Southern RTO - Questions & Issues

Jim, I have added responses below in ALL CAPS.

Joe Connor

James D Steffes@EES
09/20/2000 07:17 PM

To: Joe Connor/NA/Enron@Enron, Christi L Nicolay/HOU/ECT@ECT, Tom
Chapman/HOU/ECT@ECT, Steve Montovano/DUB/EES@EES, Joe
Hartsoe/Corp/Enron@ENRON, Sarah Novosel/Corp/Enron@ENRON, Donna
Fulton/Corp/Enron@ENRON
cc: Richard Shapiro/HOU/EES@EES
Subject: Southern RTO - Questions & Issues

The following is a set of issues I thought about while reading the Southern
RTO paper. Not necessary critical, but something to think about.

1. Do we have an understanding of the big issues for MEAG, Dalton, and other
public power? We need to be working these groups hard to make sure they
don't agree too quickly.
THEY ARE SAYING THEY CANNOT ENTER INTO A FOR-PROFIT
ARRANGEMENT. THEY SEEM TO BE IGNORING THAT THE PRPOSAL SAYS A TRANSMISSION
OWNER CAN KEEP THEIR ASSETS, PAY THE GRIDCO A FEE FOR OPERATIOS, AND NOT
PARTICIPATE IN THE LLC. I KNOW THIS IS CONFUSING, BUT APPARENTLY TVA IS
SAYING THE SAME THING AS MEAG. I WILL DISCUSS THIS FURTHER WITH MEAG THIS
WEEK.

2. I like the concept of a Gridco - for-profit company that does not own
assets but operates transmission grid. It seems to blend pros and cons
well. Key will be incentives.
THEY ARE SETTING IT UP TO EVENTUALLY OWN ASSETS. YES, THE
INITIAL KEY IS INCENTIVES AND THE TRANSMISSION OWNERS ARE CONTROLLING THE
INCENTIVES AS A PART OF THERE STATED REQUIREMENT TO PROTECT THE VALUE OF
THEIR ASSETS.

3. I agree with SOCO that S-T Reliability "authority does not extend to
initial unit commitment and dispatch decisions for generators". Does this
imply no tight pool? From later description, it looks like SOCO is proposing
LMP for settlements.
THE RTO IS NOT TO BE INVOLVED IN UNIT COMMITMENT OR DISPATCH
DECISIONS, UNLESS MANDATORY REDISPATCH IS REQUIRED TO MAINTAIN FIRM SERVICE
OR THERE IS A SYSTEM EMERGENCY.

4. Not sure that I like the conclusion that "SERC Southern sub-region" is
preferred but probably not much success in pushing for bigger region?
APPARENTLY THEY COULD NOT GET CLOSE ENOUGH TOGETHER WITH
GRIDSOUTH TO COMBINE INITIALLY. SOUTHERN REALIZES THEY WILL HAVE TROUBLE AT
FERC ABOUT THE SIZE AND ARE JUST SAYING ITS BIG ENOUGH TO SATISFY THE STARTUP
OF A RTO.

5. I wonder what TVA thinks about this filing?
WE ARE HEARING THAT TVA WANTS A NON-PROFIT ARRANGEMENT AND
CANNOT DO ANYTHING WITHOUT LEGISLATION. WE NEED MORE DISCUSSION WITH THEM
ALSO. THAT'S NOT MY TERRITORY, BUT I'LL BE GLAD TO PURSUE IT.

6. Interesting idea that Gridco could become Transco for future transmission
upgrades (pg 31). What form of capitalization would be necessary? SOCO
seems to think this won't happen.
THEY ARE SAYING PRIVATE PLACEMENT FOR INITIAL FINANCING AND
THINK IT WILL BE AT LEAST A COUPLE OF YEARS BEFORE THE FINANCIAL COMMUNITY
WILL HAVE ENOUGH EXPERIENCE WITH THE GRIDCO TO ALLOW ANY CONSIDERATION OF AN
IPO.

7. Why does SOCO want Market Monitoring inside Gridco? Why not have Gridco
contract this service?
THEY THINK FERC WANTED THIS. I THINK THEY WOULD BE WILLING
TO TURN IT OVER TO A 3RD PARTY. WE WILL ASK THEM THIS WEEK.

8. I don't think that SOCO should keep the ROFR for new transmission. New
transmission plant investment should be driven by market rewards.
I AGREE. WE NEED TO PUSH FOR THIS TO BE OPEN AND FOR THE
EXISTING OWNERS TO BE PROVIDERS OF LAST RESORT.

9. Why not allow Enron to "finance" the Gridco operations? On-going
operations should be contained within OATT? We may do it without any voting
control. Couldn't we finance a startup venture and sell services to SOCO?
THEY HAVE MENTIONED A COUPLE OF TIMES THAT THEY ARE
CONSIDERING AN ALTERNATE PROPOSAL THAT WOULD INVOLVE A THIRD PARTY COMING IN
TO JUST OPERATE THE RTO, BUT AT THIS POINT THEY DO NOT KNOW OF ANYONE
QUALIFIED TO DO IT OR INTERESTED IN DOING IT. ARE YOU READY TO PROPOSE ENRON
DOING THIS AND ALLOWING IT TO BE COMPLETELY INDEPENDENT?

