I forgot to copy you ...
---------------------- Forwarded by Alan Comnes/PDX/ECT on 03/20/2001 10:00 
PM ---------------------------


Alan Comnes
03/20/2001 09:54 PM
To: Tim Belden/HOU/ECT@ECT, Christian Yoder/HOU/ECT@ECT, Jeff 
Richter/HOU/ECT@ECT, Robert Badeer/HOU/ECT@ECT, Steve C Hall/PDX/ECT@ECT, 
Bill Williams III/PDX/ECT@ECT
cc: Susan J Mara/NA/Enron@ENRON, Joe Hartsoe/Corp/Enron@ENRON 

Subject: FERC Staff market mitigation comments for California--Comments of 
Enron--DUE WEDNESDAY

To West Desk Traders in Cali:

On Thursday 3/22, FERC will accept comments on its staff's plan to provide 
market mitigation to California ISO markets.  A summary of the report is 
copied below.

Enron GA plans to file a motion that will support the comments of EPSA and 
WPTF and supplement the comments as noted below. 

EPSA's comments are generally supportive of the staff report but recommends 
that FERC:

clarify that staff's market mitigation measures are being put into place to 
address structural defects in the California market, not the abuse of market 
power by any market participants; 
avoid the use of cost-based rates as a proxy for competitive prices during 
times of scarcity;
ensure that if cost-based proxy rates are used, those rates includes the full 
value of scarcity, capacity, opportunity costs, and other factors;
develop proxy rates, if necessary, using the formula in the March 9th Refund 
Order RATHER THAN the unit specific marginal costs identified in the order; 
and
forego forced bidding into real-time markets.  

WPTF will make similar comments (generally with more color and vehemence) and 
will also raise how lack of creditworthiness will affect price.

I also recommend we supplement the EPSA/WPTF comments with some additional 
comments on energy-limited resources, see attached.




Please prove Sue Mara or I with your comments by COB Wednesday.

Thank you,

Alan Comnes







Report Summary (from EPSA)

Stressing that the proposal is designed to apply only to approximately five 
percent of the market that remains in real-time and not to the bilateral and 
forward markets, the Report immediately notes that "ultimately the real 
solution to California's problems lies in increased investments in 
infrastructure."

The Report recommends that the California ISO conduct a real-time auction 
with associated measures to mitigate the impact of physical and economic 
withholding and significant exercises of market power during periods of 
scarcity:

(1) Coordinating and Controlling Outages -  The ISO should coordinate and 
approve all planned outages by units that have a Participating Generator 
Agreement (PGA) with the ISO.  Coordination and outage control procedures 
should then be coupled with reporting requirements to FERC and dispute review 
should be expedited.  Similarly, the ISO should closely monitor unplanned 
outages and report questionable outages to FERC for further investigation.

(2) Selling Obligations - All capacity that is available and not scheduled to 
run under sellers with PGAs should be offered in the real-time market  - this 
obligation would not be imposed on bilateral markets of the ISO day-ahead 
markets.  PGA generators would have to submit to FERC a dependable capacity 
for each unit in addition to other operating parameters necessary to 
calculate marginal costs, such as heat rate.  FERC Staff would then use this 
data, in combination with published fuel costs and emission credit data to 
determine a price that the ISO would use pre-determined to mitigate prices 
during times of reserve deficiency.  Load Serving Entities should also be 
required to name their curtailment price and to identify which loads will be 
curtailed.

(3) Price Mitigation - When called upon to provide the available and 
unscheduled capacity as mentioned above, PGA unit prices would be mitigated 
in hours when there is a reserve deficiency, or Stage 3 emergencies (the 
Report notes that it is "these hours which are extremely conducive to the 
exercise of market power by suppliers") and will be obligated to sell 
capacity in real-time at the marginal cost of the highest-priced PGA until 
called upon to run.

(4) Real-time Price Mitigation for Each Generating Unit - all generating 
units should have a standing, confidential price based on its marginal 
costs.  This price will be used by the ISO to establish the real-time market 
clearing price when mitigation is appropriate.  Staff believes that a single 
market clearing price auction design is appropriate, thus reversing the 
recommendation to use an as bid design in the December Order.

(5) Market Clearing Price - All real-time energy offers should be paid the 
applicable market clearing price.

(6) Conditions for Invoking Mitigation - Mitigation measures should only be 
applied to critical operating periods, such as emergencies.

As noted in the Report, Staff recognizes that there are potential 
difficulties in implementing the proposal, and that "there are no easy 
answers to the current problems in the California market."  Among the 
purported difficulties, Staff notes implementation problems with bidding 
obligations on imported power, incentive effects on load scheduling, 
treatment of purchased power, mitigating prices during emergencies, and 
setting a price component for scarcity.