APX provides a summary of major regulatory and market related issues to our ERCOT clients on a regular basis.  The following topics are included in this issue:

• APX Operations & Clients Overcome Challenges in the Wake of Hurricane Ike
• Legislative and Regulatory Issues of Interest
• Significant Power Outages Caused by Hurricane Ike across Texas Gulf Coast
• New Commissioners began their Duties at the Public Utility Commission of Texas
• ERCOT Nodal Update: The Commission Requested Additional Cost-Benefit Analysis before ERCOT could Announce Its New Nodal Implementation Date
• ERCOT Has finalized Its Decision of the Third EILS Auction Covering October 1, 2008 through January 31, 2009
• See APX Experts in Upcoming Power and Environmental Market Events

As residents of Texas prepared for the landfall of Hurricane Ike, APX prepared to assist clients whose personnel and operational infrastructure were in the hurricane’s path.  During the storm, we acted on behalf of several clients as their primary 24/7 contact to handling generation dispatches, outage reporting, and real-time / day-ahead scheduling activities. We circulated ERCOT’s “Constant Frequency Operating Guide” to clients with generation resources in case of communication failure, and kept in contact with plant personnel to ensure that communication links were still intact. 

APX also acted as the 24/7 desk for load serving clients, which included fielding calls regarding sub-customer outages. Finally, APX coordinated with other market participants to resolve any remaining trade discrepancies for clients who were failing over to backup locations or were trapped without power during the storm.  Such a close cooperation between APX and our clients minimized negative impacts on clients’ operations and resulted in successful handling of such a major disturbing weather event.

Some of the most important actions taken by the Texas Legislature and/or the Public Utility Commission of Texas during the last few weeks are:

• Significant Power Outages Caused by Hurricane Ike across Texas Gulf Coast.  Activities related to Hurricane Ike dominated other legislative and regulatory issues in Texas.  The Texas Gulf Coast communities from Corpus Christy to Galveston and Houston areas saw significant damages and property losses.  More than 2.5 million people were without electricity and most of the business activities came to a halt for several days since Hurricane Ike hit Texas Coast early on September 13.  Utilities in Texas with valuable assistance from many out of state utilities are working round the clock to restore electricity across the Gulf Coast communities.  As reported by the Electric Reliability Council of Texas (ERCOT), about 238,590 customers remain without electricity due to Hurricane Ike as of September 28, 2008.  It may take one to two more weeks to bring electricity back to all customers.  For the most up to date outage information by each Texas County, please visit the MapViewer.
  
  
• New Commissioners began their Duties at the Public Utility Commission of Texas.  The two recently appointed Commissioners begun their responsibilities in the Public Utility Commission of Texas.  Commissioner Donna Nelson began her duties On August 18, 2008 while Commissioner Kenneth Anderson joined the Commission in early September.  Commissioner Nelson’s term will expire on September 1, 2009.  Commissioner Anderson’s term will expire September 1, 2011.  The current Chairman of the PUCT, Barry Smitherman, was reappointed by Governor Perry in 2007 and his term will expire on September 1, 2013.  Both new Commissioners attended the September 11, 2008 Open Meeting when a critical decision was made regarding Texas Nodal Implementation.  Please see related story in this issue.

As most of you know, the ERCOT Nodal Implementation Date, originally scheduled for December 1, 2008, has been postponed indefinitely since an announcement by ERCOT Chief Executive Officer, Bob Kahn, to the Board on May 20, 2008.  During the last four months, ERCOT has tried several times, but failed to share the new nodal integrated schedule with Market Participants, including the last meeting scheduled for September 15.  The Public Utility Commission of Texas conducted an Open Meeting on September 11, 2008 when both new Commissioners were in attendance.  One of the key issues was a discussion of recent delays in Nodal Implementation Date which was originally scheduled for December 1, 2008.  The Commission decided to order ERCOT not to issue any new implementation date at this time.  Rather, ERCOT was ordered to work with the PUCT Executive Director and Staff to update an earlier Cost-Benefit Analysis, completed in 2004, and report back within 60 to 90 days on whether it is still economical to go ahead and complete Nodal Implementation.  It is highly possible that such a cost-benefit analysis will demonstrate that transitioning to the proposed nodal market operation is more economical option than maintaining the current ERCOT zonal market operation.  This is particularly true due to the fact that such an update will only take into consideration the required additional expenses to complete the Nodal Project without any consideration of more than $320 million which is currently spent or committed on nodal implementation.  Given some of the discussion before stakeholders as well as information regarding nodal implementation in other markets, such as California, the "cost-to-go" may not exceed $100 million.

Unfortunately, the recent delays in finalizing a revised nodal integrated schedule and the recent decision by the Commission may have already created more uncertainty that has a potential to increase overall costs for ERCOT and its Market Participants.  However, on a positive note, the order by the Commission provides additional time for ERCOT to fully assess the status of Nodal Implementation Project, develop more realistic integrated schedule for implementation, and further refine its estimate of additional expenses necessary to bring this project to a successful completion.  ERCOT, in cooperation with stakeholders and the Commission Staff, has the opportunity to effectively utilize this extra time to prevent unnecessary expenses and provide more certainty to the market while establishing a more accurate and smooth roadmap toward achieving its nodal completion date.  Also, as a byproduct, such preparation is generally expected to provide adequate and reliable documentation for ERCOT and the Commission to be ready to address any potential questions and concerns that may be raised by Texas Legislators when they come to Austin for the next Legislative Session in early January 2009. 

