Message-ID: <4760749.1075840890019.JavaMail.evans@thyme>
Date: Thu, 26 Apr 2001 02:58:00 -0700 (PDT)
From: ray.alvarez@enron.com
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Subject: FERC's Prospective Mitigation and Monitoring Plan for CA Wholesale
 Electric Markets
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X-From: Ray Alvarez <Ray Alvarez/NA/Enron@ENRON>
X-To: Tim Belden <Tim Belden/HOU/ECT@ECT>, Mike Swerzbin <Mike Swerzbin/HOU/ECT@ECT>, Michael M Driscoll <Michael M Driscoll/PDX/ECT@ECT>, Matt Motley <Matt Motley/PDX/ECT@ECT>, Robert Badeer <Robert Badeer/HOU/ECT@ECT>, Diana Scholtes <Diana Scholtes/HOU/ECT@ECT>, Sean Crandall <Sean Crandall/PDX/ECT@ECT>, Chris Mallory <Chris Mallory/PDX/ECT@ECT>, Jeff Richter <Jeff Richter/HOU/ECT@ECT>, Tom Alonso <Tom Alonso/PDX/ECT@ECT>, Mark Fischer <Mark Fischer/PDX/ECT@ECT>, Phillip Platter <Phillip Platter/HOU/ECT@ECT>, Carla Hoffman <Carla Hoffman/PDX/ECT@ECT>, Christopher F Calger <Christopher F Calger/PDX/ECT@ECT>, Michael Etringer <Michael Etringer/HOU/ECT@ECT>, Steve C Hall <Steve C Hall/PDX/ECT@ECT>, Christian Yoder <Christian Yoder/HOU/ECT@ECT>, Tim Heizenrader <Tim Heizenrader/PDX/ECT@ECT>, Stephen Swain <Stephen Swain/PDX/ECT@ECT>, Jeff Dasovich <Jeff Dasovich/NA/Enron@Enron>, Susan J Mara <Susan J Mara/NA/Enron@ENRON>, Joe Hartsoe <Joe Hartsoe/Corp/Enron@ENRON>, Ray Alvarez <Ray Alvarez/NA/Enron@ENRON>, Elliot Mainzer <Elliot Mainzer/PDX/ECT@ECT>, Bill Williams III <Bill Williams III/PDX/ECT@ECT>, Paul Kaufman <Paul Kaufman/PDX/ECT@ECT>, James D Steffes <James D Steffes/NA/Enron@Enron>, Phillip K Allen <Phillip K Allen/HOU/ECT@ECT>, Mike Grigsby <Mike Grigsby/HOU/ECT@ECT>, Don Black <Don Black/HOU/EES@EES>, Neil Bresnan <Neil Bresnan/HOU/EES@EES>, Jubran Whalan <Jubran Whalan/HOU/EES@EES>, Dennis Benevides <Dennis Benevides/HOU/EES@EES>, Jess Hewitt <Jess Hewitt/HOU/EES@EES>, Louise Kitchen <Louise Kitchen/HOU/ECT@ECT>, John J Lavorato <John J Lavorato/Enron@EnronXGate>, Greg Whalley <Greg Whalley/HOU/ECT@ECT>, Richard Shapiro <Richard Shapiro/NA/Enron@Enron>, Steven J Kean <Steven J Kean/NA/Enron@Enron>, Linda Robertson <Linda Robertson/NA/Enron@ENRON>, Rebecca W Cantrell <Rebecca W Cantrell/HOU/ECT@ECT>, Leslie Lawner <Leslie Lawner/NA/Enron@Enron>, rcarroll <rcarroll@bracepatt.com>, Sarah Novosel <Sarah Novosel/Corp/Enron@ENRON>, Mark Palmer <Mark Palmer/Corp/Enron@ENRON>
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The following report is comprised of what was discussed at the Commission m=
eeting held tonight at approximately 7 PM EST and additional intelligence g=
athered from FERC staffers after the meeting by Joe Hartsoe:

