I still think that Enron should be advocating some form of Negawatt program for non-retail access states.  Using an RTP tariff that more closely tracks the wholesale prices from an RTO balancing energy market with locational signals can be used without any retail access and can have the load response needed to keep prices from skyrocketing - of course this would require a DA market because the signals need to come in ahead of the usage.

By the way, I disagree that we need a wholesale rate for capacity.  We should make sure that we put this in our comments on RTO Week.

Jim

 -----Original Message-----
From: 	Novosel, Sarah  
Sent:	Wednesday, November 07, 2001 7:11 AM
To:	Walton, Steve; Roan, Michael; Maurer, Luiz; Hueter, Barbara A.; Landwehr, Susan M.; Hoatson, Tom; Nicolay, Christi L.; Steffes, James D.; Alvarez, Ray; Shelk, John; Rodriquez, Andy
Subject:	Dave's Comments ICAP

Please see Dave's comments below -- it's helpful for me for everyone to know what everyone else is saying.

Sarah

 -----Original Message-----
From: 	Perrino, Dave  
Sent:	Tuesday, November 06, 2001 10:24 PM
To:	Novosel, Sarah
Cc:	Walton, Steve
Subject:	RE: RTO Week Comments -- ICAP

I have added my 2 cents below in BOLD, I hope this helps....or at least follows our general thoughts!

 -----Original Message-----
From: 	Novosel, Sarah  
Sent:	Tuesday, November 06, 2001 2:59 PM
To:	Novosel, Sarah; Walton, Steve; Roan, Michael; Perrino, Dave; Maurer, Luiz; Hueter, Barbara A.; Landwehr, Susan M.; Hoatson, Tom; Nicolay, Christi L.; Steffes, James D.; Alvarez, Ray; Shelk, John; Rodriquez, Andy
Subject:	RE: RTO Week Comments -- ICAP

 The FERC Staff report on RTO Week states that most panelists agree that some type of long term capacity obligation is needed, as long as demand is not very price responsive, in order to allow generation to recover its fixed costs and support investment.  

The report also notes that some panelists support:  

	-	a recent staff proposal supporting an LSE holding foward call options on energy YES, and 

	-	a capacity obligation being a transitional obligation until demand become price responsive.  As I describe below I believe that placing the responsibility on the LSE should be sufficient, I don't think you need a transistional period.

I have cut and pasted our Executive Summary from the ICAP comments as our response (see below), but I have a couple of questions for this group:

	1.	We say in our comments that a real time energy market, through an RTO, will give consumers the means to adjust their demand curve because they will see real time prices.  However, if a state has a rate freeze in effect and/or if retail access is not permitted in a state, how can retail load respond to the RTO's real time spot market prices? The short answer would be, they won't.  But we need to remember that some states still are moving forward with some type of retail access, mostly for the C&I customer market.  These are the folks who can make a difference and the ones with the most potential to benefit.  In the areas of no retail access it is still important to have a transparent market to send the correct signals for development of transmission and generation, but even without retail access and a fixed rate, depending upon new technologies and innovations some larger C&I customers may opt to build their own in-house source of energy and sell off any excess, without market signals this would not be possible.  We need to include this response in our comments.

	2.	What do we think of a proposal where LSEs hold forward call options on energy as a way to achieve a capacity requirement?  This is the proposal I believe we should support because it places the procurement for sufficient resources where it belongs, on the LSE.  The generators will still be able to receive a "capacity" payment (the one they like so much now from the ISOs in PJM and NY)

Your thoughts are greatly appreciated.  Also, any thoughts you have on other parts of the Staff report would be greatly appreciated (thanks Dave Perino for sending you comments).

Thanks Everyone

Sarah



EPMI opposes the continuation or implementation of installed capacity requirements.  Four appropriately sized Regional Transmission Organizations ("RTOs") that encompass robust, competitive spot markets for energy and operating reserve products (including demand side management products) will provide an efficient and timely solution for the construction of adequate generation, the siting of appropriate transmission and efficient use of demand side management products to ensure that demand is met in real time.  Spot markets reveal the cost of procuring  (or not using) electricity based on actual supply and demand conditions and, thus, signal the need for new generation capacity.  They also ensure that consumers 'see' the cost of procurement decisions through transparent spot market processes and adjust demand based on discovered prices.  These markets will keep supply and demand in balance in both the long and short run without the use of artificial planning criteria.  Therefore, there is no need to continue separate installed capacity requirements in an RTO environment.
The use of the spot market to establish pricing for all energy products is new to the electricity industry.  Regulated consumers have historically paid utility tariffs that reflect regulatory decisions.  These regulated tariffs provide little, if any, meaningful supply/demand price information to the consumer so the response has been to consume even during times when the underlying "cost" of doing so has been high.  As a result, demand curves have been categorized as 'inelastic' or 'vertical' suggesting the need for 'capacity' related products to meet any unexpected price insensitive demand.  The creation of RTOs and the resulting spot markets they include will, for the first time, give consumers the means and incentive to change the shape of their demand curve as a result of direct real time pricing information.  Changes in the shape of the demand curve will in turn eliminate the need for specific capacity related payments as supply/demand interaction, and curtailment, will be based on economic choices.