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					   Rebecca Klein
   Chairman

   Brett A. Perlman
   Commiss ione r

   Julie Caruthers Parsley
   Commiss ione r

   W. Lane Lanford
   Exec utive Dire c tor
                                           Public Utility Commission of Texas
   ______________________________________________________________________________________________________________________________



          TO:                        All Interested Parties
          FROM:                      Eric S. Schubert, Market Oversight Division
          DATE:                      January 21, 2003
          RE:                        Project 26376, Rulemaking Proceeding on the Wholesale Market Design
                                     Issues in the Electric Reliability Council of Texas, Questions on Congestion
                                     Management Issues for Stakeholder Comment

          Below are questions filed for stakeholder comment in Project 26376, Rulemaking Proceeding
          on the Wholesale Market Design Issues in the Electric Reliability Council of Texas.
          Comments shall be filed in Central Records by 3 pm on Friday, January 31, 2003. The
          Commissioners will use stakeholder responses to the questions below as input to their
          discussion at the February 13, 2003 open meeting when the Commissioners revisit the
          question, “Should the Commission order ERCOT to end its use of the current zonal model in
          ERCOT and replace it with some form of nodal pricing at the level of individual generation
          and load resources?”

          For Questions 1-2, please refer to the attached diagram taken from “Wholesale Market
          Design Decision Tree” in Commissioner Perlman’s memo filed in this project on January 16,
          2003.

                 1. Do the structural problems in the ERCOT wholesale market require Commission
                    action at this time to change ERCOT’s congestion management model? Please
                    comment on the following concerns that some stakeholders and Commission staff
                    have identified related to congestion management in ERCOT. Please include in your
                    response factual information to support your position.

                                    ERCOT’s performance relative to other markets
                                    Effectiveness in fostering competition
                                    Barriers to entry
                                    Uplifted local congestions costs to load
                                    Transparent and accurate price signals
                                    Siting of generation and load resources
                                    Market liquidity
                                    Ease and efficiency of real-time dispatch
                                    Compatibility with FERC’s Standard Market Design (SMD)
                                    Transmission planning
                                    Ability of REPs to effectively manage risk and offer longer tern contracts



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2. If the Commission orders ERCOT to end its use of the current zonal model in
   ERCOT and replace it with some form of nodal pricing at the level of individual
   generation and load resources, which of the following nodal models should be
   selected:

          MOD’s “Nodal When You Need It” proposal
          Nodal market along the lines envisioned in LCRA’s ZEN proposal
          Nodal market with features similar to those seen in PJM or NYISO
          Another nodal market with different features from those listed above

a. Please describe your preferred congestion management approach and justify your
selection by evaluating your preferred approach in contrast to other approaches. In
particular, when defending your preference, please be specific and substantiate your view
with regard to the following:

          Uplifted local congestion costs to load
          Transparent and accurate price signals
          Siting of generation and load resources
          Market liquidity
          Ease and efficiency of real-time dispatch
          Compatibility with FERC’s Standard Market Design (SMD)
          Barriers to entry
          Transmission planning
          Ability of REPs to effectively manage risk and offer longer tern contracts for
           all customer classes, specifically residential and small commercial customers

b. If you prefer “another form of nodal pricing,” please describe the important
differences with the existing nodal systems such as PJM and NYISO and justify such
differences.

3. If the Commission were to move to a nodal system, what would be the impact on the
   ability of retail electric providers to serve their customers? What would you suggest
   to minimize the potential negative impacts that such a move to a nodal system would
   have on the ability of retail electric providers to serve their customers?
4. If the Commission were to order an independent study of different market designs,
   what should be the parameters or considerations included in the study, and how
   should it be funded assuming that the Commission does not fund it?
5. In its filing earlier this month, the ERCOT Coalition estimated that the cost of
   implementing a full nodal system may be as high as $500 million. Do you agree with
   the assumptions and conclusions of this cost estimate? If not, please describe which
   assumptions you dispute and describe the carryover from the current ERCOT
   software that might lessen the cost of moving to a full nodal system.