Evaluation Independent Monitoring Presented at: LPSC Staff’s Technical Conference and ESI’s Bidders’ Conference for the Fall 2006 Limited-Term RFP September 11, 2006 Marriott Hotel Intercontinental Airport Houston, Texas
The Role of Evaluation IM • Our monitoring function requires us to be active in four main areas • RFP Development • Review and comment on Entergy’s proposal evaluation methods, analysis tools and processes, data inputs and assumptions, and price and non-price evaluation criteria. • Review does not extend to Entergy's planning criteria or resource needs. • Participate in all technical and bidders’ conferences. • Proposal Evaluation • Economic evaluation • Transmission Evaluation (including any related studies provided by the Entergy Transmission Business Unit), and fuel evaluation. • The Evaluation IM will monitor credit evaluation.
The Role of Evaluation IM • Proposal Selection • The Evaluation IM will review any preliminary and final proposal rankings, portfolio selections and proposal awards. • Due Diligence • The Evaluation IM shall have access to any documentation, processes, and other information necessary to ensure that the due diligence and negotiations process is conducted in a fair and impartial manner.
Current Evaluation Issues • In the process of monitoring, issues arise that require our attention. • Some of these issues have also been raised in the collaborative. • This presentation addresses five issues that are important at this stage of the RFP development: • Contract length • Evaluation of multiple product categories and contract lengths • Economy energy modeling in Prosym • Transmission analysis • Displacement (inactive reserves or retirement)
Current Evaluation Issues • Contract length • Entergy has limited the contract length to 5 years. • Entergy may extend selected proposals if capacity displacement is economic for the extended term. • We believe Entergy’s approach is reasonable. • Given the flexibility in product types, the evaluation of multiple product types with multiple contract lengths is already challenging. • Allowing more variation in contract length may create an unreasonably complex evaluation process without clear benefits to meeting Entergy’s stated needs.
Current Evaluation Issues • Evaluation of proposals • All proposals will be ranked individually and by product category and term. • An initial portfolio will be created based on economics, mixing product categories and contract term. • Portfolio will be modified incrementally to help ensure an optimal mix of proposals is selected. • The portfolio will be adjusted to meet non-economic objectives (e.g., location, mix of contract lengths)
Current Evaluation Issues • Economy energy • Economy energy market based on estimated supply curves for three sources of supply: • TVA • Southern Company • Internal to Entergy • Supply curves based on simulation of regional dispatch and inter-regional transfers using MIDAS. • MIDAS provides hourly supply “stacks” based on the available unloaded generation in each region. • These hourly results are used to estimate monthly peak-hour supply curves. • We are reviewing the MIDAS results to ensure it is reasonably consistent with actual economy energy prices. • ESI will perform sensitivities regarding the economy energy market. • We believe Entergy’s approach is reasonable.
Current Evaluation Issues • Transmission analysis is conducted to evaluate transmission access and to identify potential benefits (RMR and counterflow). • Transmission access is determined by identifying transmission constraints that may exist for a proposal; These constraints may be mitigated by: • Delisting/displacement: existing units that can be designated non-network resources in order to free up transmission capacity for proposed resources. • Active transmission management (purchase of shorter-term service to the extent available), benefits are pro rated under this mitigation strategy. • No physical upgrades are considered. • 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 comfortable.
Current Evaluation Issues • Capacity Displacement issue • 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 economics are such that they could displace an existing Entergy plant. • The selected plants are existing “active status” reserve units totaling close to 1500 MW. • Displacement in this context generally means transitioning the unit to an extended inactive reserve status rather than to permanent retirement. • The criteria is whether the economic energy benefit plus the avoided costs of the displaced unit exceeds the proposed option premium. • We will evaluate the information underlying the estimates of the avoided costs • We believe Entergy’s approach is reasonable.