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Enron Mail |
FYI.
-----Original Message----- From: Cooper, Tammy [mailto:Tammy.Cooper@puc.state.tx.us] Sent: Friday, February 16, 2001 5:13 PM To: 'Mwalker@ercot.com'; 'tanson@smklaw.com'; 'ltownsend@lglawfirm.com'; 'john.tempesta@austinenergy.com'; 'bob.kahn@austinenergy.com'; 'deena.jordan@neg.pge.com'; 'skroger@mdck.com'; 'rchapman@tlsc.org'; 'akennerly@worsham.net'; 'mcarroll@texas.net'; 'barry.huddleston@dynegy.com'; 'dgross@texas.net'; 'jay.golub@bakerbotts.com'; 'aholman@lockeliddell.com'; 'jcheckley@lockeliddell.com'; 'dljones@cps-satx.com'; 'brsmith1@aep.com'; 'pratt@csw.com'; 'pzeis@tnpe.com'; 'read.comstock@worldnet.att.net'; 'msmith@highvoltagelaw.com'; 'ktrostle@highvoltagelaw.com'; 'cmcginnis@mcginnislaw.com'; 'nnease@bbraustin.com'; 'gas@bbrlaw.com'; 'jocampbell@stec.org'; 'psegrest@worldnet.att.net'; 'sburger@lcra.org'; 'jboyle@jimboylelaw.com'; 'mdavis@bbraustin.com'; 'dpederson@bbraustin.com' Cc: Adib, Parviz; Rogas, Keith Subject: FW: ERCOT Protocols Importance: High Below is an e-mail from professor Hogan that will be filed shortly. In addition, we have included his presentation handed out yesterday. Finally, you will find a copy of Order No. 9 filed this afternoon. -----Original Message----- From: William Hogan [mailto:william_hogan@harvard.edu] Sent: Friday, February 16, 2001 10:17 AM To: pat.wood@puc.state.tx.us; judy.walsh@puc.state.tx.us; brett.perlman@puc.state.tx.us Cc: keith.rogas@ouc.state.tx.us Subject: ERCOT Protocols February 16, 2001 Public Utility Commission of Texas Sent via email Commissioners, Once again, I thank you for the courtesy of including me in yesterday's PUCT workshop on the ERCOT protocols. It has been my experience that such open discussion of market design issues, with full pursuit of any problematic features, is essential in achieving a successful electricity market. Unfortunately, the subject is complex and the details matter. It is not possible to anticipate every problem, but the evidence shows that ignoring obvious problems in the hope that the rules can be easily adapted has not been a successful strategy. This makes what you are doing all the more important. On reflection after the workshop, I am more concerned about the argument that emerged about the role of the ISO. In many instances, to explain away problems of the type identified by Shmuel Oren, an argument was made that some administrative rule along with discretionary choices of the ISO would counteract perverse incentives created by the pricing system. If this argument were correct, it would seem to place a substantial burden on the ISO to undo what the pricing incentives have done. When faced with such conditions in California and elsewhere, the ISO developed a more and more intrusive role in what became less and less of a market. To make this unhappy practice part of the official design, to the point that the ISO is expected to ignore the information in schedules and do what is right, would seem to be especially problematic. At a minimum, it would make the ISO responsible for any difficulties that develop, without giving the ISO the market tools to avoid the problems. Commissioner Wood asked at what point how a coordinated spot market would differ from the ERCOT protocols. We pursued the most important feature--eliminating the balanced schedule requirement--but did not have time to pursue all the other details. The presentation I handed out contains a summary of the key features on page 20. After the workshop, I received an email with a recent presentation by John Chandley, a colleague of mine, that addresses the issues of market design with a focus on California. As I indicated in Austin, there are important differences between ERCOT and California, but on the matter of wholesale market design there is a great deal in common, such as requiring balanced schedules, relying on congestion zones, applying different treatment for different kinds of congestion, using ad hoc pricing rules, and so on. John's summary of the recommended reforms for California would apply in large part to the ERCOT protocols. I have attached a copy of this presentation for your information. I remain both impressed with all that you have accomplished to date, and worried that fundamental assumptions in the market design will recreate problems that we have seen elsewhere. My recommendation to adopt a coordinated spot market more like PJM won't solve all problems, but it would go a long way. Whatever the difficulty now, it will be much harder to fix these problems later. Furthermore, the coordinated spot market role for the ISO is much more robust. If the simplifying assumptions of the ERCOT protocols are true (which I doubt), the coordinated spot market will end up looking much like the zonal model with a few constraints and easy bilateral trading. But if the ERCOT assumptions are wrong, the ERCOT protocols will face serious problems and the coordinated spot market would be a solution. Furthermore, we now know from experience that the coordinated spot market is neither more complicated nor more expensive than the alternatives. The sooner you make a commitment in Texas to adopt this successful market design, the better. I offer these further remarks as I did my comments yesterday, in the hope that you succeed. I would be happy to discuss these matters further, as you decide. Best Regards, William W. Hogan 79 John F. Kennedy Street Cambridge, MA 02138 p.s. I do not have the mailing list for the workshop participants, but I have sent a copy of this email to Keith Rogas of the PUCT and I assume he can forward to the participant list. William W. Hogan John F. Kennedy School of Government Harvard University 79 John F. Kennedy Street Cambridge, MA 02138 617-495-1317 (o) 617-495-1635 (f) william_hogan@harvard.edu http://ksgwww.harvard.edu/people/whogan - puct0216.doc - Infocast - SanDiego Power Crisis 2-13-01.ppt - puct0215.pdf
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