Providing a summary of major regulatory and market related issues to our clients on regular basis, this special issue focuses on topics for 2008:

• APX Power Suite
• ERCOT Market Readiness
• Nodal Training
• Latest Legislative and Regulatory Issues
• New Chairman of the Texas Commission: Barry Smitherman
• ERCOT Elects New Board Members
• ERCOT Board Decision: Increase Daily RRS requirement
• Nodal Implementation Schedule with Possibility Delays
• ERCOT issues RFP for Initial EILS Procurement

APX is actively engaged with our clients and ERCOT to support market participant testing in preparation for Nodal go-live.

ICCP Connectivity (EDS1 and EDS2):
By serving our resource owning clients, APX is the 4th largest source of ICCP data point in ERCOT.  We are actively working with ERCOT to meet the requirements for ICCP connectivity testing.  In Q4 of 2007 ERCOT expanded this data set to include meteorological data points (wind speed & direction, temperature, barometric pressure) for our clients with wind resources. 

RT SCED Testing (EDS3):
In Q3 o f2007 APX successfully performed connectivity of the RT SCED transactions (COP, 3PO, OS) on behalf of our clients with resources.  Through Q4 and continuing in Q1 of 2008 APX will continue to daily submit COP and 3PO for each of our client QSEs with resources.  This successful testing and daily submittal has resulted in each of our clients with resources meeting there ERCOT Nodal Market Readiness criteria.

CRR Testing (EDS3):
ERCOT begins CRR testing in Q1 of 2008.  Market Participants interested in participating in this testing should coordinate directly with ERCOT as APX’s Power Suite will not initially support CRR transactions.

RT and DA Market Testing (EDS4):
Previous testing has been limited to those QSEs with resources, however EDS4 testing is applicable to all market participants (resource owners, load, marketers).  APX has been authorized by ERCOT to perform the machine-to-machine connectivity aspects of the testing on behalf of clients for RT and DA market submittals.  In Q1 of 2008 APX will be testing our new Power Suite with one of clients and ERCOT.  The results will be applied to all other applicable client’s readiness status.  Note: A client’s ERCOT Readiness status is only updated if the client has authorized APX to test on their behalf.

In April of 2008 ERCOT moves to the next stage of EDS4 testing.  In this stage QSEs will be required to submit energy and AS bids, offers, and trades based on scripted and unscripted data from ERCOT.  IMPORTANT: The APX Power Suite which is now in development should be available to support the creation, editing, and interfacing with ERCOT.  APX will NOT perform the daily editing of client’s data for this stage of testing.  Hence clients should plan to have resources dedicated to be actively involved in EDS4 testing.  APX will conduct Power Suite user training prior to the start of this phase of testing.

ERCOT continues to target Dec 1st 2008 for go-live of their nodal market.  ERCOT has encountered delays in software delivery, loss of key ERCOT personnel, and hardware constraints, but is working to mitigate these impacts.  There is very little to no contingency time left in the schedule. ERCOT is reviewing if some non-protocol required functionality can be delayed to increase their ability to meet the Dec 1st date.  ERCOT recently reported the Dec 1 go-live date as “threatened, but achievable.”

ERCOT continues to offer Market Participants nodal training course.  APX highly recommends Market Participants attend the necessary training.  A QSEs completion of ERCOT training is part of a QSE’s Market Readiness Metric.  See the following link for information on ERCOT training  http://nodal.ercot.com/training/index.html. 

APX also offers client specific strategy and market concept training taught by our knowledgeable APX cadre.  If interested in this APX training please contact
Wendy Brown (281.489.7633) or your Account Manager for details.

The Texas House Speaker Craddick announced the creation of a committee on Electric Generation Capacity and Environmental Effects. The committee includes nine House members appointed by the Speaker. Representative Bonnen will serve as chair of the committee. The House members appointed to this committee are Representatives Anderson, Bailey, Chavez, Hardcastle, King, Solomons, Straus and Turner. The committee is required to study a) the state's demand for electric generation capacity over the next 50 years, b) to determine if the necessary infrastructure and technology to meet this demand is available, and c) to examine the environmental effects of the existing electric generating facilities on global warming and climate change. The committee is expected to prepare and submit its energy and environmental impact plan to the 81st Legislature which will meet in January 2009.

Some of the most important regulatory decisions by the Public Utility Commission of Texas during the last quarter of 2007 are:

• Issuance of an interim order in Docket No. 33672 to determine competitive renewable energy zones. ERCOT has hired General Electric to conduct an engineering study to determine the impacts of adding various levels of renewable capacity on ERCOT system. The results will assist the Commission to finalize its decision to order construction of several corridors of transmission lines to facilitate transfer of inexpensive renewable resources to population centers in Dallas, Houston, and other areas in Central Texas.
  
  
• Amendment of emergency interruptible load service, Project No. 34706. The Commission amended its Substantive Rule 25.507 on October 1st eliminating the 500 MW minimum procurement requirements and raising annual expenditure from $20 million to $50 million. It is expected to have a successful auction in January 2008 compared to the last three auctions that failed to obtain 500 MW offer. See additional information below.
  
