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Enron Mail |
FYI- PACE is the Progressive Conservative Party Advisory Committee on
Energy. ----- Forwarded by Aleck Dadson/TOR/ECT on 06/19/2001 05:49 PM ----- david.matthews@cgc.enbridge.com 06/19/2001 01:07 PM To: Aleck.Dadson@enron.com cc: pbudd@powerbudd.com, betmuir@lindsaycomp.on.ca, callow@sympatico.ca, artistic@primus.ca, bob@algonquinpower.com, iedc@bmts.com, jonesd2@tdsecurities.com, hkondratas@umagroup.com, blittle@uniongas.com, iedc@bmts.com, harrisme@est.gov.on.ca, mcgeejs@csolve.net, jmorning@globalserve.net, dan.pastoric@ontariohydroenergy.com, rperdue@enterprisecanada.com, rpower@powerbudd.com, john.hastings@est.gov.on.ca, Mike.Krizanc@est.gov.on.ca Subject: Re: PACE presentation Aleck: ?Thanks very much for going above and beyond the call of duty to respond to my questions. ?I really appreciate you taking the time to bring me up the learning curve on the complexities of the new market place. ?I will pass your comments on to the rest of the PACE members for their consideration and comment. ?Our report to the Minister will be much better positioned as a result of your efforts. ?Dave Aleck.Dadson@enron.com 06/19/2001 12:37 PM ? ? ? ? ? ? ? ? To: ? ? ? ?david.matthews@cgc.enbridge.com ? ? ? ? cc: ? ? ? ? ? ? ? ? Subject: ? ? ? ?Re: PACE presentation Dave, Here is my response to the concerns raised in your e-mail below regarding exports from Ontario to the connected US markets: ? ? ? ? ? ? ? ? ? ? ? ? ?a) Remember that the rules and policies under development at the IMO will ensure that load in Ontario will not be cut in order to support export transactions (in other words, Ontario, like most US systems, has adopted a "native load" preference). ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? b) Remember also that the Ontario market clearing price will be set by the offers and bids within Ontario. Scheduled external demand will move us up the bid stack but cannot, for instance, set the Ontario price by offering ?lets say ?$1,000 MWh. The price paid by all internal and external ?load (leaving aside the issue of congestion) will ? ?be set by the marginal bid in Ontario. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? c) Remember also that the scope for ?economic export transactions will be limited by the impact of the export and wheeling tariff ?($1 MWh), liability for uplift (estimated at approximately ?$4 ?MWh), and the IMO administration fee (estimated at $1MWh), ?plus any wheeling/admin charges applied by the connected markets. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? d) Perhaps most importantly, remember that congestion costs will be charged in respect of export transactions from the Ontario zone (assume low cost) to an external intertie zone (assume high cost). A buyer from the Ontario spot market in the external intertie zone will pay the aggregate of the Ontario market clearing price plus the applicable congestion costs. Those congestion costs are calculated as the difference between the Ontario price (low cost) and the price in the external zone (high cost). ?Two features/implications of this regime are worth noting. First, the liability to pay congestion costs will by itself reduce the scope for export transactions of the scope and level you fear. (Though one can buy transmission rights - TRs - which will provide a complete hedge against congestion costs.) ?Second, the congestion costs collected under this regime will, after funding the hedge held by the holders of TRs, be applied to reduce the revenue requirement of the transmission owners. ?(In other words, the surplus flows back to reduce the transmission rates that Ontario consumers would otherwise pay). ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Hope this helps you and your colleagues on the PACE. ?Happy to answer any other questions that you may have. ? ? ? ? ? ? ? ? ? ? david.matthews@cgc.en ? ? ? ? ? ? ? ? ? ?bridge.com ? ? ? ? ? ? ? ? ? To: ? ? Aleck.Dadson@enron.com ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? cc: ? ? pbudd@powerbudd.com, betmuir@lindsaycomp.on.ca, ? ? ? ? ? ? ? ? ? ?06/15/2001 03:06 PM ? ? ? ? ?callow@sympatico.ca, artistic@primus.ca, bob@algonquinpower.com, ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? iedc@bmts.com, jonesd2@tdsecurities.com, hkondratas@umagroup.com, ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? blittle@uniongas.com, iedc@bmts.com, harrisme@est.gov.on.ca, ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? mcgeejs@csolve.net, jmorning@globalserve.net, ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? dan.pastoric@ontariohydroenergy.com, rperdue@enterprisecanada.com, ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? rpower@powerbudd.com, john.hastings@est.gov.on.ca ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Subject: ? ? Re: PACE presentation Aleck: ?Thanks for getting back to me so quickly. ?One point that I forgot to mention was the impact of external demand. At the same time that Ontario generators would be trying to sell into higher priced US markets, marketers serving US customers would be trying to buy lower cost power in Ontario to ship south. ?As you pointed out, both groups would need to take into account the costs of wheeling and exporting the power. ?However, if the price differential between the Ontario and US markets was sufficient to offset these costs, electricity would flow to the US until the price differential for delivered power was eliminated. ?If demand exceeded supply in the US market by an amount equal to or larger than the US intertie capacity, and Ontario was the lowest-cost supply alternative, the total demand for Ontario power (from native and foreign sources) could exceed Ontario supply under extreme weather (as shown in the table below). ?Under these conditions, the price in Ontario would be bid up by the US market imbalance. ?Alberta would have had a similar problem with its BC intertie, if it hadn't decoupled its market pricing so that the market clearing price for Albertans is set only by local demand. A second and perhaps more critical issue, is the technical capability of the Ontario market. ?Despite the rosy reports from the IMO, some market participants have experienced IMO failures during testing and most MEUs have indicated that they cannot be ready for a November opening. ?Many people feel that the risk of system failure must be eliminated or reduced to a manageable insignificant level, before the market can be opened. I would appreciate any additional thoughts you care to share on these points. Thanks, Dave |-------------------------------| | ?Potential Market Conditions ?