RE: Policy paper ,
 OK on the call.

Re: Centralized unit commitment and your concerns.

A few things to think about. Here are a few options:

1) Have the ISO do it (you can also have "bid-zero" bilaterals if you want
but the basic mechanism is the same). This effectively gives you PJM, New
York, etc.

2) You can have the traded flowgates approach, with the flowgate rights
needed to schedule. That way you get the right plants on in the right
places, in theory at least. This might be interesting as a future
development, but as we have previously agreed it is way too untested for use
now.

3) You can have the transmission rights (e.g flow rights a la Alliance) be
purely financial hedges (similar in some ways to FTRs), but you don't need
the flow right to schedule a transaction. This is the way that a bunch of
the RTOs seem to be going (e.g. Alliance). But this still leaves you needing
a way to create that feasible schedule. You can get feasibility by RT
through the LMP but my sense is that the RTO needs to make sure there is
enough capacity ready so that reliability can be protected. The problem of
the financial-only flowgate method in my book is that it doesn't meet one of
the key characteristics of a workable market - e.g. it doesn't really solve
the problem of congestion while there is time to do anything about it (e.g.
bring more plants online other than a few CTs, hydros, etc.). The RTO will
need some way to handle this problem, or else handle large volumes of MWh by
OOM calls at its discretion. I don't think we like that.

I was talking with some people about Alliance on Monday and they seem to
have sort of lost track of the ball, at least in my book. They are now
talking about an alternative method for dealing with day-ahead congestion.
This would effectively take the form of the re-dispatch type process used in
California. My view is that this sounds pretty clumsy, adds a lot of
complication, and will be great fun for the big generators in Alliance.
Under this system I want to be AEP - the 600 pound gorilla of the region.
And it is still effectvely centralized - the ISO takes in inc/dec bids and
broadcasts out prices, calculated by the OPF model. It has all of the
elements of LMP, just done more than once. If I am a big intergrated
generator/load utility with market power I can repeat the old games of
creating congestion by my scheduling in a constrained area and then getting
paid to unwind it.

So I think we have some basic questions to address next week on the call. I
just want to make sure we get an RTO model that can be made to work without
too much duct tape and bailing wire. If we want to jump off the centralized
unit commitment train we may need to go back and consider all of the
economic angles quite carefully. I am generally sympathetic to the
decentralized commitment idea but I also want to make sure we don't end up
with a muddle.

Cheers


Seab



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Seabron Adamson
Frontier Economics Inc
Two Brattle Square
Cambridge, MA 02138 USA
Ph:  (617) 354-0060
Fax: (617) 354-0640
seabron.adamson@frontier-economics.com

www.frontier-economics.com


-----Original Message-----
From: James.D.Steffes@enron.com [mailto:James.D.Steffes@enron.com]
Sent: Wednesday, May 09, 2001 12:49 AM
To: Seabron Adamson
Cc: Linda.J.Noske@enron.com; Richard.Shapiro@enron.com
Subject: Re: Policy paper






Yes. ?I'd like a call early next week with some internal staff to discuss.
Some key issues on language and some real reservations on "centralized"
unit committment. ?I'll have Linda Noske (my assistant) set up the call.

Jim


To: ? ? ? ?<Richard.Shapiro@enron.com>, <James.D.Steffes@enron.com>
cc:

Subject: ? ? ? ?Policy paper



Rick/Jim:

Please find attached a new draft, incorporating your comments from last
Thursday. As I remember the next stage was to circulate this around
internally for feedback?



Seabron


This e-mail, and any attachments thereto, is intended only for use by the
addressee(s) named herein and may contain legally privileged and/or
confidential information. ?If you are not the intended recipient of this
e-mail, you are hereby notified that any dissemination, distribution or
copying of this e-mail, and any attachments thereto, is strictly
prohibited.
If you have received this e-mail in error, please immediately notify me at
(617) 354-0060 and permanently delete the original and any copy of any
e-mail and any printout thereof.


Seabron Adamson
Frontier Economics Inc
Two Brattle Square
Cambridge, MA 02138 USA
Ph: ?(617) 354-0060
Fax: (617) 354-0640
seabron.adamson@frontier-economics.com
james.d.steffes@enron.com