FERC's 4/26/01 Order on California Price Mitigation ,
 If you read Ray Alvarez's summary from yesterday evening, open the attached=
=20
Word document and read only the changes that we made to the summary since=
=20
receiving the final order, which was issued this afternoon.  Alan Comnes



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

SUMMARY OF FERC=01,S
ORDER ESTABLISHING PROSPECTIVE MITIGATION AND MONITORING PLAN FOR THE=20
CALIFORNIA WHOLESALE ELECTRIC MARKETS AND ESTABLISHING AN INVESTIGATION OF=
=20
PUBLIC UTILITY RATES IN WHOLESALE WESTERN ENERGY MARKETS
(Issued April 26, 2001)

Effective Date -- Price mitigation is effective May 29, 2001.  (ISO needs t=
o=20
have its day-ahead proxy price ready on 5/28)

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

Price Mitigation - The plan will establish a single market clearing price=
=20
auction for the real time market.  During Stage 1, 2 and 3 emergencies in t=
he=20
ISO's real time market, each generator (other than hydro) with a=20
participating generator agreement is required to offer all available power=
=20
and bid its marginal cost based on the generator's heat curve, emission=20
rates, gas costs and emission costs, plus $2/MWh for O&M.  The gas cost wil=
l=20
be the average daily cost of gas for all delivery points in California;=20
emissions are to be based on Cantor Fitzgerald Environmental Brokerage=20
Services.  The ISO will publish by 8:00 am, the gas and emission figures to=
=20
be used for the next day in any hour where an emergency is declared. These=
=20
figures (for the next day) will be based on the prior day's Gas Daily and=
=20
Cantor Fitzgerald data. A single market clearing price is determined in rea=
l=20
time for all generators.  Highest bid sets the clearing price.  Each=20
gas-fired generator must file with FERC and the ISO within 5 days, on a=20
confidential basis, heat and emission rates for each generating unit.  The=
=20
ISO will use these rates to calculate a marginal cost for each generator,=
=20
including maintenance and operating costs.  Generators that submit bids at =
or=20
below the market clearing price will not be subject to refund liability. =
=20
(Although the following qualification is made: =01&However, all public util=
ity=20
rates will be subject to refund for violations of the conditions imposed on=
=20
market-based rates, discussed infra.=018  Presumably this has to do with=20
anomalous bidding behavior.)  In the event a generator submits a bid higher=
=20
than the proxy price, the generator must, within 7 days of the end of each=
=20
month, file a report with FERC and the ISO justifying its price.  FERC=20
explicitly acknowledges that some units may have gas costs that exceed the=
=20
=01&all delivery point=018 index it has adopted. FERC has 60 days to review=
/act. =20
No opportunity costs in real time.  Marketers are not held to any generator=
=20
cost standard but must be prepared to justify bid at purchased cost based o=
n=20
specific purchases or portfolio with no opportunity cost. =20

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

New Generation --  New generation is NOT exempted from the Commission=01,s =
price=20
mitigation measures.


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

Outages -- PGA generators will coordinate planned outages and report forced=
=20
outages The ISO is required to make a tariff filing within 15 days of the=
=20
order proposing a mechanism for coordination and control of outages,=20
including 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=20
or Order lapses with no further effect.  The RTO filing is to be consistent=
=20
with the characteristics and functions in Order No. 2000.

ISO Reporting - On September 14, 2001, ISO must file a status report on how=
=20
things are working and how much generation has been built.  Comments are du=
e=20
in 15 days.  Quarterly reports thereafter.

Revocation of Market Based Rate Authority and Refunds - The market based ra=
te=20
authority of all public utilities is conditioned on (1) no physical withhol=
d=20
of capacity, and (2) no inappropriate bidding behavior.  Inappropriate=20
bidding behavior includes bidding unrelated to known characteristics of the=
=20
generation unit or without an input cost basis or bidding not based on unit=
=20
behavior.  An increased bid based on increased demand could apparently be=
=20
inappropriate.  In addition, "hockey stick" bids are expressly prohibited=
=20
(i.e.  bidding 95% at marginal cost and 5% at a much higher level).  Other=
=20
prohibited bidding practices identified include: pricing a single unit much=
=20
higher than other units in a supplier portfolio and changes in bids due to=
=20
increased scarcity rather than changes in generator costs.

West-Wide Section 206 Investigation  =01) Opens a section 206 investigation=
=20
concerning the J&R of wholesale power in the WSCC other than sales to the=
=20
CAISO market.    FERC requests comments on the scope and nature of price=20
mitigation.  However its proposal is that refund conditions apply only in=
=20
real time (markets for power less than 24 hours in advance of R/T) spot=20
markets when contingency within a control area falls below 7% within a=20
control area.    FERC is attempting to mirror the rules applied in=20
California.  Comments are due in 10 days on the 206 investigations.  Althou=
gh=20
it is still formulating its price mitigation plan for the non-California PN=
W,=20
the FERC sets the refund effective date is 60 days from publication of the=
=20
Order.

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

Surcharge to pay past amount due -- Comments are due in 30 days on (1)=20
whether FERC should require the ISO to surcharge parties for payment into a=
n=20
escrow account to pay past costs and (2) the effect this surcharge would ha=
ve=20
on the PG&E bankruptcy filing. =20

Treatment of the CAISO=01,s Market Stabilization Plan (MSP). The FERC rejec=
ts=20
the CAISO=01,s MSP saying that FERC=01,s plan for market mitigation is suff=
icient. =20
It expressly rejects CAISO=01,s plan to create a day-ahead and hour-ahead e=
nergy=20
markets are expressly reject and tells CAISO to stop actions to implement=
=20
software changes to effectuate such markets.  Unfortunately, it does not=20
expressly reject CAISO=01,s plan to cut exports.  In general, no mention wa=
s=20
made as to issue of exports of power from California although the statement=
=20
that CAISO must become a real RTO would support the notion that CAISO must=
=20
honor firm schedules on its system..=20

Recap of Dates Identified in the Order
? Issue date: 4/26/01
? Heat rate emission filing from generators due: 5 days (5/1/01)
? Comments due on WSCC-wide price mitigation: 10 days (5/6/01)
? ISO Tariff filing due: 15 days (5/11/01)
? Comments on ISO Tariff due: 5 days thereafter (5/16/01)
? Comments on whether Commission should allow a premium to recover unpaid=
=20
generator bills: 5/30/01
? Effective date of proxy prices: 5/29/01
? Demand responsive bids from load serving entities: 6/1/01
? Refund effective date begins:  60 days after publishing in Federal Regist=
er=20
(late June?)
? First ISO quarterly report: 9/14/01
? Comments on first ISO quarterly report: 15 days thereafter (9/29/01)
? Plan terminates: 4/26/02

RA  & GAC
jeff.dasovich@enron.com, angela.schwarz@enron.com, beverly.aden@enron.com, 