
Date: Mon, 6 Nov 2000 08:10:00 -0800 (PST)
From: steve.hall@enron.com
To: christian.yoder@enron.com, elizabeth.sager@enron.com
Subject: How FERC's proposed order will affect Enron contracts

As a starting point for briefing Mark, I thought I would open the dialogue by
listing the proposed remedies and my thoughts on whether each would impact
Enron's existing contracts.  Keep in mind that FERC's remedies for the
California market are only proposals that may or may not be adopted.

Below I have listed all of the proposed remedies, with comments next to or
below each proposed remedy.

1.  Eliminating requirement that the California IOUs buy/sell into the Cal
PX: The IOUs will no longer be required to sell all generation into and buy
all of their requirements from the PX.  This will allow the IOUs to act as
their own scheduling coordinator instead of using the PX as a scheduling
coordinator.  It is expected that the IOUs will enter into more bilateral
contracts.

I can't think of how this would affect contacts, but I would suggest that if
the IOUs pull out of the PX in a big way, the PX market will be more thinly
traded/less liquid, leading to more volatile prices at the PX.

2.  Penalty Charge for Load Deviations Greater Than 5% of Actual Load:  If
actual load deviates from its schedule by more than 5%, the ISO will impose a
penalty charge of two times the ISO's real time energy cost for balancing
energy (twice the inc price).

We should review our contracts to determine if they allocate this penalty to
the appropriate party.

3.  Removal of the Existing ISO and PX Governing Boards:  Probably a good
idea, but I can't see how this will affect our contracts.

4.  Interconnection Procedures:  FERC has directed the ISO to develop
standard tariff provisions to facilitate the interconnection of new and
existing generators seeking to increase the rated capacity of their facility
in California.

Will this affect any contracts that the Origination group is working on?
Because this proposed ISO's new tariff language has yet to be written, I
would suggest that its effect on contracts at this time is remote.

5.  Long Term Suggestions:  The FERC also made the following suggestions:
(1) The ISO and the load serving entities in California should develop market
rules to ensure sufficient supply; (2) consider alternatives to the
single-price auction; (3) eliminate the balanced schedule requirement by
intergrating PX and ISO day-ahead demand and supply bids into one venue; (4)
develop less-intrusive market mitigation remedies, i.e., no price caps; (5)
redesign the congestion management system; (6) develop demand response
programs that would allow loads to bid into the market offers to reduce
demand; and, (6) conform the ISO to the requirements of RTOs under Order 888
and Order 2000.

Since these are suggestions, and may never materialize, I do not think we
need to modify our contracts at this time in response to these proposed
changes.

6.  Refunds:  FERC has said that it will not order refunds for unjust and
unreasonable rates for the period before October 2, 2000.  Going forward,
FERC may order refunds for unjust and unreasonable rates for the period Oct
2, 2000 through October 2, 2002.

Should we put a provision in our confirms or contracts that would make
counterparties waive their rights to assert that such prices were unjust and
unreasonable for that transaction?

7.  Price Caps:  FERC has proposed a $150 'soft' price cap.  The market
clearing price would be capped at $150, but parties can submit higher bids.
If a higher bid is submitted, that party would be required to submit
transaction information to the ISO or PX detailing the generation cost and
any legitimate opportunity cost.

I would echo the point below about any reviewing any contracts tied to index
prices.

How will we provide the "incremental generation cost," since we are only the
marketer?  We may have to contractually require parties to provide us the
information.  This would also raise confidentiality issues.

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Christian Yoder
