Message-ID: <1148495.1075861682239.JavaMail.evans@thyme> Date: Fri, 16 Nov 2001 08:56:12 -0800 (PST) From: david.portz@enron.com To: thane.twiggs@enron.com Subject: RE: ASAP please: ERCOT Questions OOMC & OOME Cc: jean.ryall@enron.com, m..forney@enron.com, l..nicolay@enron.com, doug.gilbert-smith@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: quoted-printable Bcc: jean.ryall@enron.com, m..forney@enron.com, l..nicolay@enron.com, doug.gilbert-smith@enron.com X-From: Portz, David X-To: Twiggs, Thane X-cc: Ryall, Jean , Forney, John M. , Nicolay, Christi L. , Gilbert-smith, Doug X-bcc: X-Folder: \JFORNEY (Non-Privileged)\Forney, John M.\Inbox X-Origin: Forney-J X-FileName: JFORNEY (Non-Privileged).pst Thane -- I think word back from you is the next step needed in this process= . If ERCOT's position is that within the text of the Protocols, OOMC means= "running", then unacceptable risks are presented to our Customer and to EP= MI as their QSE. If such is ERCOT's position, then they should cite us cha= pter and verse for that position within the Protocols, offsetting the clear= implications for the contrary position in the Protocols' other ancillary s= ervices products, in the Operating Guides, the Market Guide, ERCOT's prior = operating and marketing guides (predating this marketplace), and based on c= ustomary industry understanding of the term "capacity". --David =20 -----Original Message----- From: =09Twiggs, Thane =20 Sent:=09Thursday, November 15, 2001 10:24 AM To:=09Forney, John M.; Nicolay, Christi L.; Portz, David; Gilbert-smith, Do= ug Cc:=09Ryall, Jean Subject:=09RE: ASAP please: ERCOT Questions OOMC & OOME I will put in a call. Kent is always on the run so it may take awhile to r= un him down. I will also do something in writing to get a "record". TTT -----Original Message----- From: =09Forney, John M. =20 Sent:=09Thursday, November 15, 2001 10:21 AM To:=09Twiggs, Thane; Nicolay, Christi L.; Portz, David; Gilbert-smith, Doug Cc:=09Ryall, Jean Subject:=09RE: ASAP please: ERCOT Questions OOMC & OOME Mark Patterson, our Rep, called today to ask me if everything was resolved= to my satisfaction. I relayed that I did talk to John Adams last night = and he did agree to give us one hour notice with an OOME instruction. Th= is is great, however, Mark warned me that we were outside of the tariff = because Ercot still maintains that OOMC means run. He relayed that in the event of line meltdown, etc. we would be liable. = John Adams also said this last night. We are officially on notice of p= otential QSE liability. In my opinion we need to: Call Ken Saathoff and see if he can resolve their confusion today, otherwis= e we need to file whatever is necessary, under the protocols, to protest t= his ridiculous interpretation and to protect ourself from this "liability." Officially request clarification in the protocols on this issue. Thanks, JForney -----Original Message----- From: =09Twiggs, Thane =20 Sent:=09Thursday, November 15, 2001 9:01 AM To:=09Nicolay, Christi L.; Yeung, Charles; Maurer, Luiz Cc:=09Ryall, Jean; Steffes, James D.; Portz, David; Forney, John M.; Gilber= t-smith, Doug; Day, Smith L. Subject:=09RE: ASAP please: ERCOT Questions OOMC & OOME Here are a few additional points: =20 I spoke with Ken Saathoff at ERCOT last week (he is the director of technic= al operations) and he agreed that an OOMC instruction is essentially a "be = ready" instruction and an additional OOME or another type of unit specific = instruction is necessary for the plant to deploy. He is John Adams boss, so= there is a disconnect between the two levels. In addition to Kent, I spok= e to Mark Walker the senior corporate counsel regarding payment, or lack th= ereof and he suggested that the only method would be to dispute the settlem= ent statement and use that process. Going forward however, that is not an = effective mechanism due to the delay in payment and the necessity to prove = your cost structure. In speaking with Forney a few minutes ago it sounds like he may have convin= ced John Adams, but I would be happy to call Kent Saathoff if you feel that= would help. -----Original Message----- From: =09Portz, David =20 Sent:=09Wednesday, November 14, 2001 6:12 PM To:=09Nicolay, Christi L. Cc:=09Gilbert-smith, Doug; Baughman, Edward D.; Miller, Jeffrey; Forney, Jo= hn M. Subject:=09Ercot Questions OOMC & OOME Forwarded as discussed. Doug Gilbert Smith has asked that your group draft= a complaint to the PUCT regarding this misinterpretation of the Protocols = by the ERCOT ISO, which effectively requires a generator called on for the = OOMC ancillary service to run its plant, and sidesteps the obligation to pa= y an OOME price component when the plant's output is utilized by ERCOT. Th= e OOMC compensation is currently negligible (and recovery of actual costs u= nder Protocols Sec. 6.8.2.1(6) may take a long time), and the OOME compensa= tion has various problems as well: (1) the more ERCOT calls on a plant for = OOME, the the lesser the OOME price paid (Protocols Sec. 6.8.2.2 -- Heat Ra= te value decreases), and (2) plants directed to provide, say, 135MWs of OOM= C/OOME, are not allowed to generate above 135 MWs in an interval (thus runn= ing the plant economically at a lower heat rate) to sell the excess in the = marketplace. The Frontera plant, a customer of EPMI acting as QSE, is locat= ed such that ERCOT is and will be consistently telling the plant via its QS= E to provide OOMC -- to produce energy going north on a line in South Texas= . Doug says we should advocate to the PUC that plants in such a position sh= ould be Reliability Must Run ("RMR") and be paid at an adequate premium for= their support of the system' reliability. I noted to you as well that this is likely to be a dispute with ERCOT over = the interpretation of the Protocols, conducted under Protocols Section 20, = and we would appreciate any reg. group efforts toward preparation for iinit= iating such dispute. Frontera has indicated they will not provide OOMC tom= orrow even if ERCOT tells us, their QSE that it should be dispatched. Thus = we are caught in the middle. The legitimate bases for not complying with a= n ERCOT dispatch instruction are stated in Protocols Section 5.4.4(2): "thr= eat to safety, risk of bodily harm or damage to the equipment, or otherwise= is not in compliance with these Protocols". Though the Protocols Sections= 1-22 seem to recognize as to other capacity- oriented ancillary service pr= oducts that it is 'generating capacity available but not energy delivered t= o the grid', I have not seen this made clear as to OOMC. The Operating Gui= des' definition of OOMC, page 21 seems to recognize this however, and Secti= on 2B of the ERCOT Market Guide, p. 8 (Feb 22, 2001) recognizes the distinc= tion between capacity and generated energy clearly in support of the positi= on stated by John Forney below.=20 Sorry for the long e-mail -- I was trying to provide a statting point for y= our group. -----Original Message----- From: =09Forney, John M. =20 Sent:=09Wednesday, November 14, 2001 12:27 PM To:=09Portz, David; Gilbert-smith, Doug Subject:=09Ercot Questions David, I need some help with an Ercot protocol interpretation: Frontera has been issued OOMC requests by the ISO on numerous occasions, s= tarting September 14th. This Out of Merit request is issued if no mkt bi= ds exist to solve congestion, whether local or zonal. The OOMC, as I understand it, reserves capacity for Ercot and the premium = is predetermined based on a formula mentioned in the protocols. The formu= la is based on the replacement reserve clearing price, which currently is = zero. This is because the replacement reserve market is non-existent. An= announcement on how the OOMC capacity payments will be calculated is due o= ut this week, per Mark Patterson. The second component of this option is OOME. This is a request for actua= l energy related to the OOMC option. The strike price is calculated from = a preset heat rate multiplied by the HSC daily price, as mentioned in the p= rotocols. So the OOMC/OOME ws designed to work like the ancillary services= with a capacity award and an energy component. I think that this is the s= pirit of the OOM's, as mentioned in Section 6 of the Protocols. =20 Here is the problem: the head of Ercot Market Operations, John