  
• Approval of a mechanism for expedited recovery of transmission costs by non-ERCOT utilities, Project 33253. On December 7, 2007, the Commission issued its final decision establishing the new §25.239. The new rule allows utilities who operate transmission facilities within Texas, but located outside of ERCOT, to request annual recovery of their reasonable and necessary expenditures for transmission infrastructure improvement costs and changes in wholesale transmission charges. This rule provides similar privileges currently available under the Commission's Substantive Rule 25.192 to all transmission utilities operating within ERCOT.

Governor Rick Perry appointed Barry Smitherman as the new Chairman of the Commission on November 14, 2007 replacing former Chairman Paul Hudson.  Hudson continues his term as a Commissioner along with Commissioner Julie Parsley.  Commissioner Smitherman has been with the Commission since April 2004, is very familiar with market and financial related issues, and prefers market-based solutions to foster competition in Texas.  More visibility in the public arena should be expected from the Commission under Chairman Smitherman.

ERCOT had its 2007 Annual Meeting on December 11 in Austin. In this meeting, members elected three new board members and three new segment alternates. The following three new Board members and twelve existing Board member along with the PUC Chairman Smitherman will serve ERCOT during calendar year 2008:

• Bob Helton, International Power America Services, independent generator segment
  
• Robert Thomas, Green Mountain Energy, independent retail electric provider segment
  
• Charles Jenkins, Oncor, investor-owned utility segment

The three new segment alternates are:

• Mark Walker, NRG Texas, independent generator segment
  
• Marcie Zlotnik, StarTex Power, independent retail electric provider segment
  
• Calvin Crowder, American Electric Power Service Corporation, investor-owned utility segment

Since the brownout event in April 17, 2006, ERCOT has operated in a more conservative fashion to avoid similar results.  In fact ERCOT has taken several steps in that direction by improving its forecasting activities, operating under  more conservative load forecast, frequently issuing market alerts when Adjusted Responsive Reserve declines, and using a 7% Resource Discount Factor (RDF) in its calculation of Adjusted Responsive Reserve.  This has resulted in more Out of Order Merit instructions and complaints from many stakeholders about negative impacts on market, mainly depressing spot market electricity prices.  To address this concern, the Technical Advisory Committee (TAC) of ERCOT recommended and the Board approved a new methodology to allow for additional procurement of Responsive Reserve Service (RRS) as a function of Resource Discount Factor used by ERCOT for each particular operating day that became effective on December 31, 2007.

Referring to ERCOT M-A121407-01 Operations, the revised methodology allows ERCOT to procure additional RRS between 6 am and 10 pm.  For each hour during 16-peak hours when the RDF is projected to be above 2 percent, ERCOT will adjust the day-ahead responsive reserves upward by 100 MW per percentage point, not to exceed 500 MW.  Responsive Reserve Service obligation under this change will be reflected in the regularly scheduled RRS QSE obligation posted by 6am for Day Ahead.  According to ERCOT Notice, the total RRS obligation is determined based on the following rule:

• Responsive Reserve obligation will equal to 2800 MW for hours in which the temperature forecast in either the North Central or Coast weather zone is equal to or greater than 95 degrees Fahrenheit.
• Responsive Reserve obligation will equal to 2600 MW for hours in which the temperature forecast in either the North Central or Coast weather zone is equal to or greater than 85 degrees Fahrenheit but less than 95 degrees Fahrenheit.
• Responsive Reserve obligation will equal to 2500 MW for hours in which the temperature forecast in both the North Central or Coast weather zone is less than 85 degrees Fahrenheit.
• Responsive Reserve obligation will equal to 2300 MW for hours that are outside the hour ending 0700 through hour ending 2200 range.

The new methodology keeps the share of Load acting as Resource (LaaR) to the existing 1,150 MW, which remains equal to 50% of 2,300 MW of RRS.

The work on nodal market design implementation has been in progress for more than one year and we have about eleven more months to complete the extensive task by currently expected deadline.  While ERCOT Staff, stakeholders, and many consultants are working around the clock to ensure that the currently scheduled December 1, 2008 is met, there are some concerns about possible delay as well as some increase in total expected costs of implementation. 

The most current estimated cost of nodal market design implementation is about $290 million which is about 10 percent above originally estimated budget of $263 million.  According to Mr. Jerry Sullivan, the Nodal Executive Director, the Nodal implementation team is exploring ways to bring the total budget closer to the original estimate.  Regarding time delays, ERCOT is determined to meet the deadline, however, work is in progress to identify some of the functionalities that are not critical for the software to have at the beginning and could be postponed for implementation in a later date without noticeable impacts on the market operation.

On December 12, 2007, ERCOT issued a Request for Proposal for Emergency Interruptible Load Service (EILS) to cover. February 1st through May 31, 2008.  QSEs who intend to self-provide their share of EILS are expected to inform ERCOT by January 7.   All responses to this RFP are due on January 8, 2008.    While ERCOT’s attempts in the last three RFPs failed to generate a minimum of 500 MW, the recent revisions to the rule by the Public Utility Commission of Texas is expected to result in reasonable amount of offers for this service which is needed by ERCOT to manage load shedding activities in emergency situations.  ERCOT is expected to announce its final decision by January 16, 2008.