---------------------- Forwarded by Mary Hain/HOU/ECT on 03/12/2001 11:57 AM 
---------------------------


Steve C Hall
03/09/2001 03:14 PM
To: Christian Yoder/HOU/ECT@ECT, rcarroll@bracepatt.coM, Susan J 
Mara/NA/Enron@ENRON, Alan Comnes/PDX/ECT@ECT, Joe Hartsoe/Corp/Enron@ENRON, 
Mary Hain/HOU/ECT@ECT
cc: Tim Belden/HOU/ECT@ECT, Jeff Richter/HOU/ECT@ECT, Robert 
Badeer/HOU/ECT@ECT, Bill Williams III/PDX/ECT@ECT, Greg Wolfe/HOU/ECT@ECT, 
Chris H Foster/HOU/ECT@ECT 
Subject: ISO "Market Stabilization Plan": Curtailment of firm exports

Summary:  The ISO announced today that it plans to submit a proposal to FERC 
under which it will curtail firm exports (not let suppliers send electricity 
out of California) during system shortages.  If approved, this proposal could 
have catastrophic effects on surrounding control areas because it would 
transfer California's supply problems elsewhere, primarily to the Pacific 
Northwest.  The ISO's plan to hoard electricity violates the open access 
principles of Order 888 and could possibly cause a cascade of contract 
defaults if buyers in the Pacific Northwest do not receive power and are 
forced to cover in this volatile market. 

We can wait until the ISO files this plan with FERC at the end of the month, 
or we can get ahead of this important issue and ask FERC to rule on this 
before the ISO submits its report.  A preemptive strike presumes that  we can 
overcome any procedural hurdles inherent in challenging an unfiled proposal.  
The ISO has cut some EPMI's real-time schedules over the past month or two, 
so perhaps we could get FERC to look at the curtailment issue in that context.

Tim has asked that the legal/regulatory team make this a top priority.  
Because of its importance he also wants to make sure that he and other 
traders are actively involved in preparing the FERC complaint.

Background:  Today the ISO announced the details of its "Market Stabilization 
Plan."  Although the plan may be DOA at FERC for several reasons, the ISO 
declared that under this plan it intends to require in-state generators to 
bid their full capacity into the proposed day-ahead market.  When questioned 
on the details of this, the ISO stated that, yes, it planned to curtail firm 
exports of energy from California during system shortages.  In other words, 
during shortages the ISO would cut the transmission schedules of in-state 
generators sending electricity out of California---even if those sales were 
"firm," and even if those sales were under existing long-term contracts.

The ISO argued that under its tariff it has the authority to cut schedules in 
emergency situations.  True.  But the reality is that the "emergency" is 
self-inflicted; by imposing price caps (another part of this Market 
Stabilization plan), the ISO is driving supply out of California.  As others 
have argued, the only "emergency" is price:  California has made a decision 
to keep consumer rates artificially low, and its use of price-controls has 
reduced the supply---causing a supply "emergency"---, and the ISO now seeks 
to increase its supply by building a one-way wall around the state of 
California.  Like the roach motel, megawatts check into California, but they 
don't check out.

Steve
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