FYI.


----- Forwarded by James D Steffes/NA/Enron on 02/21/2001 09:47 AM -----

	Tim Belden@ECT
	02/21/2001 09:33 AM
		
		 To: James D Steffes/NA/Enron@ENRON
		 cc: 
		 Subject: Re: RTO Advocacy Positions

i concur.


From: James D Steffes@ENRON on 02/21/2001 09:13 AM CST
To: Kevin M Presto/HOU/ECT@ECT, Tim Belden/HOU/ECT@ECT
cc: Alan Comnes/PDX/ECT@ECT, Christi L Nicolay/HOU/ECT@ECT, Joe 
Hartsoe/Corp/Enron@Enron, Mary Hain/HOU/ECT@ECT, Sarah 
Novosel/Corp/Enron@Enron, Steve Walton/HOU/ECT@ECT, Susan J Mara/NA/Enron, 
Ron McNamara/NA/Enron@Enron, Jeff Brown/NA/Enron@Enron, Steven J 
Kean/NA/Enron@Enron, Richard Shapiro/NA/Enron@Enron 
Subject: Re: RTO Advocacy Positions  

To the discussion I would add the following -

1. Our efforts to push hard zonal markets has not been overly successful.  
The opponents of such schemes continue to win converts that the interzonal 
and intrazonal congestion costs will be large and that it is very difficult 
to get the "right" zones.  Moreover, in markets like ERCOT, the zonal 
structure has been co-opted by the large incumbents to frustrate the 
development of the market.

2. One solution discussed throughout the East is the "Hybrid" model - LMP in 
the real-time and Flowgates to manage forward transmission congestion.  If 
structured properly, this allows the power desk to have (a) a real-time 
energy market and (b) managable transmission risk.  There are disagreements 
between the policy "experts" about Flowgates (see point 5).

3. Our goal is to work within the RTO process and build markets that work for 
Enron.  Key goals - 1. single control area for the RTO, 2. real time energy 
market with no penalties for unbalanced positions, 3. market hubs (similar to 
PJM West) for liquidty, and 4. manageable transmission congestion using 
market solutions.

4. I agree with Tim that it is very difficult to come up with "one" perfect 
market structure proposal for Enron (both for technical and timing reasons - 
California is in a different place than SPP).  We are trying to coordinate 
our statements in each of the markets as much as possible.  Most importantly, 
and we have had some troubles in ERCOT lately, we need to make sure that 
saying something in one market doesn't damage our other advocacy efforts.  
Government Affairs is trying to make sure that we push at the right time and 
place and ensure that our messages have the necessary context.   

5. We still hear some open questions about the best form of market-based 
congestion managment (option vs. obligation; use it or lose it).  Christi 
Nicolay is having a call on Friday to discuss these issues.  Please contact 
her if anyone from your teams should attend.

Call with any other questions.  At some point, we need to ensure complete 
agreement of our policy(s) and our advocacy efforts on RTOs.

Jim





	Kevin M Presto@ECT
	02/20/2001 06:35 PM
		
		 To: Tim Belden/HOU/ECT@ECT
		 cc: James D Steffes/NA/Enron@Enron, Christi L Nicolay/HOU/ECT@ECT, Sarah 
Novosel/Corp/Enron@ENRON, Joe Hartsoe/Corp/Enron@ENRON, Steve 
Walton/HOU/ECT@ECT, Alan Comnes/PDX/ECT@ECT, Mary Hain/HOU/ECT@ECT
		 Subject: Re: RTO Advocacy Positions

Are you putting words in my mouth Tim.  

The East is absolutely adamant about having a liquid real-time energy markets 
with a "real supply curve" and a "real demand curve" such that hourly 
clearing prices reflect the true economic value of the commodity.   With 
respect to the number of hourly price signals within an RTO that is 
necessary, that is subject to much debate.   Although I prefer a zonal model 
for simplicity reasons, the reality is that congestion is more prevalent in 
the East in most of the markets and in order to get a functioning real time 
energy market, we may have settle for a limited LMP, in which nodal pricing 
is necessary for managing the congestion, but proxy buses are created in 
zones (3-5 per RTO) for purposes of real-time energy markets.

Our views, I believe, are still very much aligned, however, I need to make 
some progress on the creation of real time energy markets.   The zonal 
markets implemented in NEPOOL and contemplated for ERCOT result in a 
mis-priced commodity with no "real" price signal sent to the market.   Out of 
merit generation is and will continue to be dispatched because the congestion 
is managed through energy uplift payments (congestion price signal is not 
sent to the market).   This results in a very inefficient commodity market 
where the consumer gets screwed and market makers can't price the commodity 
or transportation on a forward basis.

I hope this clarifies any misunderstanding.

------------------------------------------------

Steve Walton was in Portland last week and updated me on the latest vision 
for RTO's that was developed by the east desk.  This vision seems to differ 
somewhat from what we are advocating in the west.  In particular, it seems 
like the east has embraced a nodal system while the west is firmly planted in 
the zonal / flow-gate camp.  I have asked Steve to flesh out more details of 
the nodal approach -- in particular, how do the nodes map to a fairly 
homogeneous zone and how does this impact pure trading positions (i.e., a 
transaction with no asset being directly scheduled to support it) versus 
asset-based trades where the meter must settle with the RTO while the trade 
settles with the market.

It may be that the physical characteristics of the east and west warrant 
different models.  For example, the west has large, long-distance, high 
voltage lines that are very amenable to a zonal approach.  The east has more 
local transmission bottlenecks that may not be modeled as easily.  It also 
could be that the political reality in the east and west require different 
positions.  As things sit now, there is no way that a zonal approach could 
fly in the northwest.  In contrast, PJM seems firmly planted in the nodal.  
Finally, it could be that the east desk and the west desk have a difference 
of opinion on what the "ideal" market structure should be.  If that is the 
case, then perhaps we need to talk some more.

Given the different advocacy positions in the east and the west, I don't 
think that we can come up with a broad, nationwide advocacy position at this 
time.  That is, I don't think that we should endorse either zonal or nodal as 
"the answer" at FERC.  Instead, I think that we should focus on the 
objectives that RTO's should try to achieve and be flexible as to what the 
best market structure should be to achieve these objectives.

What do you guys think about this?

Regards,
Tim