Reg. Information - Interconnecting Generation in the East

Please see below.
---------------------- Forwarded by Ginger Dernehl/HOU/EES on 04/24/2000
08:29 AM ---------------------------

Richard Shapiro
04/21/2000 07:56 AM
To: Ginger Dernehl/HOU/EES@EES
cc:
Subject: Reg. Information - Interconnecting Generation in the East

Please forward to entire group- This is an example of an outstanding memo
that conveys critical information to our commercial counterparts- to the
point and very relevant-- it is a model to emulate.
---------------------- Forwarded by Richard Shapiro/HOU/EES on 04/21/2000
07:53 AM ---------------------------
To: Ben Jacoby/HOU/ECT@ECT, Mike J Miller/HOU/ECT@ECT, Rodney
Malcolm/HOU/ECT@ECT, James A Ajello/HOU/ECT@ECT, Edward Ondarza/HOU/ECT@ECT,
Kellie Metcalf/Corp/Enron@ENRON, Ozzie Pagan/HOU/ECT@ECT, David L
Fairley/HOU/ECT@ECT, Debbie Chance/Corp/Enron@Enron, Oscar
Dalton/HOU/ECT@ECT, Janet R Dietrich/HOU/ECT@ECT, John
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David Duran/HOU/ECT@ECT, Fred Mitro/HOU/ECT@ECT, James L
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cc: Robert Frank/HOU/EES@EES, Harry Kingerski/HOU/EES@EES, Joe
Hartsoe/Corp/Enron@Enron, Richard Shapiro/HOU/EES@EES, James D
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Lloyd Will/HOU/ECT@ECT
Subject: Reg. Information - Interconnecting Generation in the East

This is a brief primer to assist you with current policy regarding
interconnecting generation plants in the East. Please forward this to your
groups. Thanks. Christi Nicolay 37007 EB3108h. I am available for your
federal/FERC regulatory questions and can point you to the correct
state/regional regulatory people.

When initially deciding where to site a plant, there are several federal
regulatory issues to consider:

First, you will need to obtain the utility's interconnection policy and a pro
forma interconnection agreement from the utility. For most utilities, you
will need to call them to obtain their policy and agreement. Some utilities
have this available on their OASIS computer site or web page. The OASIS
sites have areas that do not require a password, but if the information is
not available in that area, you should contact the power trading desk
transmission personnel to assist in locating the information. If a utility
says it does not have a policy, you can let me know.

The interconnection procedures typically require you to send in a request for
the utility to study the interconnection (Typically, app. $10,000). When you
return the money and the request (which is usually an agreement that must be
initialled by ENA legal), the project will be placed in the "queue." The
queue is usually available on the OASIS. If the utility does not post the
queue, let me know.

Many times the procedures require the project to meet "milestones" in order
to remain in the queue. If the milestones look unreasonable, let me know.

FERC (the Federal Energy Regulatory Commission) recently issued an order
(Tennessee Power case) in which FERC stated that asking for "interconnection"
is separate from a request for "transmission" under a utility's Open Access
Transmission Tariff (OATT). Enron and others had lobbied FERC to issue an
order dealing with interconnection. Many utilities will try to charge
additional "network upgrade" costs, not simply the costs to interconnect.
This is not allowed under the new FERC rule (Note: PJM and NEPOOL have
different rules due to their pool structure).

In addition, in the Tennessee Power case, FERC stated that utilities are
required to abide by certain timelines during the interconnection study
process. Generally, these timelines are in the attachment below. Most of
the interconnection policies I have seen have timelines significantly longer
than what FERC is now requiring. You should probably first call the utility
to ask if they are planning to revise the deadlines to comply with FERC's new
order. If that doesn't work, you can call me.

There are several utilities that have filed their interconnection procedures
at FERC: PJM, NEPOOL, Ameren, Entergy, ComEd. Enron is actively protesting
Entergy's proposed procedures and interconnection agreement (a FERC order is
expected 4/26/00). In addition, ComEd's procedures have been protested and a
FERC order is expected soon. Other utilities may be filing their procedures
shortly. Once you have gotten the procedures and interconnection agreements,
I am happy to review them.

