Western Energy Markets Working Group Form of California ISO Market Redesign and Technology Upgrade (MRTU) Contract Amendment Panelist: Jeremy D. Weinstein

Law Offices of Jeremy D. Weinstein, P.C.

Edison Electric Institute Houston, Texas November 20, 2008 Contact: [email protected]

http://jweinsteinlaw.com

(c)2008 Jeremy D. Weinstein.

Background

• California changing to MRTU • Industry conference call in May 2008 • Identified contracting issue; resource demands • Resolution through simple document proposed • Ad hoc committee formed to address • Inclusive and open process; participation by – IOUs, marketers, munis, MRTU experts – Listed on p. 3 of the document

Explanation

• Not a “protocol,” or a WSPP-type agreement that multiple parties sign • But rather a – recommended form of short, off-the-shelf bilateral amendment that works with existing transactions – or source of language for confirms, agreements and amendments – separate bilateral agreement if entered into between two WSPP counterparties • Designed to work with multiple transactions under an enabling agreement or, with some modifications that can be understood using the annotations, to amend a resource PPA.

• Heavily annotated with footnotes.

• Written with both the WSPP and EEI in mind- picks up their defined terms – e.g. “Contract Price” and “Contract Quantity”. • Annotated for use with other agreements, such as a long term PPA.

• Does not address, these different and separate issues: – changes to delivery points that might also occur if and when MRTU is implemented (fn. 15).

– Whether (imported) WSPP Schedule C or B energy includes “reserves” or the IFM Load Uplift Obligation (fn. 19).

Walk-Through

• • • Seems very complicated, but core concepts are actually surprisingly direct and simple: A promise to use ISTs (unless otherwise agreed); describes what happens if parties don’t Introduction sets forth the background; – this and footnotes should be removed when you use the document.

• • • For SC-to-SC Transactions.

Can be signed now and come into effect automatically when MRTU starts working.

– MRTU implementation currently set for Feb., but it’s been delayed before.

– In broad strokes, the IST process enables Selling SC to “redirect” to the Buying SC what would have been the double payment, through the ISO.

• Seller delivers at its generator Pnode, and Buyer withdraws at its Load Aggregation Point; Buyer pays CAISO for its withdrawal, and Seller is paid by CAISO for its delivery, whether or not it actually delivers. Seller by submitting an IST tells the CAISO to pay its buyer rather than the seller for the delivery at the generator Pnode. See Footnote 23.

For “IST-enabled Products”: – any SC to SC traded product for which an IST can be submitted.

– Includes energy and other CAISO tariff-defined products.

– These are not “conversion” transactions or conventions.

• Delivered within California – If coming in from outside of California, parties can, but don’t have to, use document (§1.3)

Using ISTs

• • • Establishes an obligation to use the IST process, unless otherwise agreed.

The parties keep making the payments required under the agreements.

Parties must properly use the IST process (§3.2); and work through the CAISO to resolve validation by the CAISO SIBR system (§3.3).

• If the IST has not been used or is unavailable, under §3.4 the payment that would have come from the CAISO to the buyer through the IST is netted from the amount due from Seller to Buyer under the transaction. – This is reversed if the IST does end up being applicable.

• Distinguish failing to use the IST from something going wrong with a properly submitted IST.

• Section 3.5 provides for adjustments for transactions that had not initially been settled at the EZ Gen Hub becoming transactions that do.

– E.g., CPT of an IST for failure to deliver into a schedule backing a physical IST.

– See footnote 14.

• If the parties don’t use the CAISO mechanisms or the IST, they fall back to the rules of the underlying agreement.

Credit Impacts

• Instead of being exposed to credit of seller for the refund, buyer is exposed to credit of the CAISO on the IST payment.

• CAISO settlement period is different from contract settlement process and probably longer for the foreseeable future.

• If seller consistently fails to submit ISTs properly, parties could consider credit mitigation.

Other Issues

• Negative LMPs- left it for the parties to work out (see footnote 17).

• Sales tax allocated as if it had been levied at the Delivery Point (§3.7.2).

• Exculpation- neither party liable for delay caused by the other’s failure to submit correct payment information to CAISO (§3.8).

• Choice of law clause modified to apply California law to the extent necessary to implement this process, even if the remainder of the agreement is governed by another state’s law (e.g., NY for EEI and Utah for WSPP)- §4.

• Learn MRTU go-live date, so you can avoid scheduling major surgery then.