Subject: Re: Enron's Response Today - Key Point to Focus On
From: [email-masked]
To: [email-masked]
Cc: [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked]
Date: Wed, 22 Nov 2000 03:19:00 -0800 (PST)

Here are IEP's comments on caps.  It's from a draft circulated last Friday, 
but just spoke with Smutney, and he said that the comments did not change 
substantively .  Very briefly, "IEP is generally opposed to caps, but if 
FERC's going to go with a soft cap, 1) there's a lot of clarification needed, 
2) it needs to include "upward ratchet," a la Heber and 3) it must be linked 
with other reforms (i.e., forward contracting, siting, retail markets, 
etc.)."  The comments do not explicitly address the level of the cap.  They 
also call for a technical conference.

Anything to add, Sue?
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***************************************
B. Issues Concerning Implementation of the &Soft Cap.8  

IEP has concerns about the implementation of the &soft cap8 proposal.  IEP 
has not and does not support price caps because it impedes the operation of 
the market and distorts price signals.  Such mechanisms should have no place 
in competitive markets in the long-run.  The Staff Report notes that caps do 
not work. Citation; Also MSC,   IEP is concerned, as are others, that the 
soft cap proposal will fail to attract new investments in supply or foster 
meaningful demand response.   It is particularly problematic in terms of 
attracting new capacity that will operate as peaker units for a limited 
number of hours when weather-induced demand cannot be met from less expensive 
units or imports. Notwithstanding the apparent opinion of SMUD otherwise, 
there are demands which materialize only for a fraction of a percentage of 
the total hours of a year, and therefore some resources will only be 
dispatched a short number of hours to meet that need.  These resources tend 
to be fast ramping, less efficient units that are not designed or intended to 
operate as &baseload8 facilities.  Hence the suggestion that they &just 
operate more8 to recover their costs is misplaced.  
The soft cap also appears to be especially problematic to power marketers who 
make wholesale purchases for subsequent resale but who may not own the 
underlying physical generation assets.  These entities have a major role in 
the marketplace in terms of bringing demand and supply together and they seek 
return on the risks they undertake.  These entities will perceive the &soft 
cap8 as a &hard cap8 which will chill their participation in California, 
particularly when regional supplies become tight and expensive.  This 
unintended consequence must be avoided or the markets will be hobbled.  
IEP echoes the concern articulated by the CAISO that the soft cap proposal 
may divert or require additional ISO resources.    It will clearly compound 
the settlement processes at the CAISO as transactions above the soft cap will 
require additional tracking and segregation to allow for potential 
&unwinding8 should the bids be disallowed.  It will also require some form of 
new software to provide for potential calculation of the weighted averaged 
prices suggested in the November Order, presumably in 10-minute increments, 
to blend with the market clearing prices established in the various markets.  
Moreover, if that averaged price associated with bids above the cap is 
modified often, then CAISO will be required to &re-run8 settlements or 
undertake subsequent settlement adjustments.  It is possible that these 
efforts*which are suggested as temporary measures in the November Order*would 
take away from CAISO,s efforts at developing solutions to longer-run problems 
in terms of software modifications/development.  At first blush the details 
regarding implementation of the soft cap proposal are not straightforward as 
currently described, and any further exploration this approach will at least 
require a &technical conference8 to clarify the mechanics and to ensure that 
it can be done in a reasonable manner.  
IEP could only support the soft cap proposal if it is part of a negotiated 
package of inter-jurisdictional programs, and provided that it is subject to 
an pre-established unidirectional escalation mechanism, or a similar one-way 
mechanism that is tied to the development of new capacity within the WSCC.  
The inter-jurisdictional elements must include:
? establishment of standards applicable to potential refunds based on 
allegations of market power abuse in FERC jurisdictional markets; 
? definition of durable reasonableness review standards applicable to 
wholesale purchases by the load serving utilities such that they will no 
longer be discouraged from entering bilateral arrangements on a forward basis;
? establishment of a &road map8 by the California Commission that delineates 
a firm timeline*with milestones*for the review and resolution of retail 
market issues including market-based demand responsiveness;
? establishment of a &road map8 by this Commission, in consultation with the 
CAISO, that delineates a firm timeline*with milestones*for the review and 
resolution of implementation issues associated with the Commission,s 
subsequent order in this docket as well as other outstanding proposals such 
as generation interconnection rules and congestion management;
? establishment of firm sunset date, not to exceed 2003, to bound the 
duration of soft cap, and implement a unidirectional escalation mechanism, 
not subject to subsequent lowering, which is based either on a 
pre-established schedule or tied to increases in installed capacity within 
the WSCC.

