Evaluation Independent MonitoringEvaluation Independent Monitoring

Presented at:Presented at:

LPSC Staff’s Technical Conference and ESI’s Bidders’ ConferenceLPSC Staff’s Technical Conference and ESI’s Bidders’ Conferencefor the Fall 2006 Limited-Term RFPfor the Fall 2006 Limited-Term RFP

September 11, 2006September 11, 2006

Marriott Hotel Intercontinental AirportMarriott Hotel Intercontinental AirportHouston, Texas Houston, Texas

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The Role of Evaluation IMThe Role of Evaluation IM

• Our monitoring function requires us to be active in four main areasOur monitoring function requires us to be active in four main areas1.1. RFP DevelopmentRFP Development

– Review and comment on Entergy’s proposal evaluation methods, Review and comment on Entergy’s proposal evaluation methods, analysis tools and processes, data inputs and assumptions, and price analysis tools and processes, data inputs and assumptions, and price and non-price evaluation criteria.and non-price evaluation criteria.

– Review does not extend to Entergy's planning criteria or resource Review does not extend to Entergy's planning criteria or resource needs. needs.

– Participate in all technical and bidders’ conferences.Participate in all technical and bidders’ conferences.

2.2. Proposal EvaluationProposal Evaluation– Economic evaluationEconomic evaluation– Transmission Evaluation (including any related studies provided by Transmission Evaluation (including any related studies provided by

the Entergy Transmission Business Unit), and fuel evaluation.the Entergy Transmission Business Unit), and fuel evaluation.– The Evaluation IM will monitor credit evaluation.The Evaluation IM will monitor credit evaluation.

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The Role of Evaluation IMThe Role of Evaluation IM

3.3. Proposal SelectionProposal Selection­ The Evaluation IM will review any preliminary and final proposal The Evaluation IM will review any preliminary and final proposal

rankings, portfolio selections and proposal awards. rankings, portfolio selections and proposal awards.

4.4. Due DiligenceDue Diligence­ The Evaluation IM shall have access to any documentation, The Evaluation IM shall have access to any documentation,

processes, and other information necessary to ensure that the due processes, and other information necessary to ensure that the due diligence and negotiations process is conducted in a fair and diligence and negotiations process is conducted in a fair and impartial manner.impartial manner.

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Current Evaluation IssuesCurrent Evaluation Issues

• In the process of monitoring, issues arise that require our attention.In the process of monitoring, issues arise that require our attention.

• Some of these issues have also been raised in the collaborative.Some of these issues have also been raised in the collaborative.

• This presentation addresses five issues that are important at this stage This presentation addresses five issues that are important at this stage of the RFP development:of the RFP development:

Contract lengthContract length

Evaluation of multiple product categories and contract lengthsEvaluation of multiple product categories and contract lengths

Economy energy modeling in ProsymEconomy energy modeling in Prosym

Transmission analysisTransmission analysis

Displacement (inactive reserves or retirement)Displacement (inactive reserves or retirement)

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Current Evaluation IssuesCurrent Evaluation Issues

• Contract length Contract length

Entergy has limited the contract length to 5 years. Entergy has limited the contract length to 5 years.

Entergy may extend selected proposals if capacity displacement Entergy may extend selected proposals if capacity displacement is economic for the extended term. is economic for the extended term.

We believe Entergy’s approach is reasonable. We believe Entergy’s approach is reasonable.

– Given the flexibility in product types, the evaluation of multiple Given the flexibility in product types, the evaluation of multiple product types with multiple contract lengths is already challenging. product types with multiple contract lengths is already challenging.

– Allowing more variation in contract length may create an Allowing more variation in contract length may create an unreasonably complex evaluation process without clear benefits to unreasonably complex evaluation process without clear benefits to meeting Entergy’s stated needs. meeting Entergy’s stated needs.

