Enron Mail

From:ray.alvarez@enron.com
To:tim.belden@enron.com, mike.swerzbin@enron.com, michael.driscoll@enron.com,matt.motley@enron.com, robert.badeer@enron.com, diana.scholtes@enron.com, sean.crandall@enron.com, chris.mallory@enron.com, jeff.richter@enron.com, tom.alonso@enron.com, mark.
Subject:Pending FERC Order, West-wide Mitigation
Cc:
Bcc:
Date:Tue, 19 Jun 2001 07:35:00 -0700 (PDT)

The following report is comprised of what was discussed at the Commission
meeting held yesterday and additional intelligence gathered from FERC
staffers after the meeting. We are awaiting the final order and will update
this report as soon as it issues. Generally, the order is expected to expand
the scope of the Commission's April 26 Order, and this report will highlight
the differences.

Geographical Scope- Mitigation is extended to cover all 11 western states.

Term- The term of the order will be extended to cover 2 summers. We expect
the order to issue today. If so, the order will take effect at midnight
tonight and continue in effect until 9/30/02.

Spot Market- Defined as sales of 24 hours or less, transacted on the day of
delivery or the day prior to delivery.

Must Sell- To prevent physical withholding, the plan will require all sellers
to offer all their available power in real time. All California generators,
even those not subject to FERC price regulation, will be required to sell
into the ISO's real time market. Sellers in the rest of the WSCC are
similarly required to sell, except that they are not required to sell into
California and can choose their spot market. They will be required to post
available power on the Western Systems Power Pool board. Hydroelectric
facilities will continue to be exempted.

Price Mitigation- Expanded to be in place 24 hours per day, 7 days per week.
Applies to all sellers, including marketers and non-public utilities. The
plan retains a single market clearing price auction for the spot market,
based on marginal cost bids. The proxy price formula is changed in several
respects:

1. Gas price will be the average of the mid-point of the monthly bid week
prices as reported in Gas Daily for Malin, SoCal Gas Large Packages and
PG&E City Gate.
2. O&M increases from $2 to $6.
3. Fuel start-up and emissions costs are eliminated from the formula and
uplifted from the ISO (i.e. these costs will be recovered from the ISO, but
will not go into setting the proxy price).
4. Similarly, a credit adder of 10% will apply, only in CA.

A reserve deficiency in CA (7% or less) also triggers mitigation for the rest
of the WSCC. The applicable price during reserve deficiency periods is the
proxy price outlined above. During times when no reserve deficiency exists,
the mitigated price will be 85% of the highest price calculated in the last
Stage 1 emergency. This price will be in effect until the next Stage 1
emergency. Sellers can bid higher than the proxy, with justification, during
periods of reserve deficiency or when no reserve deficiency exists; PROVIDED
THAT MARKETERS MAY NOT BID ABOVE THE PROXY PRICE. FERC will consider the
entire portfolio of a seller who seeks to justify a higher price than the
proxy. Generators may seek cost based rates for their entire portfolio in CA
if they so choose (i.e. no cherry picking).

Demand Side Management- The plan originally set forth in the April 26 order
is expected be removed in this order.

ISO Reporting- ISO will need to report on a quarterly basis as to the status
of building supply in CA.

Comments- Comments will be sought on the issue of whether the price
mitigation formula should be adjusted in response to expected varying load
conditions due to seasonal changes.

Settlement Conference- The settlement judge will convene a settlement
conference on the refund issue no later than June 25 (next Monday) and the
parties will have 15 days to settle. A report from the judge to the
Commission is due 7 days thereafter (for a total of 22 days).

Issues that are NOT expected to be addressed in the order include
confidentiality, ISO board issues, ISO scheduling penalty application, and
market based rate authorization. The Order is not finally issued as of yet,
and the status of the foregoing items could change upon issuance of a Final
Order. We will keep you posted.

Ray Alvarez