In its decision, the Commission made it clear that ERCOT and stakeholders should not delay their activities and should continue their progress toward full nodal implementation.  In fact, the Transition Plan Task Force (TPTF) went ahead and conducted its most recent multi-day monthly meeting on September 22-23.  The main points are summarized below:

• Ron Hinsley, Chief Information Officer and Nodal Executive, indicated that no master nodal implementation schedule will be provided until the completion of the PUCT required cost benefit analysis.  He also reported ERCOT’s first meeting with the Commission Staff who is now leading joint efforts to update cost-benefit analysis and will rely on ERCOT for support as needed.  As of now, no decision is made on whether the same consulting companies (Charles River Associates and KEMA) will update this study.  The PUCT may rely on Market Participants for updated cost information and other necessary inputs.  However, due to shortage of time, there may not be a chance for Market Participants to critically evaluate data and assumptions used in updating the study.
  
  
• Market Participants clearly expressed their concerns that they need at least some guidance on potential short-term (4 months) testing requirements so that they may plan staffing appropriately and minimize consulting costs.  Daryl Cote responded that ERCOT will continue to test the state estimator as they are today which rely on Market Participants’ submittal of information by Transmission Provider Operators (TPOs) and Current Operating Plans (COPs).  In addition, ERCOT will continue to define periods of time in which they request Market Participants to provide stable and accurate Inter-Control Center Communications Protocol (ICCP) data.  However, Daryl also informed the audience that no new functionality will be added to the Early Delivery Service (EDS) environment and there will be no additional EDS testing requirements until Feb 2009.

As it was reported in our August 2008 ERCOT Newsletter, we still project that the full Nodal Implementation cannot be done earlier than September or October 2009, however, any further unusual integration problems may cause additional delay.  We will find more accurate plan when ERCOT finalizes its new integrated schedule by late 2008 or early 2009.

On September 17, 2008, ERCOT released the latest results of its procurement of EILS covering the Contract Period of October 1, 2008 through January 31, 2009.  This was the third successful procurement by ERCOT after several new amendments by the Public Utility Commission of Texas on its Substantive Rule 25.507 in November 2007, which eliminated some of the remaining barriers for ERCOT to procure more demand responses.  ERCOT reported the following results:

The most noticeable change compared to previous auctions was significant jump in the number of participants, particularly the number of aggregators.  The number of participants further increased from 16 to 37 for Peak-1 Hours and from 14 to 33 for Non-Business Hours.  Similarly, the number of Aggregators jumped from 13 to 25.  This is an indication of increasing interest, particularly among aggregators, to participate in demand response programs which are essential to foster competition in electricity market.  We also saw noticeable price increase for Non-Business Hours by more than 7 percent from $8.97 to $9.61 per MW per Hour. 

Prices for other three categories fluctuated within a couple of percentages, however, the total projected procurement cost for this Contract Period is expected to increase to $8,254,801, reflecting an overall average price increase of 3.4 percent per each MW per Hour to be procured for this Contract Period.  This brings the total projected cost of EILS programs to $20.14 million for the whole contract year.   The Commission rule allows up to $50 million in annual (February through January) EILS program costs, however, it is completely up to ERCOT to reject offers that may not look reasonable or economical.

APX Experts are actively covering different electric market issues in several conferences and workshops. The followings may be of interest to you:

• September 30- October 1, 2008
  The Gulf Coast Power Association Fall Conference and Exhibition
  Austin, TX - Hyatt Regency, Austin, Texas
  http://www.gulfcoastpower.org/default/f08brochure.pdf
  Participants: Wendy Brown, Director, APX National Business Development and Dr. Parviz Adib, Director, APX Professional Services
  
  
• October 14 - 15, 2008
  Voluntary Carbon Markets, London
  London, UK - America Square Conference Centre
  Panelist - Lars Kvale, Program Manager at APX, Discussing Carbon Market and Transparency in the Market Place
  
  
• October 26 - 29, 2008
  National Renewable Energy Marketing Conference
  Denver, CO - Marriot City Center
  Speaker – Dr. Reiner Musier, Vice President and Chief Marketing Officer at APX, Discussing the State of US Renewable Energy Credits Tracking
  
  
• November 12 - 14, 2008
  Carbon Market Insights Americas
  Washington, DC - Wardman Park Marriot Hotel
  Speaker – Brian Storms, Chief Executive Officer at APX, Speaking to What’s next for U.S. policy
  
  
• November 18 - 19, 2008
  US-China Green Energy Conference - Innovative
  Beijing, China - Beijing Friendship Hotel
  Speaker – Dr. Reiner Musier, Vice President and Chief Marketing Officer at APX Discussing Cap-and-Trade Approach to Reducing Carbon Emissions
  
  
• November 18 - 21, 2008
  12th Annual EMA Fall Conference
  Seattle, WA - The Westin Hotel Seattle Downtown
  Panelist - John Melby, President of APX, Presenting an Update on Climate Change Regulations with focus on California AB32 and Western Climate Initiative
  
  
• December 3-5, 2008
  28th US Association for Energy Economics/International Association for Energy Economics (USAEE/IAEE) North American Conference
  New Orleans, LA – Sheraton New Orleans Hotel
  http://www.usaee.org/USAEE2008/index.html
  Session Chair – Dr. Parviz Adib, Director, APX Professional Services, Presenting Global Climate Change Policy Discussion

If interested, you can find more about these events by going through APX website at: http://www.apx.com/news/events.asp.