| |-------------------------------| | MW ? ? ? ? ? ? ? ? ? ? ? ? ? ?| |-------------------------------| | Winter Peak Capacity ? ? ? ? ?| | 26,700 ? ? ? ? ? ? ? ? ? ? ? ?| |-------------------------------| | Winter Peak Demand* ? ? ? ? ? | | (24,600) ? ? ? ? ? ? ? ? ? ? ?| |-------------------------------| | ? ? ? ? ? ? Surplus Supply in | | Ontario ? ? ? ? ? ? ? ? ? ? ? | | 2,100 ? ? ? ? ? ? ? ? ? ? ? ? | |-------------------------------| | ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? | |-------------------------------| | Intertie Capacity ? ? ? ? ? ? | |-------------------------------| | ? ? ? ? ? ?Out of Ontario ? ? | |-------------------------------| | ? ? ? ? ? ? ? ? ?NY Interface | | (2,450) ? ? ? ? ? ? ? ? ? ? ? | |-------------------------------| | ? ? ? ? ? ? ? ? ?Michigan ? ? | | Interface ? ? ? ? ? ? ? ? ? ? | | (2,400) ? ? ? ? ? ? ? ? ? ? ? | |-------------------------------| | ? ? ? ? ? ? ? ? ?Minnesota ? ?| | (150) ? ? ? ? ? ? ? ? ? ? ? ? | |-------------------------------| | ? ? ? ? ? ? Into Ontario ? ? ?| |-------------------------------| | ? ? ? ? ? ? ? ? ?Quebec ? ? ? | | 1,408 ? ? ? ? ? ? ? ? ? ? ? ? | |-------------------------------| | ? ? ? ? ? ? ? ? ?Manitoba ? ? | | 190 ? ? ? ? ? ? ? ? ? ? ? ? ? | |-------------------------------| | ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? | | Surplus/(Shortfall) ? ? ? ? ? | | (3,402) ? ? ? ? ? ? ? ? ? ? ? | |-------------------------------| | ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? | |-------------------------------| | Net Surplus/(Shortfall) ? ? ? | | (1,302) ? ? ? ? ? ? ? ? ? ? ? | |-------------------------------| | * Extreme Weather Forecast ? ?| |-------------------------------| ? ? ? ? ? ? ? ? ? ? Aleck.Dadson@ ? ? ? ? ? ? ? ? ? ?enron.com ? ? ? ? ? ?To: david.matthews@cgc.enbridge.com ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? cc: ? ? ? ? ? ? ? ? ? ?06/14/2001 ? ? ? ? ? Subject: ? ? Re: PACE presentation ? ? ? ? ? ? ? ? ? ?12:27 PM David, here are some observations in response to your questions: a) You are correct that we would expect Ontario-based generators to pursue economic export opportunities in the connected US markets but we stress that the economics of such exports will be affected not only by the comparative generation costs, but also the cost of Hydro One's export and wheeling tariff, the IMO uplift and related charges charged to all load (including exports), transmission costs in the connected market, and any congestion costs arising in the event that the intertie between Ontario and the connected market is congested. ?Everything else being equal, this means that on average, power will trade within Ontario at a discount to prices in the U S connected markets. b) With respect to volatility, it has to be conceded that electricity is the most volatile of commodities. Having said that, the period of most serious volatility is the summer months. Moreover, we think it can be fairly said that volatility and price swings are moderating in the Eastern Interconnect largely as a consequence of the decrease in fuel costs (i.e. natural gas prices) ?and extensive new generation build - PIRA estimates that in Summer 2001 the year to year increase in ?available generation resources in the Eastern Interconnect is about 30,000MW. This all adds up to increased price stability. ? Again, my colleague, Garrett Tripp, and I would be ready to meet with your group at any time to go over these questions and our analysis in more detail. ?Give me a call if you would like to meet to discuss these points. ? 416 865 3707. ?Regards, Aleck ? ? ? ? ? ? ? ? ? ? david.matthews@cgc.en ? ? ? ? ? ? ? ? ? ?bridge.com ? ? ? ? ? ? ? ? ? To: Aleck.Dadson@enron.com ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? cc: ? ? ? ? ? ? ? ? ? ?06/13/2001 05:50 PM ? ? ? ? ?Subject: ? ? Re: PACE presentation Thanks for the report. ?It helped to validate the PACE conclusion that there is sufficient supply to open the market without precipitating another California. The report mentions that imports would not set the MCP in Ontario and that energy savings would be possible even if peak market demand was met by imports, while in another section it concludes that Ontario could rely on higher-priced imports to meet demand. ? The first two points seem to contradict the results from the IMO test runs, which indicate that the US markets will set the clearing price in Ontario 90 percent of the time, putting upward pressure on electricity prices in our market. ?If prices are higher in the adjacent markets, Ontario generators can be expected to export power to the more lucrative markets rather than bidding into the Ontario market, resulting in higher prices for Ontario since prices are determined on the margin. ?Price volatility and extreme price swings were also identified as concerns by MEUs. Were any of these concerns addressed in your presentation and are there any comments you can share?
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