MARKET NOTICE
December 17, 2002
Market Design 2002
ISO Market Participants:
The ISO has begun a market design effort, "Market Design 2002" or "MD02,"
that will culminate in several FERC filings over the next seven months or
so.  This effort will put in place changes to the California electricity
market beginning with the Real-time Market Pricing ("Target Price") change,
continuing through the termination of the June 19, 2001 FERC market
mitigation measures on September 30, 2002 and completing the changes by
Summer, 2003.  This message will give you some background on the design
effort and identify a few of the upcoming project milestones.
Background
Since its start on March 31, 1998, the electricity market in California has
experienced many changes in market rules and operating procedures.  In
February, 2000, the ISO began a Congestion Management Reform (CMR) effort
spanning the next 12 months, which culminated in the January 2001 CMR
Proposal.  Although this effort produced a comprehensive approach to
resolving issues related to inter-zonal and intra-zonal congestion
management, forward and real time energy markets, local reliability and
several other issues, and reflected considerable Stakeholder input, it was
never filed with FERC for approval nor implemented.
The significant and unforeseen operational and financial events over the
past 12 months have changed the California electricity market substantially.
One of the most significant changes was the FERC Order of June 19, 2001 that
implemented price mitigation measures, not only in California but throughout
the West.  The price mitigation measures are scheduled to expire on
September 30, 2002.  Therefore, the ISO has initiated MD02 to complete the
market redesign process that began with the CMR project and to ensure that
upon expiration of the FERC-established price mitigation measures, there
will be adequate measures in place to maintain market/price stability and
reliable ISO operation. 
Milestones
The following are a few of the short-term key dates for the MD02 project:
December 21, 2001	ISO distributes draft MD02 Design Elements to
stakeholders for initial review.  This preliminary document will identify
the primary problems to be addressed and outline a proposal for addressing
them.  Although this will not be the primary document for soliciting
stakeholder comments, the ISO will receive any comments you may have on this
initial document.
January 4, 2002	ISO distributes MD02 Comprehensive Design Draft for
stakeholder review.  This document will include greater detail than the
December 21 Design Elements document and will be the focus of subsequent
discussions with market participants.
January 14-17, 2002	Focus Group meetings to discuss the MD02
Comprehensive Design Draft.  The format of these meetings will be similar to
that of the recent Focus Group meetings on uninstructed deviation pricing.
The targeted groups for these meetings are:
*	January 14:	Load-Serving Entities
*	January 15:	Generators and Marketers
*	January 16:	Municipal Utilities
*	January 17:	Other Control Areas
				We will send specific details of the
meetings by the end of this week.
January 23, 2002	Stakeholders' written comments on MD02 Comprehensive
Design Draft are due to the ISO.
February 1, 2002	MD02 Comprehensive Design distributed to ISO
Governing Board members and stakeholders
February 7, 2002	Present MD02 Comprehensive Design to ISO Governing
Board for approval.
Following the Board's decision on the MD02 Comprehensive Design on February
7, 2002, we will update you with a schedule for FERC filings and
implementation.
This is an aggressive schedule for an ambitious undertaking.  However, it is
imperative that the ISO address basic design flaws of the market and make
major changes where necessary prior to the expiration of the
FERC-established price mitigation measures.  We also believe this schedule
is necessary to put the ISO in a position to implement a comprehensive
redesign that will occur in several phases beginning with the summer of 2002
and continuing through Spring 2003.  
We look forward to working with you to develop this proposal.  If you have
questions or would like additional information, please contact Byron Woertz
at bwoertz@caiso.com <mailto:jdoe@caiso.com>  or (916) 608-7066.
Client Relations Communications.0715
CRCommunications@caiso.com <mailto:CRCommunications@caiso.com>