Message-ID: <8430966.1075840793632.JavaMail.evans@thyme> Date: Fri, 28 Dec 2001 12:58:01 -0800 (PST) From: j.kaminski@enron.com To: vkaminski@aol.com Subject: FW: ALLIANCE FERC BEAT: Generators/Power Marketers December 19 FERC Post-Meeting Memo Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: quoted-printable X-From: Kaminski, Vince J X-To: 'vkaminski@aol.com' X-cc: X-bcc: X-Folder: \vkamins\Sent Items X-Origin: KAMINSKI-V X-FileName: vincent kaminski 1-30-02.pst -----Original Message----- From: =09bounce-alliance_info-90961@listserver.eei.org@ENRON On Behalf Of= "The Alliance of Energy Suppliers" Sent:=09Friday, December 28, 2001 12:33 PM To:=09Alliance Information Subject:=09ALLIANCE FERC BEAT: Generators/Power Marketers December 19 FERC = Post-Meeting Memo [IMAGE] =20 Generators/Power Marketers December 19 FERC Post-Meeting Memo =20 Introduction =20 At the last Commission meeting of the year, FERC approved the first RTO in= the Midwest and issued some critical orders on RTO development, announced= plans to defer action and the effects of its November market power orders= , modified mitigation measures for the Western Systems Coordinating Counci= l, reaffirmed price mitigation measures for the California ISO markets, an= d challenged industry to develop a "single" industry consensus organization= by March 15, 2002 to be the standards-setting body for commercial busines= s and communications protocol standards.=20 To that end , the Alliance of Energy Suppliers and EEI encourages industry= to actively participate in its national meetings being held in four regio= ns of the country to advance the development of principles for which to fo= rm this organization. The first of the four regional meetings will be held= on January 15, 2002 in Phoenix, AZ with the remaining meeting in Cincinna= ti, OH, New York City, and Atlanta, GA . An e-mail with all of the necess= ary logistical information has been circulated. If you are interested in = attending or sending a company representative and did not receive the earl= ier e-mail, please let us know.=20 In addition, FERC announced a series of technical conferences on standard = market design and structure, market based rate /market power, and energy i= nfrastructure.=20 =20 If you would like copies of any orders, please do not hesitate to contact = us. Midwest ISO Receives FERC's Approval as an RTO=20 In a series of inter-related RTO decisions, FERC approved the nations firs= t RTO, granting the Midwest ISOs proposal to become an RTO, while rejectin= g a similar plan from the Alliance Companies to form the Alliance RTO. In = reversing prior policy, FERC concluded that the ARTO proposal lacked suffi= cient scope and size to exist as a stand-alone RTO and told the Alliance C= ompanies to explore how their business plan can be accommodated within the= [MISO] structure. Allowing two RTOs in the Midwest would be a second-best= solution that would compromise customers' interests, FERC stated.=20 In related developments, FERC also approved International Transmission Com= pany's request to transfer operational control of its transmission facilit= ies to MISO and accepted an agreement between MISO and International Trans= mission that would allow the company to be an independent transmission com= pany that would share certain RTO functions with MISO. Finally, in a relat= ed docket FERC granted in part National Grids request for a declaratory or= der that it is not a market participant, but dismissed the Alliance Compan= ies business plan without prejudice as unneeded given the other Alliance o= rder, thus nullifying Grids proposal to manage ARTO. (More detailed RTO su= mmary provided below)=20 FERC Delays Implementation of New Market Power Rules =20 FERC announced that it would delay the effects of its November 20 market p= ower orders. In FERC's December 19 order, it recognized the Alliance of En= ergy Suppliers' filing requesting FERC to vacate or stay the effects of it= s market power orders and initiate a rulemaking proceeding to allow for co= mments by affected industry participants, as basis for its change in policy= action. We should claim this as a victory--for FERC has announced an upco= ming technical conference to discuss said orders and allow industry to voi= ce its concerns over the implications of such measures on the competitive = wholesale markets. Although a date for this technical conference has not b= een announced, Chairman Wood said that details of the conference will be r= eleased in a notational order. FERC has also delayed implementation of cer= tain aspects of the new Supply Margin Assessment (SMA) market power screen= test. =20 FERC Sets Schedule for Electric Market Design; Industry Told to Select Who= lesale Market Standards Body or FERC Will Do So.