Enron Mail

From:sarah.novosel@enron.com
To:l..nicolay@enron.com, john.lavorato@enron.com, louise.kitchen@enron.com,janet.dietrich@enron.com, david.delainey@enron.com, douglas.smith@enron.com, don.black@enron.com, david.forster@enron.com, david.duran@enron.com, tim.belden@enron.com, f..calger
Subject:RE: RTO Week -- Summary of Day Two Morning Panel
Cc:d..steffes@enron.com, richard.shapiro@enron.com
Bcc:d..steffes@enron.com, richard.shapiro@enron.com
Date:Tue, 16 Oct 2001 20:33:36 -0700 (PDT)

RTO Week

Day 2 -- October 16, 2001

Congestion Management and Transmission Rights

The morning panel discussion was on congestion management. The panelists =
were: Nancy Brockway, Commissioner New Hampshire PSC; Reem Fahey, Edison M=
ission; Carol Guthrie, Chevron/Texaco; Shmuel Oren, University of Californi=
a - Berkley and advises Texas PUC; Andy Ott, PJM; Michael Schnitzer, NorthB=
ridge Group.

General Observations

The Commissioners were again all present (Wood left mid-morning to give tes=
timony on Capitol Hill). Today, however, FERC Staff was much more active i=
n the discussion and the commissioners asked very few questions. The topic=
s are so interrelated that many of the same issues already discussed are be=
ing rehashed again. This will probably continue for the rest of the week. =
What I have found most encouraging so far has been the widespread support =
for some of the basic concepts, most notably the need for a real time energ=
y market based using LMP. Very few panelists have opposed this; at most, a=
couple of panelists have argued that the real time market should not be st=
andardized -- basically conceding that PJM's system will be implemented in =
the Northeast but urging that it not be mandated everywhere else. =20

Locational Marginal Pricing

The panelists all agreed that LMP in the real time market is necessary (Sch=
muel Oren does not oppose it). Most of the panelists think this needs to b=
e standardized across RTOs. Andy Ott says the seams will remain a problem =
and a barrier to trading if the real time market is not standardized. Car=
ol Guthrie does not favor standardization and urged FERC to not standardize=
the PJM system throughout the eastern interconnect. She said FERC should =
try a couple of different systems and see what works. =20

FTRs versus Flowgates

The panelists agreed that transmission rights should be financial, not phys=
ical. Schmuel conceded this point for the discussion but this may not be h=
is preference - unclear. Most of the panelists, including the PSC commissi=
oner, prefer FTRs rather than flowgates. Schmuel is a flowgate advocate. =
After some discussion, the panelists agreed that FTRs and flowgates could w=
ork together, provided that the definition of flowgate is understood. Andy=
Ott said flowgates could work with FTRs if the purpose of having flowgates=
is the same purpose of having hubs (liquidity, standard product), and if a=
flowgate is defined as a grouping of point-to-point rights, then FTRs and =
flowgates can coexist. If a flowgate is a hub for transmission rights, it'=
s okay. However, if flowgate is defined as a physical boundary requiring s=
cheduling, the two cannot coexist. Schmuel seemed to agree with this premi=
se, although this is not his preference. He seems to prefer only flowgates=
without FTRs. Brockway seems to prefer FTRs rather than flowgates for fe=
ar that flowgates will result in excess socialization of costs.

The panelists also agreed generally that revenues generated from FTRs or fl=
owgates should be allocated to load, but the method of allocation was not a=
greed upon.

FERC staff asked the panelists to discuss commercially significant flowgate=
s. Many of the panelists discussed the problem with deciding what constitu=
tes a commercially significant flowgate, and what happens when circumstance=
s change over time, resulting in different flowgates being commercially sig=
nificant. Schmuel said you could use either a system that relies only on c=
ommercially significant flowgates or one that uses all flowgates, but if pa=
rticipants are willing to accept a system where they are not perfectly hedg=
ed, use of commercially significant flowgates is acceptable. =20

The panelists agreed that these financial rights (either FTRs or flowgates)=
should be tradable in the secondary market. The panelists disagreed on wh=
ich instrument -- FTRs or flowgates -- are more tradable. Andy thinks FTRs=
are more tradable; Schmuel thinks flowgates are more tradable.

Options versus Obligations

The panelists discussed the benefits of having FTRs be options but also dis=
cussed the additional problems presented to the system operator if FTRs are=
only options and the FTR holder is not required to flow or pay if it does =
not flow. Andy Ott said options will most likely result in fewer FTRs bein=
g allocated. Schnitzer says the issue must be resolved up front. =20

The afternoon panel was on Transmission Planning and Expansion. Steve Walt=
on was a panelist and will be providing a summary of the discussion shortly=
. =20

Let me know if you have any questions.

Sarah