PUCT Protocols Order ,
 Please find attached the PUCT order approving, with modifications, the ERCO=
T=20
Protocols.  What follows is a brief summary of many of the points that=20
directly affect the ERCOT market.  I will provide a complete summary and=20
timeline for response or request for rehearing on any of the issues later=
=20
this week.

Two of the most noticeable departures  from the Protocols was for the=20
Commission to ask for a review of the balanced schedule requirement and a=
=20
departure from the current bilateral market to an LMP type market.  The=20
Commission directed ERCOT to respond with the technical feasibility of=20
relaxing or eliminating the balanced schedule requirement.  The other=20
departure from the ERCOT protocols by the Commission is in reference to loc=
al=20
or intrazonal congestion.  The Commission states that if direct assignment =
of=20
the local congestion to the generating resources is not possible, they will=
=20
consider other market options such as an LMP model.  The Commission will=20
review both of these market concepts in September 2001.=20

The ERCOT Protocol Review Subcommittee will take the ordered protocols and=
=20
start the process of Protocol Revision.  Each of the revisions have been=20
assigned a completion date by the PUCT and can be found in schedule 4=20
attached.



The PUCT approved the ERCOT petition and Ordered the that the Protocols=20
should take effect June 1, 2001.  The Commission state that the Protocols a=
re=20
fundamentally sound, however there are certain provisions that are boxed=20
(cannot take effect until the ERCOT system can accommodate them) as provide=
d=20
for in the Protocol Implementation Plan.  ERCOT was directed to initiate a=
=20
process to implement the boxed provisions as soon as possible.  As for the=
=20
rest of the changed required by the PUCT, a timeline was attached for the=
=20
implementation of the protocol revisions.
Under the Protocols as filed, ERCOT had =01&sole discretion=018 for its con=
duct,=20
however, the PUCT will require ERCOT to exercise its discretion in a=20
=01&reasonable, nondiscriminatory manner.=018
Ancillary Services.  The Protocols require ERCOT to procure the following=
=20
Ancillary Services sequentially through an Auction:  regulation down,=20
regulation up, responsive reserves and non-spinning reserves.  The PUCT is=
=20
concerned that the process results in the possibility of price reversals=20
where the clearing price for some A/S may be higher than other higher grade=
=20
A/S services which may create incentives to game the system.  The PUCT=20
directed ERCOT to amend the Protocols such that it will procure A/S through=
=20
use of simultaneous optimization for assignment of resources to A/S product=
s,=20
and will set prices for each A/S to the corresponding shadow price.  The PU=
CT=20
also ordered to ERCOT to amend the protocols such that it will use a two=20
settlement system for the procurement of A/S.  The day ahead period=20
procurement will settle and announce at 13:30 with the second to take place=
=20
during the adjustment period for each hour.  Until the system is capable of=
=20
the two-settlement system, ERCOT must amend the system to only allow downwa=
rd=20
adjustment of prices for unselected A/S bids and allow unselected bids by a=
=20
QSE to be withdrawn only in descending order of bid prices.  The wrinkle he=
re=20
is that the ERCOT system purges unselected bids and will require a manual=
=20
tracking of the bids.  A =01&spot check=018 for the activity has been discu=
ssed. =20
Finally, ERCOT is to consider and report whether or not ERCOT should make=
=20
conditional selections of A/S bids (from a QSE portfolio) and then possible=
=20
deselect based on location and not price after the QSE resource plans are=
=20
published.
Market Solution.  Under the ERCOT protocols, a Market Solution for reducing=
=20
congestion exists when at least three unaffiliated resources have available=
=20
capacity and the ability to submit a bid to ERCOT to solve a circumstance o=
f=20
local congestion and no one bidder is essential to solve the congestion.  T=
he=20
PUCT would like the protocol amended to require that a =01&market solution=
=018=20
exists only when at least three bids are received from unaffiliated resourc=
es.
Out of Merit Order (OOM) Service.  The PUCT directs ERCOT to use the same=
=20
ratcheting sown mechanism for out of merit order capacity payments to out o=
f=20
merit order energy payments that are based on the 18,000 heat rates.
Reliability Must-Run Service.  The PUCT would like to have additional=20
incentives for generation entities to enter into RMR service contracts and=
=20
that once covered, the until will be efficiently utilized.  As such, ERCOT =
is=20
