PER VOICEMAIL.
---------------------- Forwarded by Richard Shapiro/NA/Enron on 04/27/2001 07:04 AM ---------------------------

Subject:	FERC's 4/26/01 Order on California Price Mitigation   

If you read Ray Alvarez's summary from yesterday evening, open the attached Word document and read only the changes that we made to the summary since receiving the final order, which was issued this afternoon.  Alan Comnes

 

The full order is available at: http://www.ferc.fed.us/electric/bulkpower.htm

SUMMARY OF FERC'S
ORDER ESTABLISHING PROSPECTIVE MITIGATION AND MONITORING PLAN FOR THE CALIFORNIA WHOLESALE ELECTRIC MARKETS AND ESTABLISHING AN INVESTIGATION OF PUBLIC UTILITY RATES IN WHOLESALE WESTERN ENERGY MARKETS
(Issued April 26, 2001)

Effective Date -- Price mitigation is effective May 29, 2001.  (ISO needs to have its day-ahead proxy price ready on 5/28)

Physical Withholding -- To prevent physical withholding, the plan will require sellers with PGA's to offer all their available power in real time to the extent not scheduled in bilateral trade.  All California generators, even those not subject to FERC price regulation, will be required to sell into the ISO's real time market as a condition of their use of the ISO's interstate transmission lines. Hydroelectric facilities will be exempted. (This requirement to provide power is for all hours (24/7) for 1yr) 

Price Mitigation - The plan will establish a single market clearing price auction for the real time market.  During Stage 1, 2 and 3 emergencies in the ISO's real time market, each generator (other than hydro) with a participating generator agreement is required to offer all available power and bid its marginal cost based on the generator's heat curve, emission rates, gas costs and emission costs, plus $2/MWh for O&M.  The gas cost will be the average daily cost of gas for all delivery points in California; emissions are to be based on Cantor Fitzgerald Environmental Brokerage Services.  The ISO will publish by 8:00 am, the gas and emission figures to be used for the next day in any hour where an emergency is declared. These figures (for the next day) will be based on the prior day's Gas Daily and Cantor Fitzgerald data. A single market clearing price is determined in real time for all generators.  Highest bid sets the clearing price.  Each gas-fired generator must file with FERC and the ISO within 5 days, on a confidential basis, heat and emission rates for each generating unit.  The ISO will use these rates to calculate a marginal cost for each generator, including maintenance and operating costs.  Generators that submit bids at or below the market clearing price will not be subject to refund liability.  (Although the following qualification is made: "However, all public utility rates will be subject to refund for violations of the conditions imposed on market-based rates, discussed infra."  Presumably this has to do with anomalous bidding behavior.)  In the event a generator submits a bid higher than the proxy price, the generator must, within 7 days of the end of each month, file a report with FERC and the ISO justifying its price.  FERC explicitly acknowledges that some units may have gas costs that exceed the "all delivery point" index it has adopted. FERC has 60 days to review/act.  No opportunity costs in real time.  Marketers are not held to any generator cost standard but must be prepared to justify bid at purchased cost based on specific purchases or portfolio with no opportunity cost.  

Underscheduling Penalites -- FERC acknowledges that the there is a pending request to revoke the current underscheduling penalty but indicates that it is still in place.  Thus, although it may be advantageous to wait to buy power in R/T at capped prices, doing so may make the scheduling coordinator subject to the currently effective $100/MWh penalty.  See p. 20 of the FERC order.

New Generation --  New generation is NOT exempted from the Commission's price mitigation measures.


Demand Response -- Beginning June 1, only public utility load serving entities must submit demand side bids to curtail load and identify the load to be curtailed under those bids.  FERC is attempting to make the demand curve more price responsive.  (This requirement is in effect for all hours (24/7))  

Outages -- PGA generators will coordinate planned outages and report forced outages The ISO is required to make a tariff filing within 15 days of the order proposing a mechanism for coordination and control of outages, including periodic reports to the Commission.

Term - Order expires one year from date of issuance.

RTO Filing - California ISO and two Utilities must make RTO filing by June 1 or Order lapses with no further effect.  The RTO filing is to be consistent with the characteristics and functions in Order No. 2000.

ISO Reporting - On September 14, 2001, ISO must file a status report on how things are working and how much generation has been built.  Comments are due in 15 days.  Quarterly reports thereafter.

Revocation of Market Based Rate Authority and Refunds - The market based rate authority of all public utilities is conditioned on (1) no physical withhold of capacity, and (2) no inappropriate bidding behavior.  Inappropriate bidding behavior includes bidding unrelated to known characteristics of the generation unit or without an input cost basis or bidding not based on unit behavior.  An increased bid based on increased demand could apparently be inappropriate.  In addition, "hockey stick" bids are expressly prohibited (i.e.  bidding 95% at marginal cost and 5% at a much higher level).  Other prohibited bidding practices identified include: pricing a single unit much higher than other units in a supplier portfolio and changes in bids due to increased scarcity rather than changes in generator costs.

West-Wide Section 206 Investigation  - Opens a section 206 investigation concerning the J&R of wholesale power in the WSCC other than sales to the CAISO market.    FERC requests comments on the scope and nature of price mitigation.  However its proposal is that refund conditions apply only in real time (markets for power less than 24 hours in advance of R/T) spot markets when contingency within a control area falls below 7% within a control area.    FERC is attempting to mirror the rules applied in California.  Comments are due in 10 days on the 206 investigations.  Although it is still formulating its price mitigation plan for the non-California PNW, the FERC sets the refund effective date is 60 days from publication of the Order.

NOx Limits in California --  Must sell requirements do not apply if a unit is prohibited from running by law.  However, it appears that incurring fines does not overcome the must sell requirement- just include the fines as part of the price bid.  Also if NOx is limited, may seek to show that generation would have been sold elsewhere or at different times for determining price.  

Surcharge to pay past amount due -- Comments are due in 30 days on (1) whether FERC should require the ISO to surcharge parties for payment into an escrow account to pay past costs and (2) the effect this surcharge would have on the PG&E bankruptcy filing.  

Treatment of the CAISO's Market Stabilization Plan (MSP). The FERC rejects the CAISO's MSP saying that FERC's plan for market mitigation is sufficient.  It expressly rejects CAISO's plan to create a day-ahead and hour-ahead energy markets are expressly reject and tells CAISO to stop actions to implement software changes to effectuate such markets.  Unfortunately, it does not expressly reject CAISO's plan to cut exports.  In general, no mention was made as to issue of exports of power from California although the statement that CAISO must become a real RTO would support the notion that CAISO must honor firm schedules on its system.. 

Recap of Dates Identified in the Order
?	Issue date: 4/26/01
?	Heat rate emission filing from generators due: 5 days (5/1/01)
?	Comments due on WSCC-wide price mitigation: 10 days (5/6/01)
?	ISO Tariff filing due: 15 days (5/11/01)
?	Comments on ISO Tariff due: 5 days thereafter (5/16/01)
?	Comments on whether Commission should allow a premium to recover unpaid generator bills: 5/30/01
?	Effective date of proxy prices: 5/29/01
?	Demand responsive bids from load serving entities: 6/1/01
?	Refund effective date begins:  60 days after publishing in Federal Register (late June?)
?	First ISO quarterly report: 9/14/01
?	Comments on first ISO quarterly report: 15 days thereafter (9/29/01)
?	Plan terminates: 4/26/02

RA  & GAC





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