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Date: Fri, 27 Apr 2001 10:05:00 -0700 (PDT)
From: richard.shapiro@enron.com
To: louise.kitchen@enron.com, greg.whalley@enron.com, john.lavorato@enron.com, 
	mark.frevert@enron.com
Subject: FERC's 4/26/01 Order on California Price Mitigation
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---------------------- Forwarded by Richard Shapiro/NA/Enron on 04/27/2001 =
07:04 AM ---------------------------

Subject:=09FERC's 4/26/01 Order on California Price Mitigation  =20

If you read Ray Alvarez's summary from yesterday evening, open the attached=
 Word document and read only the changes that we made to the summary since =
receiving the final order, which was issued this afternoon.  Alan Comnes

=20

The full order is available at: http://www.ferc.fed.us/electric/bulkpower.h=
tm

SUMMARY OF FERC'S
ORDER ESTABLISHING PROSPECTIVE MITIGATION AND MONITORING PLAN FOR THE CALIF=
ORNIA WHOLESALE ELECTRIC MARKETS AND ESTABLISHING AN INVESTIGATION OF PUBLI=
C UTILITY RATES IN WHOLESALE WESTERN ENERGY MARKETS
(Issued April 26, 2001)

Effective Date -- Price mitigation is effective May 29, 2001.  (ISO needs t=
o have its day-ahead proxy price ready on 5/28)

Physical Withholding -- To prevent physical withholding, the plan will requ=
ire sellers with PGA's to offer all their available power in real time to t=
he extent not scheduled in bilateral trade.  All California generators, eve=
n those not subject to FERC price regulation, will be required to sell into=
 the ISO's real time market as a condition of their use of the ISO's inters=
tate transmission lines. Hydroelectric facilities will be exempted. (This r=
equirement to provide power is for all hours (24/7) for 1yr)=20

Price Mitigation - The plan will establish a single market clearing price a=
uction for the real time market.  During Stage 1, 2 and 3 emergencies in th=
e ISO's real time market, each generator (other than hydro) with a particip=
ating 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/MWh for O&M.  The gas cost will be the av=
erage daily cost of gas for all delivery points in California; emissions ar=
e to be based on Cantor Fitzgerald Environmental Brokerage Services.  The I=
SO will publish by 8:00 am, the gas and emission figures to be used for the=
 next day in any hour where an emergency is declared. These figures (for th=
e next day) will be based on the prior day's Gas Daily and Cantor Fitzgeral=
d data. A single market clearing price is determined in real time for all g=
enerators.  Highest bid sets the clearing price.  Each gas-fired generator =
must file with FERC and the ISO within 5 days, on a confidential basis, hea=
t and emission rates for each generating unit.  The ISO will use these rate=
s to calculate a marginal cost for each generator, including maintenance an=
d operating costs.  Generators that submit bids at or below the market clea=
ring price will not be subject to refund liability.  (Although the followin=
g qualification is made: "However, all public utility rates will be subject=
 to refund for violations of the conditions imposed on market-based rates, =
discussed infra."  Presumably this has to do with anomalous bidding behavio=
r.)  In the event a generator submits a bid higher than the proxy price, th=
e generator must, within 7 days of the end of each month, file a report wit=
h FERC and the ISO justifying its price.  FERC explicitly acknowledges that=
 some units may have gas costs that exceed the "all delivery point" index i=
t has adopted. FERC has 60 days to review/act.  No opportunity costs in rea=
l time.  Marketers are not held to any generator cost standard but must be =
prepared to justify bid at purchased cost based on specific purchases or po=
rtfolio with no opportunity cost. =20

Underscheduling Penalites -- FERC acknowledges that the there is a pending =
request to revoke the current underscheduling penalty but indicates that it=
 is still in place.  Thus, although it may be advantageous to wait to buy p=
ower in R/T at capped prices, doing so may make the scheduling coordinator =
subject to the currently effective $100/MWh penalty.  See p. 20 of the FERC=
 order.

New Generation --  New generation is NOT exempted from the Commission's pri=
ce mitigation measures.


Demand Response -- Beginning June 1, only public utility load serving entit=
ies must submit demand side bids to curtail load and identify the load to b=
e curtailed under those bids.  FERC is attempting to make the demand curve =
more price responsive.  (This requirement is in effect for all hours (24/7)=
) =20

Outages -- PGA generators will coordinate planned outages and report forced=
 outages The ISO is required to make a tariff filing within 15 days of the =
order proposing a mechanism for coordination and control of outages, includ=
ing periodic reports to the Commission.

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.  The RTO filing is to be consiste=
nt with the characteristics and functions in Order No. 2000.

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 with=
hold of capacity, and (2) no inappropriate bidding behavior.  Inappropriate=
 bidding behavior includes bidding unrelated to known characteristics of th=
e generation unit or without an input cost basis or bidding not based on un=
it behavior.  An increased bid based on increased demand could apparently b=
e inappropriate.  In addition, "hockey stick" bids are expressly prohibited=
 (i.e.  bidding 95% at marginal cost and 5% at a much higher level).  Other=
 prohibited bidding practices identified include: pricing a single unit muc=
h higher than other units in a supplier portfolio and changes in bids due t=
o increased scarcity rather than changes in generator costs.

West-Wide Section 206 Investigation  - Opens a section 206 investigation co=
ncerning the J&R of wholesale power in the WSCC other than sales to the CAI=
SO market.    FERC requests comments on the scope and nature of price mitig=
ation.  However its proposal is that refund conditions apply only in real t=
ime (markets for power less than 24 hours in advance of R/T) spot markets w=
hen contingency within a control area falls below 7% within a control area.=
    FERC is attempting to mirror the rules applied in California.  Comments=
 are due in 10 days on the 206 investigations.  Although it is still formul=
ating its price mitigation plan for the non-California PNW, the FERC sets t=
he refund effective date 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) whet=
her FERC should require the ISO to surcharge parties for payment into an es=
crow account to pay past costs and (2) the effect this surcharge would have=
 on the PG&E bankruptcy filing. =20

Treatment of the CAISO's Market Stabilization Plan (MSP). The FERC rejects =
the CAISO's MSP saying that FERC's plan for market mitigation is sufficient=
.  It expressly rejects CAISO's plan to create a day-ahead and hour-ahead e=
nergy markets are expressly reject and tells CAISO to stop actions to imple=
ment software changes to effectuate such markets.  Unfortunately, it does n=
ot expressly reject CAISO's plan to cut exports.  In general, no mention wa=
s made as to issue of exports of power from California although the stateme=
nt that CAISO must become a real RTO would support the notion that CAISO mu=
st honor firm schedules on its system..=20

Recap of Dates Identified in the Order
?=09Issue date: 4/26/01
?=09Heat rate emission filing from generators due: 5 days (5/1/01)
?=09Comments due on WSCC-wide price mitigation: 10 days (5/6/01)
?=09ISO Tariff filing due: 15 days (5/11/01)
?=09Comments on ISO Tariff due: 5 days thereafter (5/16/01)
?=09Comments on whether Commission should allow a premium to recover unpaid=
 generator bills: 5/30/01
?=09Effective date of proxy prices: 5/29/01
?=09Demand responsive bids from load serving entities: 6/1/01
?=09Refund effective date begins:  60 days after publishing in Federal Regi=
ster (late June?)
?=09First ISO quarterly report: 9/14/01
?=09Comments on first ISO quarterly report: 15 days thereafter (9/29/01)
?=09Plan terminates: 4/26/02

RA  & GAC





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