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Current Evaluation IssuesCurrent Evaluation Issues

• Evaluation of proposals Evaluation of proposals All proposals will be ranked individually and by product All proposals will be ranked individually and by product

category and term.category and term. An initial portfolio will be created based on economics, mixing An initial portfolio will be created based on economics, mixing

product categories and contract term.product categories and contract term. Portfolio will be modified incrementally to help ensure an Portfolio will be modified incrementally to help ensure an

optimal mix of proposals is selected.optimal mix of proposals is selected. The portfolio will be adjusted to meet non-economic objectives The portfolio will be adjusted to meet non-economic objectives

(e.g., location, mix of contract lengths)(e.g., location, mix of contract lengths)

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Current Evaluation IssuesCurrent Evaluation Issues

• Economy energyEconomy energy Economy energy market based on estimated supply curves for three Economy energy market based on estimated supply curves for three

sources of supply:sources of supply:– TVATVA– Southern CompanySouthern Company– Internal to EntergyInternal to Entergy

Supply curves based on simulation of regional dispatch and inter-regional Supply curves based on simulation of regional dispatch and inter-regional transfers using MIDAS.transfers using MIDAS.

– MIDAS provides hourly supply “stacks” based on the available unloaded MIDAS provides hourly supply “stacks” based on the available unloaded generation in each region.generation in each region.

– These hourly results are used to estimate monthly peak-hour supply curves. These hourly results are used to estimate monthly peak-hour supply curves. We are reviewing the MIDAS results to ensure it is reasonably consistent We are reviewing the MIDAS results to ensure it is reasonably consistent

with actual economy energy prices.with actual economy energy prices. ESI will perform sensitivities regarding the economy energy market.ESI will perform sensitivities regarding the economy energy market. We believe Entergy’s approach is reasonable.We believe Entergy’s approach is reasonable.

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Current Evaluation IssuesCurrent Evaluation Issues

• Transmission analysis is conducted to evaluate transmission access and to Transmission analysis is conducted to evaluate transmission access and to identify potential benefits (RMR and counterflow).identify potential benefits (RMR and counterflow).

• Transmission access is determined by identifying transmission constraints that Transmission access is determined by identifying transmission constraints that may exist for a proposal; These constraints may be mitigated by:may exist for a proposal; These constraints may be mitigated by:

Delisting/displacement: existing units that can be designated non-network Delisting/displacement: existing units that can be designated non-network resources in order to free up transmission capacity for proposed resources.resources in order to free up transmission capacity for proposed resources.

Active transmission management (purchase of shorter-term service to the Active transmission management (purchase of shorter-term service to the extent available), benefits are pro rated under this mitigation strategy.extent available), benefits are pro rated under this mitigation strategy.

No physical upgrades are considered.No physical upgrades are considered.

• The transmission access evaluation is based on principles and methods used in The transmission access evaluation is based on principles and methods used in the long-term RFP that we have monitored and with which we are the long-term RFP that we have monitored and with which we are comfortable.comfortable.

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Current Evaluation IssuesCurrent Evaluation Issues

• Capacity Displacement issueCapacity Displacement issue

After ESI fills incremental reliability needs (Appr. 800 MW), remaining After ESI fills incremental reliability needs (Appr. 800 MW), remaining proposals (with terms of at least three years) will be tested to see if their proposals (with terms of at least three years) will be tested to see if their economics are such that they could displace an existing Entergy plant.economics are such that they could displace an existing Entergy plant.

The selected plants are existing “active status” reserve units totaling close The selected plants are existing “active status” reserve units totaling close to 1500 MW.to 1500 MW.

Displacement in this context generally means transitioning the unit to an Displacement in this context generally means transitioning the unit to an extended inactive reserve status rather than to permanent retirement.extended inactive reserve status rather than to permanent retirement.

The criteria is whether the economic energy benefit plus the avoided costs The criteria is whether the economic energy benefit plus the avoided costs of the displaced unit exceeds the proposed option premium.of the displaced unit exceeds the proposed option premium.

– We will evaluate the information underlying the estimates of the avoided costsWe will evaluate the information underlying the estimates of the avoided costs

We believe Entergy’s approach is reasonable. We believe Entergy’s approach is reasonable.