Message-ID: <31030541.1075840060460.JavaMail.evans@thyme> Date: Fri, 21 Dec 2001 20:47:38 -0800 (PST) From: alan.comnes@enron.com To: l..nicolay@enron.com, tim.belden@enron.com, chris.mallory@enron.com, sean.crandall@enron.com, kit.blair@enron.com, scotty.gilbert@enron.com, d..steffes@enron.com, paul.kaufman@enron.com, legal <.hall@enron.com>, christian.yoder@enron.com, e-mail <.ron@enron.com>, jeff.dasovich@enron.com, e-mail <.gary@enron.com>, e-mail <.sam@enron.com>, e-mail <.james@enron.com>, richard.shapiro@enron.com Subject: FERC Rehearing of Orders Pertaining to California refunds and California/West-wide mitigated prices for the period 2 Oct 00 through 30 Sept 01 Cc: abb@eslawfirm.com, kaplan@iepa.com Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable Bcc: abb@eslawfirm.com, kaplan@iepa.com X-From: Comnes, Alan X-To: Nicolay, Christi L. , Belden, Tim , Mallory, Chris , Crandall, Sean , Blair, Kit , Gilbert, Scotty , Steffes, James D. , Kaufman, Paul , Hall, Steve C. (Legal) , Yoder, Christian , Ron Carroll (E-mail) , Dasovich, Jeff , Gary Fergus (E-mail) , Sam Behrends (E-mail) , James Fama (E-mail) , Shapiro, Richard X-cc: Andrew B. Brown (E-mail) , Katie Kaplan (E-mail) X-bcc: X-Folder: \ExMerge - Crandall, Sean\Inbox\Regulatory X-Origin: CRANDELL-S X-FileName: This rehearing order is huge, and I will not attempt to comprehensively sum= marize it. However, here are my top 9 findings of interest to EPMI/oldco/= newco and marketers in general. Given that current prices are well below t= he cap, many of these FERC findings regarding prospective mitigation are ir= relevant from a commercial standpoint. (But will become important if the ma= rket turns up before 9/30/01.) There will be many more general summaries in the trade press. For a starte= r, I recommend reading Gary Ackerman's (attached).=20 1. The underscheduling penalty has been completely eliminated retroactively= . The IOUs and EOB won 100% here. Thus EPMI's $30 million non-invoiced cr= edit is kaput unless we appeal the FERC decision. 2. FERC affirms mitigation applies only to spot transactions and not to for= ward contracts. This comes up in several places in the order (e.g., see p.= 52 and 55) and is useful in or defense against SPP/NPC complaints. 3. On the refund side, marketers and hydro owners may show that refunds do = not cause net negative revenues (p. 49; see also p. 169) " ?the Commission will provide an opportunity after the conclusion of the r= efund hearing for marketers to submit cost evidence on the impact of the re= fund methodology on their overall revenues over the refund period. For the = Commission to consider any adjustments, marketers will have to demonstrate = that the refund methodology results in a total revenue shortfall for all ju= risdictional transactions during the refund period. The Commission will con= sider such submissions in light of the regulatory principle that sellers ar= e guaranteed only an opportunity to make a profit. To the extent we stated = in the July 25 Order that we would not allow such a showing regarding selle= rs' purchased power costs,131 we grant rehearing. We will also allow seller= s of hydroelectric power to demonstrate the impact of the refund methodolog= y. " 4. CAISO is required to submit a comprehensive congestion management redesi= gn and plans for a day-ahead energy market by May 1, 2002. This is a good = requirement because it gives FERC cover to NOT extend mitigation past 9/30/= 02. CAISO must have known this is coming since it is already circulating a= proposal.=20 5. Government agency exemptions. The FERC was firm that government entitie= s and RUS-financed cooperatives are NOT exempt from the mitigation and refu= nd requirements if the power was sold to one of the FERC-approved markets; = namely, the CAISO's R/T market and the PX day-ahead market. However, FERC = granted rehearing of government entity requests to be exempt from the West-= wide cap. Thus, government entities are now exempt from the WSCC wide cap!= However, marketers cannot resell government generated power above the ca= p. The key difference is that government agencies selling power outside th= e CAISO are not necessarily using a FERC- regulated market. 6. No special treatment for vertically integrated utilities acting as marke= ters (p. 88)=20 "We will not allow LSEs to justify sales above the mitigated Market Clearin= g Prices based on their cost of purchased power." 7. Enron wins on certainty of price in mitigated ancillary service markets.= In one of the few places a rehearing was granted, FERC approved Enron's r= equest to make the cap binding at the time the deal is consummated, not whe= n power flows (p. 94): "The ISO, Enron and Reliant seek some type of ex ante pricing. The ISO prop= oses that prices in the Ancillary Services capacity markets in all hours in= cluding system emergency hours be limited to 85 percent of the most recentl= y established mitigated reserve deficiency MCP, asserting that such an appr= oach is more consistent with the Commission's intention to set prices befor= e they are charged. While Enron and Reliant also seek a price that is known= before the price is charged and that will not change, that price would not= be capped. This topic is addressed in the order on the ISO's compliance fi= lings that is being issued concurrently with this order. As we explain in t= hat order, changes in the mitigated reserve deficiency MCP for the Imbalanc= e Energy market should have no effect on prices in the Ancillary Services m= arkets. Thus, we agree with Enron and Reliant that the price for the hour a= transaction is entered into, and not the hour of delivery, is relevant for= establishing the market-clearing price for ancillary Services. We will gra= nt rehearing of our prior orders on this point, to the extent needed to all= ow this modification." However, EPMI asked for similar certainty in the mitigated market price in = the R/T energy market (p. 62). FERC raised the question but I could not f= ind a response. (?) 8. Marketers (still) cannot sell above the cap. Marketers were denied rehea= ring in several places (e.g., p. 46). Marketers cannot be treated like gen= erators even if they own or control generation. In one of the more ambiguo= us passages: "The Commission denies clarification that marketers that own or control gen= eration and engage in marketing through a portfolio of resources, or that p= erform scheduling or tolling functions on behalf of generators, will be tre= ated as generators; they must be price takers. By contrast, entities that a= re able to trace a transaction to a specific generating unit will be treate= d as generators. With respect to Calpine's request for clarification, the C= ommission will require marketing affiliates of generators to be price taker= s. Furthermore, marketer-to-marketer transactions in the bilateral spot mar= ket are subject to price mitigation and marketers selling outside of the IS= O's single price auction will receive the price up to the mitigated Market = Clearing Price." I am not sure how the second sentence jives with the first. If market pric= es rise, we will need to research this issue. 9. Option contracts are forward sales (yeah, we won!) (p. 152): "Similarly, with respect to Enron's request for clarification that option a= greements exercised for spot-market sales are not themselves spot-market sa= les, we clarify that such sales are entered into for future periods and the= refore are not subject to mitigation."