Fine.  I still think that any obligation is a mistake.  Just improving a bad market is not going to help.  
 
Make sure that Dan Allegretti is in the loop.  NEPOOL is putting something like this together.
 
Jim

-----Original Message-----
From: Kingerski, Harry 
Sent: Monday, October 08, 2001 9:59 PM
To: Steffes, James D.; Nicolay, Christi L.
Subject: RE: ICAP


I know.  Anyway, the single most important issue from the perspective of Retail seems to be "daily granularity".  We need to be able to adjust our daily obligation based on customer switching patterns.  These can occur at any time.  So any thing that locks in our capacity requirement for a long period of time (months to a year or more) can be a killer.  
 
A specific model we discussed was "operating capacity".  This takes the operating reserves concept and blows it up to a full capacity market equivalent.  ISO administers the market.  Generators commit capacity to energy market or reserve market, but not both.  Long term deals possible as well as real time market.  Lots has to be flushed out but it seems like a viable approach. 
 
Will discuss more on Wednesday.  Have talked briefly with Luiz about this.

-----Original Message-----
From: Steffes, James D. 
Sent: Sunday, October 07, 2001 1:08 PM
To: Kingerski, Harry
Subject: RE: ICAP


Harry --

Enron can never take the position that ICAP is good!  I don't know why Stoness is trying to undertake more analysis.  His reasoning that ICAP is "complicated" and we do well at complications is crazy given the EES business model - Enron Direct.  
 
Let me know how it is going.  
 
Jim

-----Original Message----- 
From: Kingerski, Harry 
Sent: Fri 10/5/2001 9:00 AM 
To: Merola, Jeff; Misra, Narsimha 
Cc: Nicolay, Christi L.; Steffes, James D. 
Subject: FW: ICAP






[Kingerski, Harry]  We can meet today at 2 pm in room 4746 to discuss more about Retail's view of ICAP and related issues.   

  
  

Scott Stoness' summary of our meeting yesterday with Dale Furrow, his regional leads, and Narsimha Misra: 

The gist of the meetings was: 

1) Pro ICAP was: 

Pragmatically, high energy costs are bad because they delay competition.  ICAP is therefore good because it reduces the high price periods with market intervention. 
Pragmatically, ICAP is complicated, and complicated translucent rules favor the bright (Enron). 
Mathematically, 2 separate markets - Capacity and Energy - should result in the same outcome.  ie. Energy costs should reduce to exactly offset the increase in demand charges. 
Theorectically, if the market expects the government to intervene in the event of high power costs, suppliers will build less capacity than needed.  Given that this is inevitable (government intervention), we might as well intervene now as later. 
Theorectically, market failure is probable because small customers are not able to internalize the costs of not hedging, causing them to take more risk than they should.  Given that the customers are not making the right societal decision, we should make it for them 


2) Pro Not ICAP was: 

Any artificial price determination will distort the market causing inefficiencies.  ie. a fixed ICAP for 12 months will favor a technology available all year round. ie2. ICAP could cause environmental damage by causing CT's to be built instead of Combined Cycle. 
ICAP, with market, is complicated which will decrease market efficiencies 
Market prices, with financial firm obligations, will result in a continuous balance of supply and demand 
Market prices, will result in much more efficiency because they cause more demand side response. 


Conclusion: 

There was no consensus.  There seemed to be more people on the no ICAP side than the ICAP side.  Basically comes down to i) economics suggests ICAP is inefficient, vs ii) lack of ICAP will damage competition. 
We agreed that if ICAP is inevitable, we should advocate, market determined ICAP's 
We agreed that, given that this issue is controversial, and that Narshima has the largest interests.  He should head up our response. 


Scott