RE: EPSA Question on Negotiated Rates

Agreed. Talk w/ Joe H to confirm that we are consistent with preferred P/L policies.

Jim

-----Original Message-----
From: Nicolay, Christi L.
Sent: Thursday, August 30, 2001 2:43 PM
To: Shelk, John; Steffes, James D.; Novosel, Sarah
Cc: Robertson, Linda; Shapiro, Richard; Guerrero, Janel
Subject: RE: EPSA Question on Negotiated Rates

I talked to John and he is going to talk with Joe H. about the negotiated rate issues with the pipelines. If there is a recourse rate, then the ability to negotiate rates seems to (which would most likely have the same Commission oversight to protect the recourse customers)

-----Original Message-----
From: Shelk, John
Sent: Thursday, August 30, 2001 7:21 AM
To: Steffes, James D.; Nicolay, Christi L.; Novosel, Sarah
Cc: Robertson, Linda; Shapiro, Richard; Guerrero, Janel
Subject: FW: EPSA Question on Negotiated Rates

All--

See below. At our request, EPSA is working on a letter to the House Energy and Commerce Committee on H.R. 2814, the Sawyer-Burr transmission bill that contains voluntary RTO/anti-mandatory RTO provisions. Please see her question about our views on negotiated transmission rates. When Jim and I spoke about this when Barton's staff asked for our views on the general concept, we told Barton's staff that there needed to be a recourse rate -- i.e., we can't let the transmission owners only have negotiated rates. Please advise if there are other points we wish to convey to EPSA in response to her question. I am pushing them to have a letter to Congress delivered next week when they return to session.

John

-----Original Message-----
From: Andrea Spring [mailto:ASpring@epsa.org]
Sent: Wednesday, August 29, 2001 6:16 PM
To: Shelk, John
Subject: Re: H.R. 2814, Sawyer-Burr Legislation On Transmission/RTOs

John:
Thanks for the analysis and talking points ? they're great, and I'm incorporating some of it almost verbatim as I'm working on the letter. We'll get a draft to you soon, so that we can have this letter ready for when Congress returns.

I have one question regarding the Sawyer-Burr bill: in Section 3, there is a paragraph on negotiated rates. This is basically the same paragraph that was in the draft legislation we discussed in the DeLay meetings in July, and it is also in the Landrieu draft transmission legislation. What is your interpretation of this negotiated rates section? I can't think of a situation in which this would be beneficial to transmission users, and I can't really figure out how this would even work in an RTO.

After talking to a couple of regulatory people, all I can think is that this section is meant for the benefit of transmission owners who are thinking in an Order 888-type system, where it could be possible for individual transmission owners to negotiate a rate deal, if this provision were enacted.

Any feedback?
Thanks,
Andrea

Andrea L. Spring
Electric Power Supply Association
phone: 202-628-8200x124
fax: 202-628-8260
1401 New York Ave., NW, 11th Floor
Washington, DC 20005
www.epsa.org

<<< "Shelk, John" <John.Shelk@ENRON.com< 8/27/01 4:44:17 PM <<<

This note follows up on our discussion at the EPSA Leg. Affairs
Committee meeting last week. We very much appreciate EPSA's willingness
to send a letter to the House Energy and Commerce Committee on H.R.
2814, the Sawyer-Burr legislation introduced on August 2nd, as part of a
broader effort to educate committee members about the serious problems
with this legislation.

First, as we discussed, while the overall transmission thrust of the
bill is largely acceptable, there are two major problems: (1) there are
anti-RTO/pro-voluntary RTO "nuggets" (see below) and (2) the bill has
the old or old, old NERC reliability language.

The anti-RTO/pro-voluntary RTO "nuggets" are as follows:

1. Sec. 3 (transmission pricing) (page 5). You will note
that the bill says that the required FERC transmission pricing
regulations shall provide incentives to utilities to promote voluntary
RTOs without having the effect of forcing utilities to join RTOs; the
regulations shall limit pancaking, but not during a reasonable
transition period, and in any event, transmission rates can be based on
a single utility's costs.

2. Sec. 6 (voluntary development of RTOs) (starting on page
40). The bill requires FERC to approve RTOs where the participation is
voluntary. Of particular note is page 40, lines 21-23, which says that
the form, structure and operating entity of the RTO must be approved by
the participating utilities. At a minimum, this language gives the
utilities a veto over other market participants. This could also be
read as saying the utilities and only the transmitting utilities make
these critical governance decisions without participation by others.
The section prohibits FERC from conditioning any order under the Federal
Power Act on a utility transferring operational control of facilities to
an ISO or RTO.

Second, we agreed that some talking points are needed to include in the
letter and in our lobbying. A review of the rest of the bill shows that
we can actually use the general thrust of the bill against the sponsors
as follows below. We need to let them "save face" by separating the
pro-transmission system features of the bill from the anti-RTO language.
Please let me know if EPSA wishes to write a draft for review or whether
you wish us to supply one. The suggested talking points are:

a. EPSA welcomes the bill's acknowledgment of the
importance of improving the transmission system generally and the
critical role of RTOs in particular (e.g., sec. 7 of the bill has a
central role for RTOs in siting of key transmission lines);

b. EPSA agrees that transmission pricing is important to
providing incentives to improve the transmission system;

c. However, EPSA also believes that it is inappropriate to
tie FERC's hands on RTOs in the name of improving the system when
reducing FERC's authority will make it harder, not easier, to improve
the transmission system; FERC tried a voluntary approach to RTOs and it
has been painfully slow; RTOs need to be of a size and configuration
that parallels natural trading markets and power flows; and this is not
a federal v. state issue as regions exist and would be encouraged under
the bill, the real question is what type of regions (perhaps this latter
point goes before the one on size and scope);

d. Congress can address the transmission pricing and siting
issues without the voluntary RTO language.

e. Point out the problems with the NERC reliability
language.

Let me know how EPSA wishes to proceed. We strongly recommend that the
final letter go out next week so it is received as Congress returns from
the August Recess.

Thanks.

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