Message-ID: <6315122.1075844228843.JavaMail.evans@thyme> Date: Wed, 21 Feb 2001 01:43:00 -0800 (PST) From: james.steffes@enron.com To: richard.shapiro@enron.com, steven.kean@enron.com Subject: Re: RTO Advocacy Positions Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: James D Steffes X-To: Richard Shapiro, Steven J Kean X-cc: X-bcc: X-Folder: \Richard_Shapiro_June2001\Notes Folders\Discussion threads X-Origin: SHAPIRO-R X-FileName: rshapiro.nsf FYI. ----- Forwarded by James D Steffes/NA/Enron on 02/21/2001 09:47 AM ----- Tim Belden@ECT 02/21/2001 09:33 AM To: James D Steffes/NA/Enron@ENRON cc: Subject: Re: RTO Advocacy Positions i concur. From: James D Steffes@ENRON on 02/21/2001 09:13 AM CST To: Kevin M Presto/HOU/ECT@ECT, Tim Belden/HOU/ECT@ECT cc: Alan Comnes/PDX/ECT@ECT, Christi L Nicolay/HOU/ECT@ECT, Joe Hartsoe/Corp/Enron@Enron, Mary Hain/HOU/ECT@ECT, Sarah Novosel/Corp/Enron@Enron, Steve Walton/HOU/ECT@ECT, Susan J Mara/NA/Enron, Ron McNamara/NA/Enron@Enron, Jeff Brown/NA/Enron@Enron, Steven J Kean/NA/Enron@Enron, Richard Shapiro/NA/Enron@Enron Subject: Re: RTO Advocacy Positions To the discussion I would add the following - 1. Our efforts to push hard zonal markets has not been overly successful. The opponents of such schemes continue to win converts that the interzonal and intrazonal congestion costs will be large and that it is very difficult to get the "right" zones. Moreover, in markets like ERCOT, the zonal structure has been co-opted by the large incumbents to frustrate the development of the market. 2. One solution discussed throughout the East is the "Hybrid" model - LMP in the real-time and Flowgates to manage forward transmission congestion. If structured properly, this allows the power desk to have (a) a real-time energy market and (b) managable transmission risk. There are disagreements between the policy "experts" about Flowgates (see point 5). 3. Our goal is to work within the RTO process and build markets that work for Enron. Key goals - 1. single control area for the RTO, 2. real time energy market with no penalties for unbalanced positions, 3. market hubs (similar to PJM West) for liquidty, and 4. manageable transmission congestion using market solutions. 4. I agree with Tim that it is very difficult to come up with "one" perfect market structure proposal for Enron (both for technical and timing reasons - California is in a different place than SPP). We are trying to coordinate our statements in each of the markets as much as possible. Most importantly, and we have had some troubles in ERCOT lately, we need to make sure that saying something in one market doesn't damage our other advocacy efforts. Government Affairs is trying to make sure that we push at the right time and place and ensure that our messages have the necessary context. 5. We still hear some open questions about the best form of market-based congestion managment (option vs. obligation; use it or lose it). Christi Nicolay is having a call on Friday to discuss these issues. Please contact her if anyone from your teams should attend. Call with any other questions. At some point, we need to ensure complete agreement of our policy(s) and our advocacy efforts on RTOs. Jim Kevin M Presto@ECT 02/20/2001 06:35 PM To: Tim Belden/HOU/ECT@ECT cc: James D Steffes/NA/Enron@Enron, Christi L Nicolay/HOU/ECT@ECT, Sarah Novosel/Corp/Enron@ENRON, Joe Hartsoe/Corp/Enron@ENRON, Steve Walton/HOU/ECT@ECT, Alan Comnes/PDX/ECT@ECT, Mary Hain/HOU/ECT@ECT Subject: Re: RTO Advocacy Positions Are you putting words in my mouth Tim. The East is absolutely adamant about having a liquid real-time energy markets with a "real supply curve" and a "real demand curve" such that hourly clearing prices reflect the true economic value of the commodity. With respect to the number of hourly price signals within an RTO that is necessary, that is subject to much debate. Although I prefer a zonal model for simplicity reasons, the reality is that congestion is more prevalent in the East in most of the markets and in order to get a functioning real time energy market, we may have settle for a limited LMP, in which nodal pricing is necessary for managing the congestion, but proxy buses are created in zones (3-5 per RTO) for purposes of real-time energy markets. Our views, I believe, are still very much aligned, however, I need to make some progress on the creation of real time energy markets. The zonal markets implemented in NEPOOL and contemplated for ERCOT result in a mis-priced commodity with no "real" price signal sent to the market. Out of merit generation is and will continue to be dispatched because the congestion is managed through energy uplift payments (congestion price signal is not sent to the market). This results in a very inefficient commodity market where the consumer gets screwed and market makers can't price the commodity or transportation on a forward basis. I hope this clarifies any misunderstanding. ------------------------------------------------ Steve Walton was in Portland last week and updated me on the latest vision for RTO's that was developed by the east desk. This vision seems to differ somewhat from what we are advocating in the west. In particular, it seems like the east has embraced a nodal system while the west is firmly planted in the zonal / flow-gate camp. I have asked Steve to flesh out more details of the nodal approach -- in particular, how do the nodes map to a fairly homogeneous zone and how does this impact pure trading positions (i.e., a transaction with no asset being directly scheduled to support it) versus asset-based trades where the meter must settle with the RTO while the trade settles with the market. It may be that the physical characteristics of the east and west warrant different models. For example, the west has large, long-distance, high voltage lines that are very amenable to a zonal approach. The east has more local transmission bottlenecks that may not be modeled as easily. It also could be that the political reality in the east and west require different positions. As things sit now, there is no way that a zonal approach could fly in the northwest. In contrast, PJM seems firmly planted in the nodal. Finally, it could be that the east desk and the west desk have a difference of opinion on what the "ideal" market structure should be. If that is the case, then perhaps we need to talk some more. Given the different advocacy positions in the east and the west, I don't think that we can come up with a broad, nationwide advocacy position at this time. That is, I don't think that we should endorse either zonal or nodal as "the answer" at FERC. Instead, I think that we should focus on the objectives that RTO's should try to achieve and be flexible as to what the best market structure should be to achieve these objectives. What do you guys think about this? Regards, Tim