Subject: Beck Comments on Incentive Fee Exhibit
From: [email-masked]
To: [email-masked], [email-masked]
Cc: [email-masked], [email-masked], [email-masked], [email-masked]
Date: Thu, 7 Jun 2001 15:27:00 -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