=20 FERC outlined a schedule for a rulemaking in the Electric Market Design do= cket and announced the release of a staff white paper to serve as a strawm= an piece for continued collaboration with interested parties on standardiz= ed electric market design. FERC stated it expected to host industry worksh= ops in early 2002, tentatively set for January 22 -25 and February 4- 8, t= o further develop ideas on market standardization and issue a NOPR in March= 2002. The NOPR would be followed by additional workshops in April and May= to discuss NOPR inclusions and workshop developments. Written comments on= the NOPR and workshop progress will also be due in May. A final rule is e= xpected to be issued in July 2002. Although FERC staff recognized that thi= s was a very ambitious schedule, the FERC presenter said they wanted to "g= et done before summer break" (2002).=20 Meanwhile, FERC said, interested parties should evaluate NAESB, NERC and a= lternative proposals for an organization to develop wholesale electric ind= ustry business practice and communication standards, and agree on a single= consensus, industry-wide organization to develop these standards by March= 15, 2002. The Order indicated that should industry not agree on a single = organization by that date, FERC would either choose an organization or ins= titute a proceeding to develop the necessary standards. =20 Commissioner Brownell reiterated her dismay and disbelief with industry's = lag in progress: "[l]et's get this done.".. " I can't believe we're still = debating the "who". The other three Commissioners indicated their general = support for the Order. Commissioner Breathitt believes that this ANOPR proc= ess is working well because it "gives industry something to coalesce aroun= d." Breathitt was also in favor of industry answering the question of how = much standardization do we need and how much do we need to leave to creati= vity and innovation? Chairman Wood concluded his remarks, saying, "[t]he = GIGA-NOPR is on its way."=20 The staff white paper covering these issues is available from the FERC web= site at: http://www.ferc.gov/electric/rto/mrkt-strct-comments/mrkt-strct-co= ncept.PDF .=20 FERC Largely Reaffirms Prior Western Market Price Mitigation Orders, Modif= ies Price Cap to Account for NW Winter Peaking Concerns=20 In a broad rehearing order that addresses a wide range of issues related t= o California and the western energy markets, FERC generally denied reheari= ng requests and reaffirmed earlier decisions on pricing and price mitigati= on measures. The order addresses rehearing and clarification requests for = the Commission's August 23, November 1, December 8 and December 15, 2000 o= rders along with its March 9, June 19, and July 25, 2001 refund and price = mitigation orders. Among adjustments made to previous orders, FERC modified= the scope of price mitigation and must-offer requirements, especially as = applied to governmental sellers and cooperatives, eliminated the undersche= duling penalty established in the December 15 Order, and provided an oppor= tunity for certain entities to submit evidence that the refund methodology= results in a revenue shortfall. FERC also modified and provided clarifica= tions on setting of the mitigated market-clearing price.=20 In particular, FERC clarified that: =20 government sellers and cooperatives are excluded from price mitigation as = its applies to bilateral transactions outside the ISO spot market and also = with the must-run requirement outside of California;=20 units operating outside of California may set the mitigated market-clearin= g price;=20 the mitigated market-clearing price is to be set by the proxy price of the = last unit dispatched, rather than the lower of the proxy price or the actu= al bid of the marginal unit;=20 and generators subject to the must-offer requirement should be able to rec= over their costs for complying with the ISO's instructions to keep their u= nits at minimum load status, and that the ISO must pay these costs, regard= less of whether the ISO buys the power.