I don't agree with either 7 or 8.   The 0.1 LOLP generally results in 20-25% reserve margins which are excessive.   Reserve margin is a meaningless measure in an efficient commodity market because supply and demand adjust to price signals to keep the market in balance.

My view is that ICAP should be eliminated completely and, if utilized, transitional only for a 1-2 year period.   The other alternative is the ISO to have a reliability auction whereby quick-start units contract directly with an ISO for meeting reliability reserve reqs.

 -----Original Message-----
From: 	Hoatson, Tom  
Sent:	Wednesday, May 30, 2001 9:48 AM
To:	Aucoin, Berney C.; Decker, Charles; Nicolay, Christi; Baughman, Edward D.; Steffes, James; Scheuer, Janelle; Thompkins, Jason; Ader, Jeff; Meyn, Jim; Quenet, Joe; Presto, Kevin M.; Bernstein, Mark; Davis, Mark Dana; Hamlin, Mason; Politis, Nick; Broderick, Paul J.; Hammond, Pearce; Martinez, Posey; Wheeler, Rob; sscott3@enron.com; Novosel, Sarah; Montovano, Steve
Cc:	Allegretti, Daniel; Fromer, Howard
Subject:	EPSA Draft Paper on Assuring Adequate Capacity in a	Competitive Market

Below is the draft white paper prepared by EPSA as a result of the workshop held on May 15 on assuring adequate capacity (discussed in a previous email from me).  The purpose of the paper is to outline possible EPSA positions on the issues.  EPSA could would like comments on the paper by Monday, June 4 (you could forward them to me and I will pass them on to EPSA).  In summary the paper presents 14 principals for assuring adequate capacity that I believe Enron could support.  Most of the principals discuss a liquid, efficient energy market and robust forward markets are capable of assuring adequate capacity; load needs to see prices and demand needs to respond; barriers to construction of new generation and entry for LSE's need to be eliminated; and any capacity market must be designed to create a level playing field between old and new market entrants.  The most controversial are #7 and #8.  

Number 7 states:

"During a limited transition to fully competitive markets, an administratively-determined mandatory reserve requirement can serve to ensure that adequate capacity is available to meet reliability needs within politically acceptable limits of price volatility.  A mandated reserve requirement should be tied to specific reliability criteria for that system, such as the one day in ten years loss of load probability."
 
Number 8 states:

"Suppliers must be fully compensated for supplying needed reserves.  This can be accomplished through a well-designed Installed Capacity (ICAP) market, a separate capacity market, imbalance trading or call options."

----- Forwarded by Tom Hoatson/NA/Enron on 05/30/2001 09:31 AM -----


	"Jackie Gallagher" <JGallagher@epsa.org> 05/29/2001 03:32 PM 	   To: <acomnes@enron.com>, <bhawkin@enron.com>, <carin.nersesian@enron.com>, <christi.l.nicolay@enron.com>, <donna.fulton@enron.com>, <janelle.scheuer@enron.com>, <jhartso@enron.com>, <john.shelk@enron.com>, <jsteffe@enron.com>, <Linda.J.Noske@enron.com>, <ray.alvarez@enron.com>, <rshapiro@enron.com>, <Sarah.Novosel@enron.com>, <sscott3@enron.com>, <Susan.J.Mara@enron.com>, <tom.hoatson@enron.com>  cc:   Subject: EPSA Draft Paper on Assuring Adequate Capacity in a Competitive Market	



MEMORANDUM

TO: Regulatory Affairs Committee
       Power Marketers Working Group

FROM: Jim Steffes, Regulatory Affairs Committee Chair
            Bob Reilley, Power Marketing Working Group Chair
            Julie Simon, Vice President of Policy

DATE: May 29, 2001

RE: EPSA Draft Paper on Assuring Adequate Capacity in a
      Competitive Market
      ? Initial Comments Due on Monday, June 4th
      ? Conference Call on Friday, June 8th at 11:00 a.m. (EDT)

On May 15th EPSA held a workshop on assuring adequate capacity in a restructured market.  Following the discussion, EPSA staff offered to draft a short White Paper outlining a possible EPSA position on the issues raised during the discussion.  Attached is the first draft of that paper.

To use our time as efficiently as possible, please forward any written comments on the attached draft to Julie Simon at EPSA (by fax at 202-628-8260 or e-mail to jsimon@epsa.org) by Monday, June 4th.  We will then circulate a revised draft before a conference call on Friday, June 8th at 11:00 a.m. (EDT).  To access the conference call, dial 1-800-937-6563 and ask for the EPSA/Julie Simon call.  If you have any questions or concerns, please contact Julie at 202-628-8200.


Attachment

 - EPSA POSITION STATEMENT ON ASSURING ADEQUATE CAPACITY IN A COMPETITIVE MARKET.doc << File: EPSA POSITION STATEMENT ON ASSURING ADEQUATE CAPACITY IN A COMPETITIVE MARKET.doc >>