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Thane -- Would you speak with John Forney agian and then try to reach Ken S= aathof to reconfirm that OOMC is essentially a "be ready" instruction, rath= er than a "be running" instruction? John Forney said that John Adams will = today seek guidance from his boss on this matter, and it would be good if K= en Saathof could confirm this back to Adams. We are seeking to get this = quickly resolved so that ERCOT will direct an OOME dispatch, (electronicall= y, or if need be, by an ERCOT dispatcher's phone call) before Frontera has= to run its plant. Please bring me in as necessary and keep me informed of= progress. We will want to get Doug Gilbert-Smith's input on whether prepa= rations should continue on making the RMR argument to the PUCT as to plants= positioned like Frontera, even if the specific issue as to Frontera is fav= orably resolved in the next few days. --David=20 -----Original Message----- From: =09Twiggs, Thane =20 Sent:=09Thursday, November 15, 2001 9:01 AM To:=09Nicolay, Christi L.; Yeung, Charles; Maurer, Luiz Cc:=09Ryall, Jean; Steffes, James D.; Portz, David; Forney, John M.; Gilber= t-smith, Doug; Day, Smith L. Subject:=09RE: ASAP please: ERCOT Questions OOMC & OOME Here are a few additional points: =20 I spoke with Ken Saathoff at ERCOT last week (he is the director of technic= al operations) and he agreed that an OOMC instruction is essentially a "be = ready" instruction and an additional OOME or another type of unit specific = instruction is necessary for the plant to deploy. He is John Adams boss, so= there is a disconnect between the two levels. In addition to Kent, I spok= e to Mark Walker the senior corporate counsel regarding payment, or lack th= ereof and he suggested that the only method would be to dispute the settlem= ent statement and use that process. Going forward however, that is not an = effective mechanism due to the delay in payment and the necessity to prove = your cost structure. In speaking with Forney a few minutes ago it sounds like he may have convin= ced John Adams, but I would be happy to call Kent Saathoff if you feel that= would help. -----Original Message----- From: =09Portz, David =20 Sent:=09Wednesday, November 14, 2001 6:12 PM To:=09Nicolay, Christi L. Cc:=09Gilbert-smith, Doug; Baughman, Edward D.; Miller, Jeffrey; Forney, Jo= hn M. Subject:=09Ercot Questions OOMC & OOME Forwarded as discussed. Doug Gilbert Smith has asked that your group draft= a complaint to the PUCT regarding this misinterpretation of the Protocols = by the ERCOT ISO, which effectively requires a generator called on for the = OOMC ancillary service to run its plant, and sidesteps the obligation to pa= y an OOME price component when the plant's output is utilized by ERCOT. Th= e OOMC compensation is currently negligible (and recovery of actual costs u= nder Protocols Sec. 6.8.2.1(6) may take a long time), and the OOME compensa= tion has various problems as well: (1) the more ERCOT calls on a plant for = OOME, the the lesser the OOME price paid (Protocols Sec. 6.8.2.2 -- Heat Ra= te value decreases), and (2) plants directed to provide, say, 135MWs of OOM= C/OOME, are not allowed to generate above 135 MWs in an interval (thus runn= ing the plant economically at a lower heat rate) to sell the excess in the = marketplace. The Frontera plant, a customer of EPMI acting as QSE, is locat= ed such that ERCOT is and will be consistently telling the plant via its QS= E to provide OOMC -- to produce energy going north on a line in South Texas= . Doug says we should advocate to the PUC that plants in such a position sh= ould be Reliability Must Run ("RMR") and be paid at an adequate premium for= their support of the system' reliability. I noted to you as well that this is likely to be a dispute with ERCOT over = the interpretation of the Protocols, conducted under Protocols Section 20, = and we would appreciate any reg. group efforts toward preparation for iinit= iating such dispute. Frontera has indicated they will not provide OOMC tom= orrow even if ERCOT tells us, their QSE that it should be dispatched. Thus = we are caught in the middle. The legitimate bases for not complying with a= n ERCOT dispatch instruction are stated in Protocols Section 5.4.4(2): "thr= eat to safety, risk of bodily harm or damage to the equipment, or otherwise= is not in compliance with these Protocols". Though the Protocols Sections= 1-22 seem to recognize as to other capacity- oriented ancillary service pr= oducts that it is 'generating capacity available but not energy delivered t= o the grid', I have not seen this made clear as to OOMC. The Operating Gui= des' definition of OOMC, page 21 seems to recognize this however, and Secti= on 2B of the ERCOT Market Guide, p. 8 (Feb 22, 2001) recognizes the distinc= tion between capacity and generated energy clearly in support of the positi= on stated by John Forney below.