to amen the Protocols to give an RMR unit owner the additional option for=
=20
retaining 10% of net positive margins for energy generated in excess of the=
=20
amount that the unit is obligated to produce under its RMR contract.
Uninstructed Deviations.  In order to encourage =01&good price chasing=018 =
and=20
discourage =01&bad price chasing,=018 ERCOT was ordered to amend the Protoc=
ols to=20
apply the ex ante MCPE for balancing energy set ten minutes for the beginni=
ng=20
of a settlement interval to all instructed deployment of balancing energy=
=20
during the settlement interval and use the second subsequent interval ex=20
poste MCPE, which will be set five minutes after the end of the first=20
settlement interval, for uninstructed deviations during the first load=20
interval.
Bid Caps.  During the transition period, until July 4, 2004,  there shall b=
e=20
a generation resource bid cap of $1,000 per MWh for energy that ERCOT=20
procures.  The bid cap does not apply to load resources.  ERCOT was also=20
directed to develop and submit for possible approval a bid cap on capacity=
=20
bids for generation resource offering to provide replacement reserve servic=
e.
Balance Schedule Requirement.  The current Protocols require QSEs submit a=
=20
balanced schedule, however, the PUCT intends to consider in September, 2001=
,=20
the policy implications of the balanced schedule requirement, and whether t=
he=20
requirement should be relaxed or eliminated.  ERCOT was also directed to=20
report on the technical implications of relaxing or eliminating the balance=
d=20
schedule requirement.
Inter-zonal Congestion.  ERCOT shall amend the Protocols to convert to the=
=20
direct assignment of inter-zonal congestion costs, and base direct assignme=
nt=20
of inter-zonal congestion costs on an adjustable commercial model that=20
employs operational shift factors on the CSCs.  The Commission will also=20
require ERCOT to publish advisory updates or forecasts of the shift factors=
=20
corresponding to CSCs to reflect predicted operating conditions and=20
contingencies.  ERCOT's obligation to guarantee full zone-to-zone- congesti=
on=20
cost insurance to those who acquire TCRs in proportions based on forecasted=
=20
shift factors, shall be eliminated.  The result of this is that a TCR=20
portfolio that provides a full hedge of inter-zonal congestion cost based o=
n=20
the forecasted shift factors will not guarantee a full hedge against the=20
actual congestion charges.  The Commission does not like ERCOT to be in the=
=20
business of insuring transmission users against changes in shift factors. =
=20
The Commission also feels that =01&use-it-or-loose-it=018 feature will resu=
lt in=20
inefficient usage of the transmission system.  As such the Commission direc=
ts=20
ERCOT to amends the protocols to define TCRs as pure financial instruments=
=20
and eliminate =01&use it or loose it=018.  As for the TCR Auction, a single=
 round=20
combinatorial auction is more appropriate.  Bids can take the form of=20
price-quantity pairs for TCR portfolios or single TCRs.
Preassigned TCRs.  MOUs and Coops that own or have a long-term annual=20
capacity and energy commitment from a specific =01&remote=018 generation re=
source=20
shall be preassigned TCRs.  Other Stakeholders argued that the preassigning=
=20
of TCRs reduces the amount available to the market and increases congest=20
costs borne by other market participants.  The Protocols, however, will be=
=20
changed to state that the preassigned TCRs are subject to change or=20
elimination at any time upon ERCOT Board of Directors approvals or Commissi=
on=20
Order.=20
Intrazonal Congestion.  ERCOT shall amend the Protocols to require direct=
=20
assignment in intrazonal congestion management costs through a usage fee=20
based on the flow over the congested intrazonal interfaces.  The usage fee=
=20
shall apply to the generation resources that cause the congestion fee.  The=
=20
net revenues from the usage fee shall be distributed, or credited against=
=20
uplift charges.  However, the Commission advises that to the extent feasibl=
e=20
under the zonal, portfolio-based model embodied in the Protocols, ERCOT sha=
ll=20
promptly notify the commission, so that the Commission can promptly conside=
r=20
ordering the implementation of other alternative congestion management=20
methods, particularly locational marginal pricing.


Thane Thomas Twiggs
Enron Corp
1400 Smith Street
Houston, Texas 77002

713-853-3199 Voice
713-408-4463 Mobile
713-646-8272 Fax
877-968-8967 Digital Pager or 8779688967@skytel.com

<<Timeline-Final Order1.ppt>>



 - 23220fo.doc
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 - 23220fo, Attachment 6.xls
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