=20 Modification to Western-Wide Price Mitigation Measures=20 In a separate order, FERC responded to industry recommendation from its Oc= tober 29 technical conference and modified the price mitigation methodolog= y for spot market transactions for the west-wide market for the winter sea= son. FERC stated that changes would support continued price stability and = balance in the western markets. The changes were called for in part, FERC = said, since the area the California ISO serves is a summer peaking system = and a large portion of the 11-state Western Systems Coordinating Council, = consists of winter peaking systems. The changes extend from the date of the= order through April 30, 2002, at which time the summer mitigation measure= s will be reinstated. Most notably, the new cap levels take into account f= luctuation in natural gas prices.=20 Modifications to previous mitigation measures are; raises cap level from $98 to $108 continues to apply 10 percent credit worthiness adder sets February 2002 as date that final outstanding payments be made to West= ern sellers of power FERC's objective through these order was to allow FERC and affected partie= s in the West to move forward on calculating any refunds owed and to provi= de greater rate certainty and stability to the market, according to the co= mmissioners.=20 More information on the California and western market changes is available= in FERC's press release: http://www.ferc.gov/news/pressreleases/calif1-de= c192001.PDF and the full order: http://www.ferc.gov/electric/bulkpower/el= 00-95-001-12-19-01.PDF , both available in "pdf" format from FERC's websi= te. =20 RTO Developments =20 MISO Approved As Nations First RTO =20 In approving MISOs RTO application as the nations first RTO, FERC said tha= t it complies with the vision and requirements of Order No. 2000, in parti= cular the requirement that an RTO be of sufficient scope. FERC cited favor= ably MISOs announced merger with the Southwest Power Pool and said that it = was particularly encouraged by MISO's planned accommodation of flexible bu= siness plans and innovation as well as its considerable geographic span.= =20 For the most part, FERC found that MISO satisfied the four characteristics = for an RTO independence, scope and configuration, operational authority, a= nd short-term reliability, as well as key functions. FERC did, however, di= rect MISO to submit a number of revisions. FERC found MISO's independence = satisfactory in most respects, but said that transmission owners cannot be= permitted to have veto privileges on filings that affect pricing. FERC co= nditioned MISO's RTO status on modification of the MISO Agreement to give = it the authority to propose rates, terms and conditions of transmission se= rvice under the MISO tariff. On the scope and regional configuration chara= cteristic, FERC told MISO to present recommendations within 60 days addres= sing the question of its eastern seam prior to the integration of the Alli= ance Companies into MISO. FERC also indicated that MISO should participate= in its recently announced rulemaking proceeding to standardize market des= ign rules. However, FERC said, MISO should also address certain congestion= management issues prior to implementation of standardized market rules. F= ERC also directed additional changes to ensure the independence of the mar= ket monitor and required modification of the planning framework to reflect= that it will consider all market perspectives and to accommodate third-pa= rty investment, construction and ownership of transmission facilities. =20 Alliance Companies Told to Work Under MISO; FERC Finds IRCA Efforts Insuff= icient=20 Citing in part strong support from a majority of the Midwest state regulat= ors for a single Midwest RTO and Alliance RTO (ARTO)s failure to achieve t= he necessary close coordination with MISO, FERC concluded that the ARTO lac= ked sufficient scope to exist as a stand-alone RTO. FERC expressed confide= nce, however, that the Alliance Companies' desire to be a viable, for-prof= it transmission business can be accommodated under the MISO Appendix I str= ucture. FERC emphasized the importance of fostering RTO development design= ed to provide a seamless and robust market for millions of customers. Allo= wing two RTOs in the Midwest would be a second-best solution that would co= mpromise customers' interests, concluded FERC. The Commission ordered the = Alliance Companies to file a status report on their efforts to join MISO w= ithin 60 days. In the Order, FERC acknowledged the significant time and ex= pense incurred by the Alliance Companies to date, adding that it would con= sider proposals for recovery of all prudently incurred costs.