EXHIBIT 99.350
CONGESTION PROPOSAL CONSIDERATIONS
Comments:
1. This model relies upon the secondary trading of FTRs to enhance liquidity.
However, it is unlikely that customers who purchased annual FTR contracts
will be willing to wait until the Day-Ahead market to lock-in commitments
for them. This is especially the case in a use-or-lose model such as is
proposed for California. If no FTRs were present in the market, orders
will have to be matched within the same location, as is the case in the
current BFM model. The forward trading of FTRs could potentially enhance
liquidity. As suggested by John Flory, forward trading of FTRs/ETCs could
be combined with forward trading of Basis Difference Contracts to enhance
liquidity.
2. We need to expressly define how this solution addresses all of the issues
with the existing market that caused the FERC to call for its redesign.
These include:
- Out of market calls
- Intra-zonal congestion
- Local market power
- Accuracy of price signals
3. We need to identify all issues that our customers have with the existing
PX structure and how this solution addresses them. These include:
- Undesired partial MWh auction results
- Sub penny pricing
- Ability to modify schedules closer to Real-Time
- Market complexity
- Uncertainty of wheeling out charges
4. Transmission rights holders could use the ability to recall and modify
firm schedules to greatly exaggerate non-firm market volatility. If firm
schedule modification had too great an effect on non-firm transactions,
public confidence in this market could be undermined. This may not be
undesirable, as it could encourage greater forward scheduling of firm
energy.
Non-firm energy markets are just that, non-firm. Historically, either side
could recall the transaction at any time, even in real-time.
5. This solution requires the development of a complex algorithm. The PX
needs to ensure that this can, in fact be developed in a manner that
retains customer confidence in the clarity of the PX's prices and auction
results. In other words, we need to ensure that any trader can verify that
for the bids it offered it could not improve its profits with a different
set of awards at the posted prices. (An exception could be if, at the
marginal price, supply and demand was not exactly balanced). This requires
that a solution will always produce the same results from the same inputs.
6. We need to develop a plan to develop marketplace support. An essential
part of this is comprehensively examining the existing stakeholders
proposals, determining how
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CONGESTION PROPOSAL CONSIDERATIONS
our concept is different and how those differences can be justified / sold
to the market. While this has been done at a very high level, a detailed
point by point comparison of the proposals remains to be completed. Where
possible we should try to have conversations with individual participants
to ensure support rather then in a public forum. We should certainly have
conversations with PG&E and Edison before we present our proposal to the
WPTF.
This is made more complicated by the extremely tight timeline we face. The
ISO will publish its initial proposal on the 11th and will have a two-day
stakeholder discussion on the 13th and 14th. The final, complete ISO
proposal will be released on the 21st, with all responses due on the 24th.
The ISO's final recommendation to their board will be released on the
27th. Please note that there will be no public forum to discuss the ISO's
final presentation other than the August 1st board meeting.
7. Are there potential gaming effects in our market resulting from the
ability to modify firm schedules repeatedly until the close of HA? What
are the effects on the non-firm market? (please refer to comment #4)
8. How viable is this solution if the expected transmission liquidity does
not develop? What if the ISO doesn't run the non-firm market?
9. How would customers submit orders and schedules into the PX if they had
obtained transmission rights in the forward markets (or bilaterally) and
wanted to schedule, rather than bid those rights in the Day-Ahead?
This would be supported in the PX model. An example:
- Generator X is located in AZ2 and wants to submit an offer to sell
into SP15.
- The generator has an FTR from AZ2 to SP15 that it purchased in the
forward market.
- Generator X submits an offer to sell 50 SP15 @ $35 and is matched.
- Generator X schedules the AZ2 resource and the AZ2-SP15 FTR.
10. Are orders into the non-firm market by resource, by portfolio or does it
matter? (I'm presuming by resource to eliminate additional scheduling
requirements)
Depending on the congestion model the ISO adopts - full network modeling
or simplified model - it may have to be by resource or it could optionally
be by resource.
11. How would the linking of hours be implemented in this solution?
12. Is this the simplest solution that could have been obtained? Are there
unnecessary complexities that affect ease of implementation / use?
13. This solution closely resembles the Titanium proposal. What were the
characteristics of the proposal that led the PX to choose not to implement
it? How are those issues resolved in this solution?
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CONGESTION PROPOSAL CONSIDERATIONS
Titanium was rejected because the PX wasn't willing to risk damaging the
Day-Ahead mkt. And was compounded by the lack of 100% release of FTRs. Now
we have to decide on how the DA will evolve - not an abstract concept
anymore.
14. Is this algorithm consistent with trading algorithms?
15. How can physically feasible schedules be generated while retaining account
(aggregate) bidding?
Ken Czarnecki's Comments:
1. Does the PX proposal correspond with the WPTF Criteria? These are:
- Reduced ISO role without compromising reliability
- Provides better hedging against forward congestion risk
- Cost effective solution, avoiding 1998-like costs
- Promotes regional compatibility
- Promotes simple commercial procedures for SCs
- Enhances locational price signals
2. What must the ISO do for this proposal to work? What will be their
arguments against this?
3. Nodal or zonal pricing? (Or other?)
- If zonal solution, what is the criteria for additional zones? What
is the renewal term for these zones?
4. How will the CTS products be affected? How will they integrate with
redesigned DA and HA?
5. What happens to RMR contracts?
6. How does this proposal incorporate market power mitigation? Resolution of
this is essential to achieve the support of NGOs, ISO, TURN etc.
7. How does this work in non-California areas?
8. What are the costs to the PX? To California?
9. How do we intend to deal with the ISO's proposed solution which is due to
be released imminently
10. What are the logistics and time frames to win with this?
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John Flory's Comments:
1. Commercial/competitive significance for PX is one issue (people's
conversations have reflected this, but it is not directly stated as a
criteria.)
2. PX should provide a marketplace for transmission (FTRs, ETCs) as well as
energy (proposal is consistent with this).
3. PX should show this as accommodating both physical rights forward model
and locational real-time market. (Good observation, Paul/Jim).
4. Model needs to integrate hub trading, physical rights and option to go to
nodal real-time market (I think the current proposal accommodates this,
but it does not discuss hub trading). This will serve us well nationally
as well as in California.
5. Per Board discussion last summer about commercial / competitive issues
(not killing the 7am cash cow and our major competitive advantage) and
concerns about liquidity of FTRs and ETCs in our market, I believe the 7am
auction needs to be a hub energy market (either UMCP or SP15/NP15, this
point needs further discussion). Before and after that, we can have
continuous or auction markets that integrate transmission (basis
differentials, ETCs, FTRs, etc.).
6. I believe this should be implemented in two (or more) phases. In first
phase we have the 7am hub market, and have continuous bid-ask market using
Black Pearls (or Click?) system that allow buy-buy and sell-sell links of
energy & FTRs/ETCs; energy & locations (BDs); etc. In the second phase we
should develop a COMET/Titanium Jr. auction (perhaps in phase 2a still
retaining a 7am hub market & then immediately rolling into the market
re-dispatch/FTR/ETC market and in phase 2b having one integrated market).
I see a COMET/Titanium Jr. auction within the Black Pearls trading
platform as critical for our ultimate position nationally (and perhaps in
Calif.)
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