Subject: PUCT Protocols Order
From: [email-masked]
To: [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked]
Cc: [email-masked], [email-masked], [email-masked], [email-masked]
Date: Mon, 16 Apr 2001 05:54:00 -0700 (PDT)

Please find attached the PUCT order approving, with modifications, the ERCOT 
Protocols.  What follows is a brief summary of many of the points that 
directly affect the ERCOT market.  I will provide a complete summary and 
timeline for response or request for rehearing on any of the issues later 
this week.

Two of the most noticeable departures  from the Protocols was for the 
Commission to ask for a review of the balanced schedule requirement and a 
departure from the current bilateral market to an LMP type market.  The 
Commission directed ERCOT to respond with the technical feasibility of 
relaxing or eliminating the balanced schedule requirement.  The other 
departure from the ERCOT protocols by the Commission is in reference to local 
or intrazonal congestion.  The Commission states that if direct assignment of 
the local congestion to the generating resources is not possible, they will 
consider other market options such as an LMP model.  The Commission will 
review both of these market concepts in September 2001. 

The ERCOT Protocol Review Subcommittee will take the ordered protocols and 
start the process of Protocol Revision.  Each of the revisions have been 
assigned a completion date by the PUCT and can be found in schedule 4 
attached.

The PUCT approved the ERCOT petition and Ordered the that the Protocols 
should take effect June 1, 2001.  The Commission state that the Protocols are 
fundamentally sound, however there are certain provisions that are boxed 
(cannot take effect until the ERCOT system can accommodate them) as provided 
for in the Protocol Implementation Plan.  ERCOT was directed to initiate a 
process to implement the boxed provisions as soon as possible.  As for the 
rest of the changed required by the PUCT, a timeline was attached for the 
implementation of the protocol revisions.
Under the Protocols as filed, ERCOT had &sole discretion8 for its conduct, 
however, the PUCT will require ERCOT to exercise its discretion in a 
&reasonable, nondiscriminatory manner.8
Ancillary Services.  The Protocols require ERCOT to procure the following 
Ancillary Services sequentially through an Auction:  regulation down, 
regulation up, responsive reserves and non-spinning reserves.  The PUCT is 
concerned that the process results in the possibility of price reversals 
where the clearing price for some A/S may be higher than other higher grade 
A/S services which may create incentives to game the system.  The PUCT 
directed ERCOT to amend the Protocols such that it will procure A/S through 
use of simultaneous optimization for assignment of resources to A/S products, 
and will set prices for each A/S to the corresponding shadow price.  The PUCT 
also ordered to ERCOT to amend the protocols such that it will use a two 
settlement system for the procurement of A/S.  The day ahead period 
procurement will settle and announce at 13:30 with the second to take place 
during the adjustment period for each hour.  Until the system is capable of 
the two-settlement system, ERCOT must amend the system to only allow downward 
adjustment of prices for unselected A/S bids and allow unselected bids by a 
QSE to be withdrawn only in descending order of bid prices.  The wrinkle here 
is that the ERCOT system purges unselected bids and will require a manual 
tracking of the bids.  A &spot check8 for the activity has been discussed.  
Finally, ERCOT is to consider and report whether or not ERCOT should make 
conditional selections of A/S bids (from a QSE portfolio) and then possible 
deselect based on location and not price after the QSE resource plans are 
published.
Market Solution.  Under the ERCOT protocols, a Market Solution for reducing 
congestion exists when at least three unaffiliated resources have available 
capacity and the ability to submit a bid to ERCOT to solve a circumstance of 
local congestion and no one bidder is essential to solve the congestion.  The 
PUCT would like the protocol amended to require that a &market solution8 
exists only when at least three bids are received from unaffiliated resources.
Out of Merit Order (OOM) Service.  The PUCT directs ERCOT to use the same 
ratcheting sown mechanism for out of merit order capacity payments to out of 
merit order energy payments that are based on the 18,000 heat rates.
Reliability Must-Run Service.  The PUCT would like to have additional 
incentives for generation entities to enter into RMR service contracts and 