Adams, interprets the protocols= to mean that OOMC requries the plant to be generating. When Ercot disp= atchers had issued an OOMC, they quickly followed up to ask us why we were= not generating into the grid. We explained to them, on numerous occasions, that we dont believe OOMC mea= ns run. If they wanted us to run, then they would need to issue an OOME = for the actual energy component. I asked my employees to clarify with Er= cot whether we were being asked to run, yes or no. When instructed to r= un by Ercot, we had to assume that we were settled based upon the OOME cal= c, as we were previously under OOMC orders. I sent at least three e-mails to my Ercot rep, Mark Patterson regarding th= is issue. I finally caught him by phone and he relayed that he thought Er= cot's intrepretation was correct. For all of the times that we ran, at= their request, we werent going to be paid based on the OOME heat rate cal= c, rather we were going to receive the balancing energy price ( a penalty = for Resource Imbalance). For example, in the early morning hours we woul= d receive as little as $1 for electricity that cost $27 to generate. Mark= also mentioned that when they said run, they expected us to sell to someo= ne else, or just generate into the imbalance. Mark told me "dont worry,= you can file to receive your generation expenses in the event that you lo= st money." Here is my view: OOMC does not mean run. It means have the capacity available in the event = Ercot calls, much like replacement, responsive reserve and non-spinning. Ercot's interpretation is being decided by the Manager of Mkt Operations, = a group supposedly unconcerned with price. If OOMC means to run, then why would the protocols contemplate, or need OO= ME? They would never have to pay OOME if we were already running into the = imbalance. OOMC is an option and the exercise is OOME. This is basically the disagre= ement. This could very well be a $500,000 issue for Frontera. Why would anyone generate for $27 and dump to the imbalance mkt at $5 in ho= pes of filing for a "breakeven." Ridiculous. I spoke with Bill Kettlewell with Customer Relations and he had "no comment= " on whether OOMC means to generate. Mark Patterson now also has "no comme= nt." Bill and Mark said that we needed to file a dispute in order to receive clo= sure on the OOM capacity payment. I suspect that we will follow this same= path when we file for OOME reimbursement vs. the imbalance price we will = receive. I had instructed my employeess to refuse to turn on the plant (in respons= e to an OOMC) until we receive an OOME instruction. This has compelled E= rcot to deploy an OOME request to us, because they need to have us online = to control local congestion. Would this not be an omission that their vie= w was incorrect? Section 5.4.4 says that a QSE may fail to comply with an = Ercot directive if it causes a safety concern, or , Ercot is not in compli= ance with the Protocols. The latter is in effect. Ercot is now telling us that they cannot instruct us, or give us an OOME de= ployment, unless we are already runnnig. I think that this is a softwar= e issue, not a protocol issue. =20 We worked out an interim compromise with Ercot until this issue can be sett= led. Once we have been OOMC'd, we will start to gen. Once we reach full= load, we will request an OOME. If they dont comply, we will shut down = the unit. Ercot said that " it was entirely reasonable that we would re= quest to be compensated in the form of an OOME." The Ercot dispatchers are complaining that OOME requires them to send an in= struction every 15 minutes. Is this why we are not getting the OOME instr= uction on a regular basis? Finally, I stressed to Ercot that I wasnt trying to manipulate prices, via= OOME or force Ercot into a corner. It just is not the right economic en= vironment to generate for $27 and sell for $5. Further, operations pers= onell at Ercot have frelayed their displeasure with me for "forcing them to= OOME our plant." Can I get an opinion on whether OOMC means to run? If you agree with me, = what is our next step? I need to move aggressively on this issue. Thanks, JForney 37160