An ENA attorney must sign off on the interconnection agreement. Generally, I
review the interconnection agreement from a regulatory perspective. It is
important to have someone in Genco review it if Enron will own or operate it
after in-service or if EPMI plans to purchase power from the plant. The
interconnection agreement usually contains operational provisions, including
imbalance provisions, that are typically very one sided toward the utility,
so it is important to have Enron technical input before the agreement is
executed.

Asking for interconnection and getting in a queue is not a request for
transmission. You should consult the power trading desk transmission people
in order to determine whether a request for firm or non-firm transmission
needs to be made. The desk can make the request if necessary. While the
desk may choose to use daily/hourly non-firm transmission for some of the
Enron plants, the decision is made on a case-by-case basis. You do not want
your plant to be "stranded" without the ability to wheel electricity away
from the busbar, unless you are building a plant in order to sell power
directly to the interconnected utility, and even then, you may want to wheel
power around at times.

If the utility does not have enough transmission capability to wheel power
from the plant, the plant/Enron may have to pay "network upgrades." You want
to make sure that you are reserving transmission on a firm (priority) basis
if you pay for network upgrades. Some utilities simply provide "transmission
credits" when requiring network upgrades. These are not as valuable to Enron
because there may be no opportunity to ever wheel the power if Enron doesn't
have a "reservation" for the transmission. The Eastern interconnection is
prone to curtailments of transmission called "TLRs," especially in the
summer. The Power Trading desk can assist in obtaining the transmission.

In order to sell power to the grid, the plant must apply to FERC for "Exempt
Wholesale Generator" (EWG) status and also obtain a FERC Power Marketer
license with "Market Based Rates." These filings make the on-site generator
a "utility" for FERC purposes and subjects the "power marketer" to periodic
filings at FERC. These generally must be filed at least 60 days before the
plant will start producing any power. The filings take several weeks to
prepare.

Do not assume that you can sell ancillary services from the plant. The plant
may not be able to sell ancillary services into the market. EPMI has the
FERC authorization to sell certain ancillary services in California and
NEPOOL, but EPMI cannot, at this time, sell in other areas (absent a FERC
filing and setting up an OASIS web page). Be aware that many utilities add
language in their interconnection agreements that allow them to "take" the
ancillary services from your plant, without compensation.

If you are dealing with an industrial that has a plant on-site, additional
issues are involved. You can check on the Enron home page under "Sites",
"Intranet", "Government Affairs", "State Restructuring Reports" for
information on the status of retail open access in that state. If you need
additional assistance, contact Elizabeth Linnell 33896.

Generally, the state must have retail open access in order for Enron to sell
power to a plant. In order for an on-site plant to sell power to the grid,
it must apply to FERC for "Exempt Wholesale Generator" (EWG) status and also
obtain a FERC Power Marketer license with "Market Based Rates." These
filings make the on-site generator a "utility" for FERC purposes and subject
the "power marketer" to periodic filings at FERC. Because some industrials
may not want to be FERC regulated, ENA may be able to use a "Special Purpose
Vehicle" (SPV) so that ENA may own part of the generator. There are also
options to establish a "Qualified Facility" (QF) that sells power to the
interconnected utility. The interconnected utility may also have a program
in which it purchases excess power from the on-site plant. Please contact
Bob Frank 33180 for help on possible regulatory structures.

There may also be issues if the plant is connecting to a lower voltage line,
such as a 69kv or 138kv. Some utilties have filed to put these lines into
their distribution systems, rather than in the wholesale transmission system,
which may take them out of FERC jurisdiction for wheeling purposes. We have
not fully examined this type of situation, but can if necessary.

There are other regulatory issues, such as site permitting, political
assistance, environmental permits, that must also be addressed. The regional
regulatory people in Rick Shapiro's government affairs group can assist you.