Once considered the most complex solution, we are now driven by real-time requirements of the ISO and PX market. In that respect we've made some progress with the West power problems. In particular, when we first discovered the PX was withholding scheduled real-time prices from the ISO, a major group at the ISO was in the process of implementing a new market program, intended to replace the current real-time market program. This new market program would rely on a centralized clearinghouse of scheduled real-time prices. And, that market design would work with a centralized market that would operate like an "hourly" market where bids and offers were fixed prices, and real-time transactions would be based on a first-come, first-served basis. This is very similar to the concept proposed by the ISO to the FERC for the real-time market in its June 2000 Proposal to the FERC. We thought this new market was the real-time equivalent of the "day-ahead" and "day-of" markets. However, the program was not completed in time to make the ISO's current Market Issues Report effective for November 1. And the real-time market design was put off for at least a year. At this point, a market participant, who had been briefed on the real-time Market Issues Report for November 1, asked me to summarize the market design in an email so they could submit an official comments on November 3rd and 4th. I had some doubts about their market design and had some concerns about the time table for implementing it. So, I suggested that in light of time pressures we could prepare a memo that gave the major features of the Market Issues Report and that we could call that memo "An Outline of the November 1, 2000 Real-Time Market Issues Report." I suggested that we couple that outline with the features of the Market Issues Report in an attached file so we could get the ISO to formally agree to incorporate those features into the November 1st Market Issues Report. I sent that memo on October 25th. The "Outline of the November 1st Market Issues Report" is attached. By this point we didn't expect to finish the memo and incorporate it into the November 1st Market Issues Report before the market closed on Friday. And we had trouble getting the ISO to sign it in time for their Monday morning distribution. But, I am told that in the ISO Market Report for November 1st, they finally incorporated this outline. Although the ISO incorporated our outline into their Market Issues Report, that doesn't mean that the ISO agreed with our conclusions. In fact, in their Market Issues Report they criticized our "Real-Time Market Design" outline, and suggested that some of the elements of that design had not been incorporated into their Market Issues Report. In particular they are: 1. "They proposed on line 8 that the scheduled real-time prices be submitted to the BRC on a best efforts basis. The ISO does not agree with this proposition as they would have no means to verify that a bid was valid." 2. "They propose that the ISO set the clearing price for real-time energy at the Mid-C price at the time of the trade." They claim that this is a price they are free to set, and that it should not be subject to refunds. The ISO states that they would set the real-time price at the price they used for the Mid-C calculation. The ISO states that they could not set a price above the Congestion based price as it would cause more transactions to be scheduled ahead of congestion than behind it. However, the ISO acknowledges that they could set a price below Congestion if they used congestion information that was accurate. If they used data that had been reported at a node over which congestion had just been cleared, that price would be too low to start with. They did not have such accurate data. 3. "The ISO claims the FERC has approved their system. In fact, they suggest in the same sentence that the prices be considered part of the Congestion Management Zone prices. The FERC has never approved a "Congestion Management" program. The FERC approved the ISO's real-time energy and Ancillary Services markets which are not at issue in this proceeding." So, we are still far from solving the West power problem. However, by suggesting real-time prices should be based on an hourly price nego-in-place, they at least acknowledge that a market design has value in some markets. And, since the "nego-in-place" price is just a price in a price-cap market, I don't know why they oppose that. This is as opposed to continuing to oppose the concept of having any price above cost for scheduled energy. 1. Outline of the November 1, 2000 Market Issues Report (2 pages) Effective November 1, 2000, the ISO will be submitting all real-time prices to the ISO energy clearinghouse (IESG) using a bid-offer, first-come first- served basis. These prices will be submitted at the ISO's decision time (approximate). All transactions will be priced using the mid-point of the two bids and offers. All decisions, including the dispatching of the real-time energy into California will be made at the ISO. The ISO will submit these prices to the BRC the next day (less than one business day). The ISO has the capability to post these prices electronically to their website within 5 minutes after their approval. ISO staff will be monitoring these prices online and responding to questions as they arise. These prices will not affect any transactions executed prior to November 1, 2000 or that were submitted on the ISO's established terms prior to November 1, 2000. Nor do these prices modify any other terms established in prior Market Issues Reports. Market Participants have the option to continue to submit transaction prices directly to the ISO. Flexibility for Termination by the ISO The ISO has the option to terminate the bid-offer real-time energy and financial transactions at any time prior to the submission of the bid-offer prices to the BRC. Market Participants who believe they have been discriminated against are encouraged to appeal their treatment to the ISO and BRC by submitting a complaint in writing within 2 days of the date the transaction is terminated. Such complaints must be in writing, identify specific transactions terminated, and include the reason the ISO or BRC should be held responsible for any discrimination. ISO or BRC responses to complaints must be submitted in writing within 2 days of receipt of the complaint and are subject to both the BRC and ISO's respective Public Investigative Rules (10 C.F.R. Part 101). Real-Time Generators may still submit transactions to the ISO However, the ISO will submit all available information that it deems relevant to the Operations Coordination, Accounting, and Reporting (OCAR) Center, which is part of the ISO's Market Monitoring and Information Program (MMIP). The ISO will also continue to monitor the availability of scheduled energy and ancillary services on behalf of Market Participants who have designated it as their Scheduling Coordinator. The price of transactions submitted by the ISO directly to the BRC will not be disclosed by either the ISO or the BRC. No One-Minute Public Submission of Transactions The ISO does not intend to provide the public with one-minute public transactions, except in cases of emergency, and only on a go-forward basis. Market Participants, therefore, must continue to submit transactions to the ISO on a best efforts basis at the time the transaction is deemed eligible to be included in the Operations Bulletin. Transactions will be reviewed by Market Participants for relevance and adequacy, as determined by the ISO. 2. October 25, 2000 1. The ISO will continue to operate and provide the primary means of transmitting transactions to the BRC under its Congestion Management Scheme (CMS). However, it