=20 =20 International Transmission Approved As ITC Under MISO In a related order, FERC said that International Transmission Company (Int= ernational Transmission), a subsidiary of DTE Energy, could join the new RT= O as an independent transmission company that will be able to pursue innov= ative business strategies. International Transmission proposes to maintain= and develop transmission while turning over to the RTO such functions as = congestion management and curtailments, tariff administration, and securit= y coordination. DTE Energy has indicated its intention to sell Internation= al Transmission to a third party. FERC gave preliminarily approval for the= divestiture of the transmission facilities. FERC, however, deferred rulin= g on several contested RTO/transco function issues until International Tra= nsmission becomes truly independent. =20 National Grid Meets Independence Criterion, as FERC Dismisses Alliance Com= panies ARTO Business Plan FERC granted in part and deferred in part a National Grid proposal to mana= ge the RTO transmission system. FERC found that National Grid is not a mar= ket participant by virtue of its retail obligations in New York and New En= gland. FERC directed the Alliance Companies to explore how their business = plan, including National Grid's proposal, could be accommodated within the = MISO RTO. FERC expressed its intent to provide more guidance on this matte= r in future proceedings. =20 General Discussion Signaling a deference to Midwestern state commissions, Chairman Wood said, = "[w]e have brought order out of an array of various and sundry efforts in = the middle of the country. . . . Its a good Christmas gift to the nation. = Wood cautioned that the orders findings are based on what best serves the = public interest in the Midwest, and that FERCs actions should not be const= rued to prejudge other types of RTOs in other parts of the country, includ= ing a structure in which a for-profit transmission company could be an umb= rella RTO. For her part, Commissioner Breathitt dissented on the Alliance = Order, stating that after the Alliance Companies have already spent over $= 75 million in start-up costs and its plans were given tentative approval b= y FERC over the past two and a half years, she saw no reason to abruptly c= hange direction and deny Alliance Companies an opportunity to implement th= eir business model. The Commission has not done all it could or should do = to allow Alliance to develop, Breathitt said. Addressing the near-unanimo= us support among Midwest regulators for a single Midwest RTO, Commissioner= Massey stated, we are heeding that advice and moving forward accordingly.= For his part, the Alliance Order did not represent a change of position, = he said, noting that he has long favored forcing a consolidation of the tw= o RTO proposals. Additional details on these orders can be found in the FE= RC press release which is available from FERCs website at: http://www.ferc= .gov/news/pressreleases/mwestxpressrel.PDF .=20 =20 PJM - PJM West Denied on a Procedural Basis=20 Chairman Wood, in meeting discussion stated that the rejection was on a pr= ocedural issue only, with a delay required only because of provisions pend= ing in other dockets. In a two-page letter order, FERC rejected the reques= t of PJM and PJM West to integrate, but Chairman Wood assured the parties = that FERC remained committed to the expansion effort and wants to see it m= ove forward very quickly. All indications are that once the other provision= s have been addressed, FERC would be ready to move forward on the PJM West= effort. =20 FERC Directs PJM To amend Tariffs to Include New Oversight Measures=20 FERC terminated its investigation into allegations that PECO Energy Company= had operated its transmission system in a manner that illegally advantage= d a corporate affiliate. FERC staff indicated that the record in the proce= eding did not establish a violation of the Federal Power Act or FERC's Sta= ndards of Conduct sufficient to warrant further enforcement proceedings an= d that further investigations into the matter were not warranted or necess= ary. Simultaneously, FERC accepted a report from PJM outlining a series of= improvements to its current procedures for reporting of transmission outa= ges and the rating of transmission facilities. FERC directed PJM to file a= mendments to its tariffs to reflect the new procedures. Commenting on the = swift resolution of the matter, Chairman Wood noted the importance of lift= ing the cloud of an investigation promptly when the evidence warrants it.