FERC's Prospective Mitigation and Monitoring Plan for CA Wholesale ,
 fyi
---------------------- Forwarded by Steven J Kean/NA/Enron on 04/26/2001 
03:55 PM ---------------------------


Ray Alvarez
04/25/2001 11:58 PM
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Subject: FERC's Prospective Mitigation and Monitoring Plan for CA Wholesale 
Electric Markets

The following report is comprised of what was discussed at the Commission 
meeting held tonight at approximately 7 PM EST and additional intelligence 
gathered from FERC staffers after the meeting by Joe Hartsoe:

Physical Withholding -- To prevent physical withholding, the plan will 
require sellers with PGA's to offer all their available power in real time.  
All California generators, even 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 interstate transmission lines. Hydroelectric 
facilities will be exempted. (24-7 for 1yr) 

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 the 
ISO's real time market, each generator (other than hydro) with a 
participating 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 average daily cost of gas for all delivery points in California; 
emissions are to be based on Cammon Fitzgerald(?).  The gas cost and 
emissions will be published the day after, for use on the following day.  A 
single market clearing price is determined in real time for all generators.  
Highest bid sets the clearing price.  Each gas fired generator must file with 
FERC and the ISO, on a confidential basis, heat and emission rates for each 
generating unit.  The ISO will use these rates to calculate a marginal cost 
for each generator, including maintenance and operating costs.  In the event 
a generator submits a bid higher than the proxy price, the generator must, 
within 7 days 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 opportunity cost.  However, credit sleeves are permissible.

Demand Response - Beginning June 1, only public utility load serving entities 
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)  

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

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 due 
in 15 days.  Quarterly reports thereafter.

Revocation of Market Based Rate Authority and Refunds - The market based rate 
authority of all public utilities is conditioned on 1) no physical withhold 
of capacity, and 2) no inappropriate bidding behavior.  Inappropriate bidding 
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.  
Refund conditions apply in real time spot markets when contingency within a 
control area falls below 7%.  Control areas are not required to publish when 
this condition occurs.  Apparently anything over marginal cost must be 
justified.  All marketers and non-hydroelectric generators must offer to sell 
contractually and physically available capacity/energy to a location within 
WSCC.  FERC is attempting to mirror the rules applied in California.  
Comments are due in 10 days on the 206 investigations.  The 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 fines 
does not overcome the must sell requirement- just include the fines as part 
of the price bid.  Also if Nox is limited, may seek to show that generation 
would have been sold elsewhere or at different times for determining price.  

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

No mention was made at the meeting as to issue of exports of power from 
California.  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 
keep you posted.

RA
kenneth.lay@enron.com