10. I think that SOCO should simply arrange for Gridco "lease" of TO
facilities for 10 years, with an option to buy or sell. I don't really
understand why TOs would "pay a fee to have Gridco operate their assets"? (pg
50).
SAME AS ABOVE. THE ONLY TIME A FEE IS PAID IS WHEN A NON-LLC
TRANSMISSION OWNER TURNS THEIR OPERATIONS OVER TO THE GRIDCO.

11. Agree with providing Gridco incentives to operate well - including maybe
losing money (pg 53). How do these get established?
THE TRANSMISSION OWNERS PLAN TO SET THE INCENTIVES AND CONTROL
ANY CHANGES.

12. Why have the TOs determine the Board of Directors? Gridco is an
independent, self-financed company. SOCO may not want to sign a lease with
Gridco but it shouldn't determine BoD.
THEY WANT TO PROTECT THE VALUE OF THEIR ASSETS AND CONSIDER
THIS NECESSARY TO DO SO.

13. I don't understand the restriction on "potentially significant adverse
effect on value of assets"? Which assets? I assume only transmission. (pg
61). I would simply argue that the lease agreement deal with this question.
YES, ITS ONLY THE TRANSMISSION ASSETS.

14. Why the requirement to have "balanced schedules" DA and HA? (pg 67)
NEEDED TO EVALUATE RELIABILITY.

15. There appears to be some confusion on Flowgate model and reference to
Contract Path? (pg 68)
YES, THERE IS A MIXED BAG. WE WILL DISCUSS THAT WITH THEM
THIS WEEK. THINK THEY DID IT BECAUSE NEIGHBORING SYSTEMS ARE DOING IT
.
16. Real-time settlements pricing appears to use LMP but I don't see any
reference to bids? (pg 70)
YES, THEY TAKE VOLUNTARY BIDS FOR GENERATORS AND LOADS.

17. SOCO continues to use 888 OATT terms like Network Service. My current
thinking is that our new tariff (Project e-trans) provides only one Service =
Network Plus.
THEY AREN'T THERE YET. WILL ALSO BE DISCUSSED THIS WEEK.

18. Disagree with RTO operating secondary market for FTRs (pg 75)
I THINK THEY THINK THIS IS NEEDED JUST TO KEEP UP WITH WHAT'S
AGREED TO. WOULD PROBABLY BE WILLING TO GIVE IT UP IF EVERYONE IS ALWAYS
AWARE OF WHO OWNS WHAY RIGHTS.

19. Does RTO only operate 100 kv and above? What about lower voltages?
THEY MODIFIED THAT LAST WEEK. WILL BE WHATEVER THE GRIDCO
DECIDES IS NEEDED FOR WHOLESALE. SAID THEY WERE CURRENTLY LOOKING AT THE 69
KV SYSTEM, BUT WOULD USE FERC'S 7 FACTOR TEST TO DECIDE.

20. Transmission Pricing is probably biggest problem given SOCO insistenance
on retail bundled customers (pg 104).
AGREE. AMEA HAS RAISED A QUESTION ABOUT PRICE SQUEEZE BECAUSE
IT MIGHT BE MORE EXPENSIVE FOR THEM TO GET OUT TO GENERATION TO SERVE THEIR
LOAD THAN IT WOULD BE FOR ALABAMA POWER TO SERVE THE SAME LOAD.

21 SOCO proposal on initial ROE as wgt avg as highest of state's jurisdiction
is worth how much???
DON'T KNOW HOW MUCH. HAVEN'T SEEN ANY NUMBERS YET.

22. Does Enron have a policy on Transmission Losses?
THOUGHT YOU WERE CONCERNED ABOUT PRICE CERTAINTY AND
COMPARABILITY. IF THERE ARE OTHER CONCERNS, LET ME KNOW.

23 On incentives for new Transmission plant, why not give developers the FTRs
created?
DON'T THINK SOUTHERN IS EVEN THINKING ABOUT 3RD PARTIES
BUILDING TRANSMISSION AT THIS POINT.

In general, an interesting opening offer from SOCO. I guess I am still
confused over how a bundled retail customer will have priority in this model.

We also need to work with state PUCs to see what they are thinking about
this. Especially to try and learn what SOCO is saying about Native Load
exception.

Finally, SOCO seems to say only one control area. Is this right?

Jim

YES, ONLY ONE CONTROL AREA IS WHAT THEY PROPOSE, BUT WILL ALLOW MORE THAN
ONE. I UNDERSTAND THEY ARE TELLING THE OTHER POTENTIAL PARTIES THAT THE ONLY
WAY THEY GET ACCESS TO THE ENTIRE RTO AT A POSTAGE STAMP RATE IS TO AGREE TO
ONE CONTROL AREA. NOT SURE WHAT YOU MEAN BY PRIORITY OF BUNDLED RETAIL.
LOOKS LIKE THEY GET NONE, JUST PROTECTION FROM ANY SIGNIFICANT PRICE INCREASE
WITH THE TRANSITION. I AGREE WE NEED TO BE WORKING ON THE PUCS; PLAN TO
START ASAP.