	Susan J Mara
	11/22/2000 10:21 AM
		
		 To: James D Steffes/NA/Enron@Enron
		 cc: Alan Comnes/PDX/ECT@ECT, bernadette Hawkins/Corp/Enron@Enron, 
Christopher F Calger/PDX/ECT@ECT, David Parquet/SF/ECT@ECT, Debra 
Davidson/PDX/ECT@ECT, Dennis Benevides/HOU/EES@EES, [email-masked], 
Ginger Dernehl/NA/Enron@Enron, Jeff Dasovich/NA/Enron@Enron, Jeff 
Richter/HOU/ECT@ECT, Joe Hartsoe/Corp/Enron@Enron, Joseph 
Alamo/NA/Enron@Enron, Jubran Whalan/HOU/EES@EES, [email-masked], 
[email-masked], Marcia A Linton/NA/Enron@Enron, Mary Hain/HOU/ECT@ECT, 
Maureen McVicker/NA/Enron@Enron, Mona L Petrochko/NA/Enron@Enron, Neil 
Bresnan/HOU/EES@EES, Paul Kaufman/PDX/ECT@ECT, [email-masked], 
Richard Shapiro/NA/Enron@Enron, Robert Badeer/HOU/ECT@ECT, Sarah 
Novosel/Corp/Enron@Enron, Steven J Kean/NA/Enron@Enron, Tim Belden/HOU/ECT@ECT
		 Subject: Re: Enron's Response Today - Key Point to Focus On

I know that WPTF is supporting Hebert's approach and would suggest starting 
with $250 or higher with big increments every six months.  WPTF is also 
asking for clarification on what the cap applies to.  I don't recall what the 
comments said on refund and I haven't taken a look at the WPTF final yet.  
I'll let you know.  I'll check on the others today.

	James D Steffes
	11/22/2000 07:30 AM
		
		 To: Alan Comnes/PDX/ECT@ECT, bernadette Hawkins/Corp/Enron@Enron, 
[email-masked], Christopher F Calger/PDX/ECT@ECT, David 
Parquet/SF/ECT@ECT, Debra Davidson/PDX/ECT@ECT, Dennis Benevides/HOU/EES@EES, 
Ginger Dernehl/NA/Enron@Enron, Jeff Dasovich/NA/Enron@Enron, Jeff 
Richter/HOU/ECT@ECT, Joe Hartsoe/Corp/Enron@Enron, Joseph 
Alamo/NA/Enron@Enron, Jubran Whalan/HOU/EES@EES, [email-masked], 
[email-masked], Marcia A Linton/NA/Enron@Enron, Mary Hain/HOU/ECT@ECT, 
Maureen McVicker/NA/Enron@Enron, Mona L Petrochko/NA/Enron@Enron, Neil 
Bresnan/HOU/EES@EES, Paul Kaufman/PDX/ECT@ECT, [email-masked], 
Richard Shapiro/NA/Enron@Enron, Robert Badeer/HOU/ECT@ECT, Sarah 
Novosel/Corp/Enron@Enron, Steven J Kean/NA/Enron@Enron, Susan J 
Mara/NA/Enron@Enron, Tim Belden/HOU/ECT@ECT, Richard Shapiro/NA/Enron@Enron
		 cc: 
		 Subject: Enron's Response Today - Key Point to Focus On

As I've been thinking about our response today, I would like Enron to focus 
on making sure that the California (WSCC) markets are as good a possible for 
business over the next 15 to 24 months.  Following that idea, I think that 
the key points are (1) clarifying/raising the soft cap and (2) reducing the 
burden/risk of the prospective refund period.

I know that we had discussed leading off with the debate over market power / 
retroactive refunds, but I think that (a) FERC is not inclined to do much 
more on this issue, (b) FERC wants to fix the market as much as it can given 
the current political realities, and (c) if retroactive refunds become an 
issue, we still have our full compliment of resources to later fight this 
fight.

I would recommend that the pleading and Alan's testimony be modified to bring 
these issues to the top of the ticket.   We should still include all of our 
other arguments.

Finally, I want to make sure that Enron is taking the right position by 
quietly supporting a $250/Mwh soft cap with safe harbor fixes?  Sue Mara, can 
you please try and find out what EPSA, IEPCA, and WPTF are going to file?  I 
want to make sure that we are in the ball park on this issue but not getting 
too soft.

Jim