Physical Withholding -- To prevent physical withholding, the plan will requ=
ire sellers with PGA's to offer all their available power in real time.  Al=
l California generators, even those not subject to FERC price regulation, w=
ill be required to sell into the ISO's real time market as a condition of t=
heir use of the ISO's interstate transmission lines. Hydroelectric faciliti=
es will be exempted. (24-7 for 1yr)=20

Price Mitigation -  The plan will establish a single market clearing price =
auction for the real time market.  During Stage 1, 2 and 3 emergencies in t=
he ISO's real time market, each generator (other than hydro) with a partici=
pating generator agreement is required to offer all available power and bid=
 its marginal cost based on the generator's heat curve, emission rates, gas=
 costs and emission costs, plus $2 for O&M.  The gas cost will be the avera=
ge daily cost of gas for all delivery points in California; emissions are t=
o be based on Cammon Fitzgerald(?).  The gas cost and emissions will be pub=
lished the day after, for use on the following day.  A single market cleari=
ng price is determined in real time for all generators.  Highest bid sets t=
he clearing price.  Each gas fired generator must file with FERC and the IS=
O, on a confidential basis, heat and emission rates for each generating uni=
t.  The ISO will use these rates to calculate a marginal cost for each gene=
rator, including maintenance and operating costs.  In the event a generator=
 submits a bid higher than the proxy price, the generator must, within 7 da=
ys of the end of each month, file a report with FERC and the ISO justifying=
 its price.  FERC has 60 days to review/act.  No opportunity costs in real =
time.  Marketers are in the same boat, as they must be prepared to justify =
bid at purchased cost based on specific purchases or portfolio with no oppo=
rtunity cost.  However, credit sleeves are permissible.

Demand Response - Beginning June 1, only public utility load serving entiti=
es must submit demand side bids to curtail load and identify the load to be=
 curtailed under those bids.  FERC is attempting to break the demand curve.=
  (24-7) =20

Outages -- PGA generators will coordinate planned outages and report forced=
 outages in accordance with the Commission Staff proposal adopted by FERC.=
=20

Term - Order expires one year from date of issuance.

RTO Filing - California ISO and two Utilities must make RTO filing by June =
1 or Order lapses with no further effect.

ISO Reporting - On September 14, 2001, ISO must file a status report on how=
 things are working and how much generation has been built.  Comments are d=
ue in 15 days.  Quarterly reports thereafter.

Revocation of Market Based Rate Authority and Refunds - The market based ra=
te authority of all public utilities is conditioned on 1) no physical withh=
old of capacity, and 2) no inappropriate bidding behavior.  Inappropriate b=
idding behavior includes bidding unrelated to known characteristics of the =
generation unit or without an input cost basis or bidding not based on unit=
 behavior.  An increased bid based on increased demand could apparently be =
inappropriate.  In addition, "hockey stick" bids are expressly prohibited (=
i.e.  bidding 95% at marginal cost and 5% at a much higher level).

Limited 206 filing - Applies to sales in the WSCC, outside California.  Ref=
und conditions apply in real time spot markets when contingency within a co=
ntrol area falls below 7%.  Control areas are not required to publish when =
this condition occurs.  Apparently anything over marginal cost must be just=
ified.  All marketers and non-hydroelectric generators must offer to sell c=
ontractually and physically available capacity/energy to a location within =
WSCC.  FERC is attempting to mirror the rules applied in California.  Comme=
nts are due in 10 days on the 206 investigations.  The refund effective dat=
e is 60 days from publication of the Order.

Nox Limits in California --  Must sell requirements do not apply if a unit =
is prohibited from running by law.  However, it appears that incurring fine=
s does not overcome the must sell requirement- just include the fines as pa=
rt of the price bid.  Also if Nox is limited, may seek to show that generat=
ion would have been sold elsewhere or at different times for determining pr=
ice. =20

Surcharge to pay past amount due -- Comments are due in 30 days on 1) wheth=
er FERC should require the ISO to surcharge parties for payment into an esc=
row account to pay past costs and 2) the effect this surcharge would have o=
n the PG&E bankruptcy filing. =20

No mention was made at the meeting as to issue of exports of power from Cal=
ifornia.  The Order is not finally drafted as of yet, and the status of the=
 foregoing items could change upon issuance of the Final Order.  We will ke=
ep you posted.

RA