Subject: Beck Comments on Incentive Fee Exhibit
From: [email-masked]
To: [email-masked], [email-masked]
Cc: [email-masked], [email-masked], [email-masked]
Date: Thu, 7 Jun 2001 06:27:00 -0700 (PDT)

Marvin, 

The exhibit on the Incentive Fee Calculation I just received is essentially 
the same as we have seen before, and I still have the same overall comment.? 
Unless I have some misunderstanding, it seems to me that in a Back-to-Back 
Transaction you could easily have a situation in which EPMI is making a 
profit from a transaction on which the Cities are losing money.? The "Savings 
per hour" on which EPMI's profit sharing is based is only the difference 
between the Market Price (what the purchaser agreed to pay) and the Cities' 
Target Production Cost (incremental fuel cost and variable O&M).? The 
"Savings per hour" ignores all of the other costs that the Cities may be 
obligated to pay under a Back-to-Back Transaction such as transmission, 
ancillary service, imbalance, congestion, etc. (see the definition of Costs 
below).? For example, if the Target Production cost is $40/MWh, the Market 
Price $43/MWh, and transmission is $4/MWh, the Cities would be paying EPMI a 
profit sharing incentive fee of $1.20/MWh, while losing $2.20/MWh on the sale 
transaction.? As I have noted before, the "Savings" on a transaction should 
be as follows:

Savings = Revenues from the Transaction - Production Cost (base on the Target 
Production Cost and MWhs) - Costs associated with the Transaction incurred by 
EPMI or the Cities (where Costs include the items defined in Article 1 of the 
EMSA)

We will get back to you later with comments on the other documents. - - Al 

Definition of Costs in the ESMA: 

"Costs" means, when applicable to any Transaction, all costs, liabilities, 
fees and expenses? incurred by EPMI (excluding EPMI's internal costs and 
allocated overhead) in connection with the purchase, sale, replacement, 
scheduling, transmission and delivery of Products and balancing services, 
entered into between MDEA, EPMI, and third parties. Costs shall include but 
shall not be limited to: (i) energy and fuel costs, (ii) transmission costs 
and losses, (iii) congestion costs, (iv) scheduling fees, (v) penalties, 
inadvertent energy flow charges, or imbalance charges that are exclusive of 
MDEA's Ancillary Service charges (vi) taxes (other than income taxes); (vii) 
fees, penalties, or charges imposed by the SPP, SERC, ISO or RTO, Federal 
Energy Regulatory Commission (FERC), or other similar authorities; (viii) 
broker fees; (ix) communication costs (x) other associated costs incurred by 
EPMI.? 

Al Malmsjo 
R. W. Beck 
(407) 648-3521 - Office
(407) 421-5402 - Cell