=20 Sorry for the long e-mail -- I was trying to provide a statting point for y= our group. -----Original Message----- From: =09Forney, John M. =20 Sent:=09Wednesday, November 14, 2001 12:27 PM To:=09Portz, David; Gilbert-smith, Doug Subject:=09Ercot Questions David, I need some help with an Ercot protocol interpretation: Frontera has been issued OOMC requests by the ISO on numerous occasions, s= tarting September 14th. This Out of Merit request is issued if no mkt bi= ds exist to solve congestion, whether local or zonal. The OOMC, as I understand it, reserves capacity for Ercot and the premium = is predetermined based on a formula mentioned in the protocols. The formu= la is based on the replacement reserve clearing price, which currently is = zero. This is because the replacement reserve market is non-existent. An= announcement on how the OOMC capacity payments will be calculated is due o= ut this week, per Mark Patterson. The second component of this option is OOME. This is a request for actua= l energy related to the OOMC option. The strike price is calculated from = a preset heat rate multiplied by the HSC daily price, as mentioned in the p= rotocols. So the OOMC/OOME ws designed to work like the ancillary services= with a capacity award and an energy component. I think that this is the s= pirit of the OOM's, as mentioned in Section 6 of the Protocols. =20 Here is the problem: the head of Ercot Market Operations, John Adams, interprets the protocols= to mean that OOMC requries the plant to be generating. When Ercot disp= atchers had issued an OOMC, they quickly followed up to ask us why we were= not generating into the grid. We explained to them, on numerous occasions, that we dont believe OOMC mea= ns run. If they wanted us to run, then they would need to issue an OOME = for the actual energy component. I asked my employees to clarify with Er= cot whether we were being asked to run, yes or no. When instructed to r= un by Ercot, we had to assume that we were settled based upon the OOME cal= c, as we were previously under OOMC orders. I sent at least three e-mails to my Ercot rep, Mark Patterson regarding th= is issue. I finally caught him by phone and he relayed that he thought Er= cot's intrepretation was correct. For all of the times that we ran, at= their request, we werent going to be paid based on the OOME heat rate cal= c, rather we were going to receive the balancing energy price ( a penalty = for Resource Imbalance). For example, in the early morning hours we woul= d receive as little as $1 for electricity that cost $27 to generate. Mark= also mentioned that when they said run, they expected us to sell to someo= ne else, or just generate into the imbalance. Mark told me "dont worry,= you can file to receive your generation expenses in the event that you lo= st money." Here is my view: OOMC does not mean run. It means have the capacity available in the event = Ercot calls, much like replacement, responsive reserve and non-spinning. Ercot's interpretation is being decided by the Manager of Mkt Operations, = a group supposedly unconcerned with price. If OOMC means to run, then why would the protocols contemplate, or need OO= ME? They would never have to pay OOME if we were already running into the = imbalance. OOMC is an option and the exercise is OOME. This is basically the disagre= ement. This could very well be a $500,000 issue for Frontera. Why would anyone generate for $27 and dump to the imbalance mkt at $5 in ho= pes of filing for a "breakeven." Ridiculous. I spoke with Bill Kettlewell with Customer Relations and he had "no comment= " on whether OOMC means to generate. Mark Patterson now also has "no comme= nt." Bill and Mark said that we needed to file a dispute in order to receive clo= sure on the OOM capacity payment. I suspect that we will follow this same= path when we file for OOME reimbursement vs. the imbalance price we will = receive. I had instructed my employeess to refuse to turn on the plant (in respons= e to an OOMC) until we receive an OOME instruction. This has compelled E= rcot to deploy an OOME request to us, because they need to have us online = to control local congestion. Would this not be an omission that their vie= w was incorrect? Section 5.4.4 says that a QSE may fail to comply with an = Ercot directive if it causes a safety concern, or , Ercot is not in compli= ance with the Protocols. The latter is in effect. Ercot is now telling us that they cannot instruct us, or give us an OOME de= ployment, unless we are already runnnig. I think that this is a softwar= e issue, not a protocol issue. =20 We worked out an interim compromise with Ercot until this issue can be sett= led. Once we have been OOMC'd, we will start to gen. Once we reach full= load, we will request an OOME. If they dont comply, we will shut down = the unit. Ercot said that " it was entirely reasonable that we would re= quest to be compensated in the form of an OOME." The Ercot dispatchers are complaining that OOME requires them to send an in= struction every 15 minutes. Is this why we are not getting the OOME instr= uction on a regular basis? Finally, I stressed to Ercot that I wasnt trying to manipulate prices, via= OOME or force Ercot into a corner. It just is not the right economic en= vironment to generate for $27 and sell for $5. Further, operations pers= onell at Ercot have frelayed their displeasure with me for "forcing them to= OOME our plant." Can I get an opinion on whether OOMC means to run? If you agree with me, = what is our next step? I need to move aggressively on this issue. Thanks, JForney 37160
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