TOPICS:

• Public Meeting on ERO April 6
• Nodal Protocols Approved
• Nodal Program Director Announced
• Local Congestion Costs Lower in 2005
• Former CIO Pleads Guilty; Agrees to Repay ERCOT
• Internal Audit Director Announced

Public Meeting on ERO Issues April 6

An ad hoc committee of the ERCOT Board of Directors and ERCOT management are hosting a public meeting 1-3 p.m. on Thursday, April 6, to receive comments from market participants and other interested persons regarding the ERCOT region’s response to the Federal Energy Regulatory Commission’s Electric Reliability Organization (ERO) Reliability rule.

Questions to be addressed at the public meeting include:
What are the advantages and disadvantages of the creation of a new legal entity, separate from ERCOT, to serve as a regional entity (RE) for the ERCOT Region?
What kind of board should govern the RE if it is a new legal entity, separate from ERCOT, and how should board members be selected?
If ERCOT were to apply to be the RE, with only “functional” and not legal entity separation, what steps could be taken and what reporting structure could be implemented to ensure the RE’s independence from ERCOT sufficient to satisfy the requirements of the rule?

The board will consider ERCOT’s options at the April 18 board meeting.  Draft budgets for regional entities are due May 1.

The ERO Reliability Rule was adopted by FERC on Feb. 3, 2006, in compliance with the Energy Policy Act of 2005. The North American Electric Reliability Council’s application to become the ERO is to be filed with FERC by April 4.  FERC approval of NERC as the ERO is expected this summer.  The text of the rule and related documents are available on NERC's ERO implementation site.

Nodal Protocols Approved by Commissioners

The Public Utility Commission approved the final order for the nodal market protocols in open meeting Thursday.  The issues of load participation and load zone creation and modification will be addressed in future proceedings.  Also, ERCOT and market participants were asked to determine whether co-optimization in the real-time market is feasible and beneficial to implement in the nodal market.

Pending approval of a nodal project funding mechanism by the Public Utility Commission, the ERCOT Board of Directors has authorized ERCOT to borrow up to $25.1 million to finance the nodal project until a cost recovery mechanism is approved.  The total estimated cost to ERCOT for the market redesign project, under the current timeline for a January 1, 2009 implementation, is $125 million.

An overall project plan draft is under development and will be completed and released on April 14, according to Ron Hinsley, CIO and executive sponsor of Texas Nodal.

Nodal Program Director Announced

Kathryn Hager has been hired as program director for the market redesign project and started at ERCOT March 14.  Hager comes from Cingular Wireless/AT&T Wireless.  Prior to joining Cingular, she was founder and CEO of IT Insights.  While with IT Insights, Hager was involved in system implementation activities at ERCOT through a partnership with AREVA.

Total Local Congestion Costs Lower in 2005

Total local congestion costs for 2005 were slightly lower than the previous year, despite higher fuel prices, according to Beth Garza, manager of congestion analysis. In 2005, local congestion costs totaled $262.3 million, down 6 percent from the 2004 total of $279 million.  The fuel index during that same period was 40 percent higher.

The biggest decrease was in Reliability-Must-Run costs (generator paid to be available when otherwise would suspend operation for an extended time) – down 20 percent from 2004.  Unit Specific-Down costs (generator paid to operate at lower output) were reduced 16 percent from 2004 to 2005.

Unit Specific-Up costs (generator paid to operate at higher output than planned) and OOMC costs (generator paid to run when not planned to be on-line) were slightly higher in 2005.

The report, which was presented to the Wholesale Market Subcommittee last month, compares local congestion costs over the last three years.  Since 2003, the total costs dropped 35 percent, with the largest decreases in Unit Specific-Down (41 percent decrease), OOMC (39 percent decrease), and Unit Specific-Up (38 percent decrease).  RMR costs have decreased 27 percent over the three-year period.

The 22-page presentation also breaks down congestion costs by megawatt hour, by area, and by month, and includes graphics showing the average market clearing price for energy and the fuel index for the last three years. 

The report is posted on the Web site with the WMS Feb. 22 meeting documents.

Former CIO Pleads Guilty, Agrees to Repay ERCOT

Texas Attorney General Greg Abbott announced March 24 that ERCOT’s former CIO Kenneth Shoquist pleaded guilty to engaging in organized criminal activity for commercial bribery.  Shoquist admitted taking $120,000 in checks from DSS Group, a company owned by fellow ERCOT coworker and codefendant Stephen C. Wallace. Shoquist agreed to repay the $120,000 to ERCOT and now awaits sentencing for an agreed-upon prison term of eight years.

This is the third guilty plea received from the five former employees and one former contractor indicted for defrauding ERCOT through a web of shell companies paid for services not rendered.  Previous guilty pleas were entered by Chris Uranga and John Cavazos.  Pre-trial hearings for Wallace and Carlos Luquis are currently scheduled for April 6, and Luquis is scheduled to go to trial April 24.  The AG has stated that the remaining defendant, Chris Douglas, is cooperating in the investigation.

The AG’s announcement referred to Shoquist as “ the gatekeeper who made the scope of this white-collar crime possible,” and that his schemes enabled his codefendants “to steer contracts in such a way as to violate their ethical and fiduciary responsibilities to ERCOT, the state’s electricity grid system, all without the knowledge and approval of its legal and accounting departments.”

New Internal Auditor Director Starting in April

Bill Wullenjohn joins ERCOT in April to fill the new position of director of internal audit.  Wullenjohn brings 22 years of power-industry experience, most recently at Calpine Corporation’s San Jose office where he managed the annual audit plan.  Before joining Calpine, he worked as senior internal auditor at Pacific Gas & Electric Company.  He is a Certified Management Accountant and a Certified Fraud Examiner and has degrees from California State University and Northwestern University in Illinois. 

Internal Audit Manager Ed Ettorre has left ERCOT to pursue other opportunities.  CEO Tom Schrader expressed his appreciation to Ed for his role in the discovery and investigation of fraud at ERCOT in 2003-2004.

ERCOT Meeting Calendar

March 2006