Exhibit 99.270
CALIFORNIA POWER EXCHANGE REQUESTERS: PAUL GRIBIK, RYAN
DOCUMENT OF UNDERSTANDING - ZONAL PRICE CALCULATOR WESTLING, JOHN MAY
ZONAL PRICE CALCULATOR OVERVIEW The Zonal Price Calculator (ZPC) is a
key component to relieve
congestion for market open.
In response to its business importance and
priority, we've created this document of
understanding to:
o Communicate the current status of the ZPC.
o Document conditions [although not
definitively] possibly encountered within
the ZPC, that we believe provide gaming
risk to the Market.
o Request requirement specification from
Product Management for the mitigation of
those identified risks
o Confirm the inclusion of the ZPC in OM
Hand-El Stage 2.
o Confirm settlement functionality pertaining
to the ZPC
CURRENT STATUS Gribik, Westling and May agree that the
current version of the Zonal Price Calculator
is working true to the way we believe it was
originally specified. However, we also agree
the calculator needs to be stressed tested
with additional adjustment bids to ensure the
final measure of market open quality. And we
further agree that this Zonal Price
Calculator is only a temporary solution,
giving way to OM Hand-El Trade App.
Additional activities:
o Stress test with adjustments bids,
Feb 9-10, 1998.
o Development of automated interface to avoid
re-keying of ZPC data
GAMING RISK Gribik identified a number of conditions
caused by potential participant gaming that
present risk to the Market. These are,
among others:
1) When an adjustment bid falls outside of
the adjusted bid curve, currently, the anchor
price is set no lower than zero.
Solution discussed: allow the anchor price to
go below zero to a maximum of the minus
penalty value.
ISO Requirement: publish the penalty prices
and price transmission based on it.
2) Arbitrarily increase or decrease the
starting reference price - not just set to
zero at the beginning and move the curve up.
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CALIFORNIA POWER EXCHANGE REQUESTERS: PAUL GRIBIK, RYAN
DOCUMENT OF UNDERSTANDING - ZONAL PRICE CALCULATOR WESTLING, JOHN MAY
Solution discussed: start the anchor price
lower and let it flow up = - penalty
PX is then required to bid inside the price
range - bid price range needs to be inside
the penalty range like $900 mwh.
ISO and PX need to agree that:
If gen(j) < = gen(j)min then dc(j) = - penalty
If gen(j) > gen(j)max then dc(j) = penalty
If dem(k) < dem(k)min then ic(k) = penalty
If dem(k) > = dem(k)max then ic(k) = - penalty
3) If the PX receives no adjustment bids
(and ISO does) and there is no way to set
the anchor price on the PX.
No solutions discussed.
APPLICATION DEVELOPMENT
SPECIFICATIONS We request that appropriate businsess
requirements be gathered and technical
specifications created to mitigate, as much
as possible, the ability of market
participants to game the market.
In addition, we request that any appropriate
tariff or business policies be adjusted as
necessary to support these business
requirements.
OM HAND-EL STAGE 2 The PX must confirm the inclusion of the
Zonal Price Calculator in OM Hand-El Stage 2
and its relative priority.
The ZPC should be tightly integrated into the
Trade Application including current
functionality, automated interface and all
known requirements to mitigate the impact of
gaming and/or exceptional conditions in the
market.
SETTLEMENT FUNCTIONALITY Confirm if settlements have the capability to
generate an invoice for a participant for
energy if ZPC is negative.
BUSINESS AREAS IMPACTED Trading, Compliance, Information Technology
DATE COMPLETION PX - February 13, 1998
OM Hand-El - unknown
OM Handel Stage 2 - unknown
DEPENDENCIES OM Hand-El delivery of automated
interface to avoid re-
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CALIFORNIA POWER EXCHANGE REQUESTERS: PAUL GRIBIK, RYAN
DOCUMENT OF UNDERSTANDING - ZONAL PRICE CALCULATOR WESTLING, JOHN MAY
keying of ZPC data.
Development of requirements for the Zonal
Price Calculator for inclusion in OM Hand-El
Stage 2.
RECOMMENDATIONS / NEXT STEPS 1) Stress test with adjustments bids,
Feb 9-10, 1998 - P. Gribik/Application
Development.
2) Develop automated interface to avoid
re-keying of ZPC data - OM Hand-El/Application
Development
3) Confirm inclusion in OM Hand-El Stage 2.
4) Confirm settlements capability to invoice
for energy if ZPC is negative - R. Johnson.
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