= =20 Staff Reports High Cost of Congestion; Need RTO Congestion Management, Mor= e Investment=20 A presentation of a FERC staff report on electric transmission constraints= detailed the high costs of congestion and suggested that building more tr= ansmission would likely lower overall consumer costs. The report, which FE= RC staff acknowledged suffered from certain data limitations, found that b= ottlenecks in the transmission system cost consumers more than $1 billion = over the past two summers. The report also demonstrates the need for stron= g congestion management systems at RTOs, FERC staff said. FERC commissione= rs commended staff on the presentation and seemed supportive of the conclu= sion that building additional infrastructure would bring benefits to energ= y consumers. FERC staff also noted that a parallel DOE National Grid Study = should be completed and released before the end of the year.=20 The staff presentation is available in MS PowerPoint on the FERC "Discussi= on Papers" page at: http://www.ferc.gov/calendar/commissionmeetings/Discus= sion_papers.htm .=20 Additional Commission Action=20 FERC Issues Accounting NOPR with Question to Industry=20 FERC issued an accounting NOPR (Docket No. RM02-3) seeking comment on whet= her to require unregulated energy marketers and traders to disclose holdin= gs in derivative financial contracts used to limit risks of volatile price= swings in energy purchases and sales. Chairman Wood said he looks to indu= stry to answer the question and tell FERC that the current exemption and b= lanket waivers and authorizations should remain or not. Commissioner Breat= hitt pointed out that the current entities that must comply with reporting= requirements of derivative activity are not major players in the derivati= ve markets, but the open-ended question, if answered in the affirmative, w= ould place burdensome requirements on a sector of the market, i.e power ma= rketers, that most delve in that arena. Chairman Wood said that he might b= e in agreement with possible responses from industry that say that "maybe t= hese processes are for another agency to do, e.g. SEC, CFTC, etc. ."=20 Separately, the NOPR proposes changes to the Uniform System of Accounts (U= SA) to record transactions required under Financial Accounting Standards Bo= ard (FASB) Statement 115, Accounting for Certain Investments in Debt and E= quity Securities, FASB Statement 130, Reporting Comprehensive Income, and = Statement 133, Accounting for Derivative Instruments and Hedging Activitie= s. The NOPR also proposes changes in the annual reports to the Commission,= including the Form 1, to conform to recent actions by FASB to tighten dis= closure rules. The proposal follows up Commission guidance issued in Augus= t 2001 for using the existing USA for recording transactions covered by th= ese FASB Statements.=20 All four commissioners endorsed the NOPR. Chairman Wood said the new rules= would focus more on providing transparency to investors than broadening F= ERC's regulatory authority. Commissioner Breathitt commented that the new = rule would seek to collect annual data, not give FERC the ability to "acti= vely monitor" the complicated transactions. "We would be obtaining a yearl= y snapshot of derivative positions," Breathitt said. "I think this is a go= od step." =20 FERC Staff Provides Update on Development of Standardized Interconnection = Policy=20 FERC staff reviewed the process and progress of the collaborative efforts = to develop a standardized generation interconnection policy. While interco= nnection documents were filed on December 14th as required by the ANOPR, p= articipants noted that the documents remain a work in progress. Participan= ts had requested, and FERC granted on December 14, an extension of time to= file the consensus documents to January 11 and to January 25 to file fina= l comments in the docket. The collaborative process remains on schedule to= take up the "money side" of the issue in April 2002.=20 Technical Conference On Energy Infrastructure in the Northeast=20 FERC will hold a conference in Energy Infrastructure issues in the Northea= stern states on Thursday, January 31, 2002 at the Helmsley Park Lane Hotel= in New York City, New York.=20 =20 Tonja Wicks=20 Manager, Energy Supply Policy =20 Alliance of Energy Suppliers=20 Edison Electric Institute=20 Phone: (202) 508-5098=20 Fax: (202) 508-5600=20 Fax: (202) 508-5445 =20 ______________________________________________=20 To subscribe to this list, send an e-mail to alliance@eei.org containing = the following information: name, company, title, address, phone, fax and e= -mail address. =20 To unsubscribe from this list, send an e-mail to alliance@eei.org containi= ng your name and e-mail address.=20 For more information, please contact the Alliance of Energy Suppliers at a= lliance@eei.org =20 P-(202) 508-5098 =20 F-(202) 508-5600=20 =20 =20 =20