Beck Comments on Incentive Fee Exhibit

Marvin,=20
The exhibit on the Incentive Fee Calculation I just received is essentially=
the same as we have seen before, and I still have the same overall comment=
. Unless I have some misunderstanding, it seems to me that in a Back-to-Ba=
ck Transaction you could easily have a situation in which EPMI is making a =
profit from a transaction on which the Cities are losing money. The "Savin=
gs per hour" on which EPMI's profit sharing is based is only the difference=
between the Market Price (what the purchaser agreed to pay) and the Cities=
' Target Production Cost (incremental fuel cost and variable O&M). The "Sa=
vings per hour" ignores all of the other costs that the Cities may be oblig=
ated to pay under a Back-to-Back Transaction such as transmission, ancillar=
y service, imbalance, congestion, etc. (see the definition of Costs below).=
For example, if the Target Production cost is $40/MWh, the Market Price $=
43/MWh, and transmission is $4/MWh, the Cities would be paying EPMI a profi=
t sharing incentive fee of $1.20/MWh, while losing $2.20/MWh on the sale tr=
ansaction. As I have noted before, the "Savings" on a transaction should b=
e as follows:
Savings =3D Revenues from the Transaction - Production Cost (base on the Ta=
rget Production Cost and MWhs) - Costs associated with the Transaction incu=
rred by EPMI or the Cities (where Costs include the items defined in Articl=
e 1 of the EMSA)
We will get back to you later with comments on the other documents. - - Al=
=20
Definition of Costs in the ESMA:=20
"Costs" means, when applicable to any Transaction, all costs, liabilities, =
fees and expenses incurred by EPMI (excluding EPMI's internal costs and al=
located overhead) in connection with the purchase, sale, replacement, sched=
uling, transmission and delivery of Products and balancing services, entere=
d into between MDEA, EPMI, and third parties. Costs shall include but shall=
not be limited to: (i) energy and fuel costs, (ii) transmission costs and =
losses, (iii) congestion costs, (iv) scheduling fees, (v) penalties, inadve=
rtent energy flow charges, or imbalance charges that are exclusive of MDEA'=
s Ancillary Service charges (vi) taxes (other than income taxes); (vii) fee=
s, penalties, or charges imposed by the SPP, SERC, ISO or RTO, Federal Ener=
gy Regulatory Commission (FERC), or other similar authorities; (viii) broke=
r fees; (ix) communication costs (x) other associated costs incurred by EPM=
I. =20
Al Malmsjo=20
R. W. Beck=20
(407) 648-3521 - Office=20
(407) 421-5402 - Cell