Exhibit 99.400
9.4 ISSUANCE OF FIRM TRANSMISSION RIGHTS BY THE ISO BY AUCTION
9.4.1. The ISO shall make FTRs available by conducting an annual primary
auction of FTRs, commencing approximately two months before the beginning
of the term of the FTRs. The auction of FTRs shall be a simultaneous
multi-round, clearing price auction conducted separately, independently
and simultaneously as set forth in Section 9.4.2, for each Inter-Zonal
Interface and direction combination for which FTRs are issued (each such
combination being referred to as an "FTR Market"). In addition, if the ISO
Governing Board decides to make additional FTRs available between annual
auctions, the ISO may conduct additional auctions of such FTRs in
accordance with Section 9.4.2. The term of such FTRs shall only be for the
remaining duration of the calendar year during which they were issued.
9.4.2. The ISO shall conduct the auction of FTRs through the following
procedures:
9.4.2.1. At least thirty (30) days prior to the scheduled start of the
auction, the ISO shall post on WENet the following information:
(i) the number of FTRs to be issued for each FTR Market;
(ii) the price at which FTRs will be made available in each FTR
Market in the first round of the auction, which price will be
set in each FTR Market at a level the ISO determines, in its
best judgment, will promote the submission of bids in the
first round of the auction for a number of FTRs that equals or
exceeds the number of FTRs to be issued for that FTR Market;
(iii) the date and time by which entities desiring to bid on FTRs
must have satisfied the necessary financial requirements as
outlined in Section 9.2.7
(iv) the date and time by which bids must be submitted in the first
round of the auction, which shall be the same for all FTR
Markets, and the form in which bids must be submitted; and
(v) a schedule for the conduct of subsequent rounds of the
auction.
9.4.2.2. On or before the date specified in Section 9.4.2.1(iv), any
entity desiring to obtain FTRs in the ISO's auction (the "FTR Bidder")
must submit a bid for each FTR Market in which the FTR
Bidder desires to participate, specifying the number of FTRs the FTR
Bidder is willing to purchase at the price specified in Section
9.4.2.1(ii). All individual bids will remain confidential throughout all
rounds of the auction in each FTR Market. The ISO shall announce
simultaneously to all FTR Bidders the total quantity of FTRs for which
valid bids are submitted for each FTR Market.
9.4.2.4. In each round of the auction following the first round, the ISO
will increase the price at which FTRs are made available in each FTR
Market by an amount that varies with the extent to which the demand for
FTRs in that FTR Market exceeds the quantity of FTRs being made available
pursuant to Section 9.4.2.1(i). In the case of an FTR Market in which the
demand for FTRs in the preceding round is less than or equal to the
quantity of FTRs being made available, the price shall not increase. Price
increases need not be uniform for all FTR Markets. After each round of the
auction, the ISO shall announce the revised prices for the following round
and the total quantity of FTRs for which valid bids were submitted for
each FTR Market simultaneously to all FTR Bidders that have bid in that
FTR Market. Within the timeframe set by the ISO, each FTR Bidder may
submit bids for the quantity of FTRs it desires to purchase in each FTR
Market at the revised price, provided that an - FTR Bidder may not bid for
a number of FTRs in an FTR Market that exceeds the total number of FTRs in
that FTR Market for which that entity submitted bids in the preceding
round of the auction. The ISO shall conduct subsequent rounds of the
auction in each FTR Market until the demand for FTRs in that FTR Market is
less than or equal to the quantity of FTRs being made available, at which
point the auction shall be closed in that FTR Market.
9.4.2.5. Subject to Section 9.4.2.6, each FTR Bidder shall receive a
number of FTRs in each FTR Market equal to the number of FTRs for which it
bid in the last round of the auction for that FTR Market.
9.4.2.6. For any FTR Market in which the number of FTRs being made
available exceeds the demand for FTRs in that FTR Market in the last round
of the auction, each FTR Bidder shall be awarded a number of FTRs
determined in accordance with the following formula:
N = B + [(R / TR) * D]
where
N = The total number of FTRs awarded to an FTR Bidder for an
FTR Market;
B = The number of FTRs for which an FTR bidder bid in the
final round of the auction for the FTR Market in
accordance with Section 9.4.2.5;
R = The difference between the number of FTRs for which the
FTR Bidder bid in the round preceding the final round
of the auction and B, but not less than zero;
TR = The total demand reduction (R) for all FTR Bidders that
submitted bids in the last round of the auction; and
D = The difference between the total demand for FTRs in the
final round of the auction and the quantity of FTRs
being made available for the FTR Market.
[SUPPOSE ISO RAISED THE PRICE PER FTR FROM A STEP WHEN THERE WHERE
TOO MANY BIDS BY A VERY LARGE AMOUNT (SAY, $1000,000 FOR THE SAKE OF
EXAGGERATION). THEN, THERE WILL BE ZERO NUMBER OF FTR BIDS BY ALL
BIDDERS WHICH SATISFIES THE CONDITION OF 9.4.2.6. OBVIOUSLY, THE USE
OF THE EQUATION ABOVE WILL FORCE MANY BIDDERS WITH B=0 ALLOCATION TO
END UP OWNING EXTREMELY EXPENSIVE FTRs. HOW COULD BIDDERS GET OUT OF
SUCH HIGH PRICE FTRs? WHAT MECHANISM WILL PREVENT "UNACCEPTABLE"
PRICE INCREASES BY THE ISO? DOES THIS AUCTION PROCESS LEAVE TOO MUCH
DISCRETION WITH THE ISO?]
9.4.2.7. The price of FTRs in an FTR Market shall be the last price at
which the demand for FTRs in the FTR Market exceeded the quantity of FTRs
being made available pursuant to Section 9.4.2.1(i), except that, if the
demand for FTRs in an FTR Market in the first round of the auction was
less than the quantity of FTRs being made available for that FTR Market,
the price of FTRs in that FTR Market shall be the first round price and
each FTR Bidder in that FTR Market will receive a number of FTRs equal to
the quantity of bids they submitted in the first round. Each
FTR Bidder shall pay the ISO, by the close of the following business day,
an amount equal to the total, for all FTR Markets, of the product of the
FTR price determined in accordance with this section and the total
quantity of FTRs awarded to that FTR Bidder, determined in accordance with
Section 9.4.2.5 or Section 9.4.2.6, as applicable.
[WHERE DOES THE FIRST PRICE COME FROM? OBVIOUSLY THAT PRICE COULD HAVE
PLAYED A BIG ROLE IN CREATING THE CONDITION OF TOO FEW BIDS. DOES THIS
AUCTION PROCESS PUT TOO MUCH DISCRETION WITH THE ISO?]