that once covered, the until will be efficiently utilized.  As such, ERCOT is 
to amen the Protocols to give an RMR unit owner the additional option for 
retaining 10% of net positive margins for energy generated in excess of the 
amount that the unit is obligated to produce under its RMR contract.
Uninstructed Deviations.  In order to encourage &good price chasing8 and 
discourage &bad price chasing,8 ERCOT was ordered to amend the Protocols to 
apply the ex ante MCPE for balancing energy set ten minutes for the beginning 
of a settlement interval to all instructed deployment of balancing energy 
during the settlement interval and use the second subsequent interval ex 
poste MCPE, which will be set five minutes after the end of the first 
settlement interval, for uninstructed deviations during the first load 
interval.
Bid Caps.  During the transition period, until July 4, 2004,  there shall be 
a generation resource bid cap of $1,000 per MWh for energy that ERCOT 
procures.  The bid cap does not apply to load resources.  ERCOT was also 
directed to develop and submit for possible approval a bid cap on capacity 
bids for generation resource offering to provide replacement reserve service.
Balance Schedule Requirement.  The current Protocols require QSEs submit a 
balanced schedule, however, the PUCT intends to consider in September, 2001, 
the policy implications of the balanced schedule requirement, and whether the 
requirement should be relaxed or eliminated.  ERCOT was also directed to 
report on the technical implications of relaxing or eliminating the balanced 
schedule requirement.
Inter-zonal Congestion.  ERCOT shall amend the Protocols to convert to the 
direct assignment of inter-zonal congestion costs, and base direct assignment 
of inter-zonal congestion costs on an adjustable commercial model that 
employs operational shift factors on the CSCs.  The Commission will also 
require ERCOT to publish advisory updates or forecasts of the shift factors 
corresponding to CSCs to reflect predicted operating conditions and 
contingencies.  ERCOT's obligation to guarantee full zone-to-zone- congestion 
cost insurance to those who acquire TCRs in proportions based on forecasted 
shift factors, shall be eliminated.  The result of this is that a TCR 
portfolio that provides a full hedge of inter-zonal congestion cost based on 
the forecasted shift factors will not guarantee a full hedge against the 
actual congestion charges.  The Commission does not like ERCOT to be in the 
business of insuring transmission users against changes in shift factors.  
The Commission also feels that &use-it-or-loose-it8 feature will result in 
inefficient usage of the transmission system.  As such the Commission directs 
ERCOT to amends the protocols to define TCRs as pure financial instruments 
and eliminate &use it or loose it8.  As for the TCR Auction, a single round 
combinatorial auction is more appropriate.  Bids can take the form of 
price-quantity pairs for TCR portfolios or single TCRs.
Preassigned TCRs.  MOUs and Coops that own or have a long-term annual 
capacity and energy commitment from a specific &remote8 generation resource 
shall be preassigned TCRs.  Other Stakeholders argued that the preassigning 
of TCRs reduces the amount available to the market and increases congest 
costs borne by other market participants.  The Protocols, however, will be 
changed to state that the preassigned TCRs are subject to change or 
elimination at any time upon ERCOT Board of Directors approvals or Commission 
Order. 
Intrazonal Congestion.  ERCOT shall amend the Protocols to require direct 
assignment in intrazonal congestion management costs through a usage fee 
based on the flow over the congested intrazonal interfaces.  The usage fee 
shall apply to the generation resources that cause the congestion fee.  The 
net revenues from the usage fee shall be distributed, or credited against 
uplift charges.  However, the Commission advises that to the extent feasible 
under the zonal, portfolio-based model embodied in the Protocols, ERCOT shall 
promptly notify the commission, so that the Commission can promptly consider 
ordering the implementation of other alternative congestion management 
methods, particularly locational marginal pricing.

Thane Thomas Twiggs
Enron Corp
1400 Smith Street
Houston, Texas 77002

713-853-3199 Voice
713-408-4463 Mobile
713-646-8272 Fax
877-968-8967 Digital Pager or [email-masked]

<<Timeline-Final Order1.ppt>>

 - 23220fo.doc
 - 23220fo, Attachment 5.xls
 - 23220fo, Attachment 6.xls
 - 23220fo, Attachment 7.doc
 - 23220fo, Attachment 8.doc