---------------------- Forwarded by Tamara Jae Black/HOU/ECT on 03/02/2001 
11:33 AM ---------------------------
   
	
	
	From:  Christi L Nicolay                           03/02/2001 09:49 AM
	

To: Tamara Jae Black/HOU/ECT@ECT
cc:  
Subject: Kevin's RTO Ideas for East

TJ-Please forward to all of Kevin's trading group.  Thanks.
_____________

The East desk's No. 1 priority for RTOs is The Real Time Energy Market (no 
day ahead balanced schedule requirement).  This means that the RTO should 
post the supply and demand curve with real time prices (the best example at 
this time is PJM's real time market).  A real time energy market is 
fundamental for customers to get proper real time price signals upon which to 
base their decisions to hedge or not on a forward basis.  It also provides 
the proper price signals to the market on where generation and transmission 
is needed.  Getting a real time energy market would advance Enron's ability 
to provide more financial tools to customers.  This market can be nodal (or 
zonal) in order to send location based price signals (for example, to NY 
City), with the ability to aggregate from nodal to zone determined "proxy 
buses."

While Kevin prefers the physical flowgate model with an option to collect 
congestion revenues (rather than an obligation, similar to the PJM FTRs now), 
the method of determining the congestion management is secondary to the 
establishment of the real time energy market.  Regulatory people should use 
their judgment (and talk with the desk) when determining how far to push 
option-type flowgates, rather than obligation-type FTRs.  Such a physical 
market transmission/congestion market can support a financial trading overlay.

If you do have an FTR type system, there should be an upfront allocation to 
load.  Ideally, the load should have an "network" right from the generator to 
their load (or from load to the "hubs") in order to have the ability to 
manage the congestion risk in the forward market when serving end use 
customers (EES) or for the ENA full requirements deals.  The nodes should be 
grouped into logical "zones" and congestion within a zone should be uplifted. 
This allocation to customers (or full blown auction of all rights) becomes 
critical in Enron's ability to serve load and all requirements customers.  
Without the proper allocation (not to incumbent utilties), the risk premium 
to serve these customers becomes too high and can't be priced. 

Finally, the market should have no price caps and preferably no icap market 
like NEPOOL (prefer PJM's system where the load has to show the RTO that it 
has contracted for enough reserves.)  We have urged the FERC in Florida to 
adopt a reserve monitoring system, whereby customers are not penalized for 
lack of icap unless they actually go under the reserve requirement, then they 
are required to purchase icap for a certain amount of time until they 
demonstrate continued compliance.

Bottom line -- "Do not let the perfect be the enemy of the good."  Congestion 
does not need to be perfectly allocated to each load if that mechanism is 
done in a manner that precludes Enron and others from developing efficient 
real time energy markets that send a locational hourly price signal to the 
generation (supply) and the load (demand).  This type of market will provide 
greater services to customers and allow Enron to grow its business.  

Finally, as we work toward this goal, remember that in the absence of a 
real-time energy market, we need to continue to focus our efforts on 
non-discriminatory treatment with respect to transmission (no native load 
exception) and parking and lending, scheduling flexibility, etc.