National Grid's proposal, could be accommodated within the =
MISO  RTO. FERC expressed its intent to provide more guidance on this matte=
r in future  proceedings.
=20
General Discussion
Signaling a deference to Midwestern state commissions, Chairman Wood said, =
 "[w]e have brought order out of an array of various and sundry efforts in =
the  middle of the country. . . . Its a good Christmas gift to the nation. =
Wood  cautioned that the orders findings are based on what best serves the =
public  interest in the Midwest, and that FERCs actions should not be const=
rued to  prejudge other types of RTOs in other parts of the country, includ=
ing a  structure in which a for-profit transmission company could be an umb=
rella RTO.  For her part, Commissioner Breathitt dissented on the Alliance =
Order, stating  that after the Alliance Companies have already spent over $=
75 million in  start-up costs and its plans were given tentative approval b=
y FERC over the past  two and a half years, she saw no reason to abruptly c=
hange direction and deny  Alliance Companies an opportunity to implement th=
eir business model. The  Commission has not done all it could or should do =
to allow Alliance to develop,  Breathitt said.  Addressing the near-unanimo=
us support among Midwest  regulators for a single Midwest RTO, Commissioner=
 Massey stated, we are heeding  that advice and moving forward accordingly.=
 For his part, the Alliance Order did  not represent a change of position, =
he said, noting that he has long favored  forcing a consolidation of the tw=
o RTO proposals. Additional details on these  orders can be found in the FE=
RC press release which is available from FERCs  website at: http://www.ferc=
.gov/news/pressreleases/mwestxpressrel.PDF   .=20
=20
PJM - PJM West Denied on a Procedural  Basis=20
Chairman Wood, in meeting discussion stated that the  rejection was on a pr=
ocedural issue only, with a delay required only because of  provisions pend=
ing in other dockets. In a two-page letter order, FERC rejected  the reques=
t of PJM and PJM West to integrate, but Chairman Wood assured the  parties =
that FERC remained committed to the expansion effort and wants to see it  m=
ove forward very quickly. All indications are that once the other provision=
s  have been addressed, FERC would be ready to move forward on the PJM West=
 effort. =20
FERC Directs PJM To amend Tariffs to Include New  Oversight Measures=20
FERC terminated its investigation into allegations that PECO Energy Company=
  had operated its transmission system in a manner that illegally advantage=
d a  corporate affiliate. FERC staff indicated that the record in the proce=
eding did  not establish a violation of the Federal Power Act or FERC's Sta=
ndards of  Conduct sufficient to warrant further enforcement proceedings an=
d that further  investigations into the matter were not warranted or necess=
ary. Simultaneously,  FERC accepted a report from PJM outlining a series of=
 improvements to its  current procedures for reporting of transmission outa=
ges and the rating of  transmission facilities. FERC directed PJM to file a=
mendments to its tariffs to  reflect the new procedures. Commenting on the =
swift resolution of the matter,  Chairman Wood noted the importance of lift=
ing the cloud of an investigation  promptly when the evidence warrants it.=
=20
Staff  Reports High Cost of Congestion; Need RTO Congestion Management, Mor=
e  Investment=20
A presentation of a FERC staff report on electric  transmission constraints=
 detailed the high costs of congestion and suggested  that building more tr=
ansmission would likely lower overall consumer costs. The  report, which FE=
RC staff acknowledged suffered from certain data limitations,  found that b=
ottlenecks in the transmission system cost consumers more than $1  billion =
over the past two summers. The report also demonstrates the need for  stron=
g congestion management systems at RTOs, FERC staff said. FERC  commissione=
rs commended staff on the presentation and seemed supportive of the  conclu=
sion that building additional infrastructure would bring benefits to  energ=
y consumers. FERC staff also noted that a parallel DOE National Grid Study =
 should be completed and released before the end of the year.=20
The staff  presentation is available in MS PowerPoint on the FERC "Discussi=
on Papers" page  at: http://www.ferc.gov/calendar/commissionmeetings/Discus=
sion_papers.htm   .=20
Additional Commission  Action=20
FERC Issues Accounting NOPR  with Question to Industry=20
FERC issued an accounting NOPR  (Docket No. RM02-3) seeking comment on whet=
her to require unregulated energy  marketers and traders to disclose holdin=
gs in derivative financial contracts  used to limit risks of volatile price=
 swings in energy purchases and sales.  Chairman Wood said he looks to indu=
stry to answer the question and tell FERC  that the current exemption and b=
lanket waivers and authorizations should remain  or not. Commissioner Breat=
hitt pointed out that the current entities that must  comply with reporting=
 requirements of derivative activity are not major players  in the derivati=
ve markets, but the open-ended question, if answered in the  affirmative, w=
ould place burdensome requirements on a sector of the market, i.e  power ma=
rketers, that most delve in that arena. Chairman Wood said that he might  b=
e in agreement with possible responses from industry that say that "maybe t=
hese  processes are for another agency to do, e.g. SEC, CFTC, etc. ."=20
Separately, the NOPR proposes changes to the Uniform System of Accounts  (U=
SA) to record transactions required under Financial Accounting Standards Bo=
ard  (FASB) Statement 115, Accounting for Certain Investments in Debt and E=
quity  Securities, FASB Statement 130, Reporting Comprehensive Income, and =
Statement  133, Accounting for Derivative Instruments and Hedging Activitie=
s. The NOPR also  proposes changes in the annual reports to the Commission,=
 including the Form 1,  to conform to recent actions by FASB to tighten dis=
closure rules. The proposal  follows up Commission guidance issued in Augus=
t 2001 for using the existing USA  for recording transactions covered by th=
ese FASB Statements.=20
All four  commissioners endorsed the NOPR. Chairman Wood said the new rules=
 would focus  more on providing transparency to investors than broadening F=
ERC's regulatory  authority. Commissioner Breathitt commented that the new =
rule would seek to  collect annual data, not give FERC the ability to "acti=
vely monitor" the  complicated transactions. "We would be obtaining a yearl=
y snapshot of derivative  positions," Breathitt said. "I think this is a go=
od step." =20
FERC Staff Provides Update on Development  of Standardized Interconnection =
Policy=20
FERC staff reviewed  the process and progress of the collaborative efforts =
to develop a standardized  generation interconnection policy. While interco=
nnection documents were filed on  December 14th as required by the ANOPR, p=
articipants noted that the documents  remain a work in progress. Participan=
ts had requested, and FERC granted on  December 14, an extension of time to=
 file the consensus documents to January 11  and to January 25 to file fina=
l comments in the docket. The collaborative  process remains on schedule to=
 take up the "money side" of the issue in April  2002.=20
Technical Conference On Energy  Infrastructure in the Northeast=20
FERC  will hold a conference in Energy Infrastructure issues in the Northea=
stern  states on Thursday, January 31, 2002 at the Helmsley Park Lane Hotel=
 in New  York City, New York.=20
=20
Tonja Wicks=20
Manager, Energy Supply Policy =20
Alliance of Energy Suppliers=20
Edison Electric Institute=20
Phone: (202)  508-5098=20
Fax: (202) 508-5600=20
Fax: (202) 508-5445 =20
______________________________________________=20
To subscribe  to this list, send an e-mail to alliance@eei.org  containing =
the following  information: name, company, title, address, phone, fax and e=
-mail address. =20
To unsubscribe from this list, send an e-mail to alliance@eei.org  containi=
ng your name and  e-mail address.=20
For more information, please contact the Alliance of  Energy Suppliers at a=
lliance@eei.org =20
P-(202) 508-5098 =20
F-(202) 508-5600=20
=20
=20
=20

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