FALL 2004 RFP ENTERGY SERVICES, INC. November 2004 This presentation summarizes certain matters related to ESI’s Fall 2004 Request for Proposals (as it may be amended or modified, the “Fall 2004 RFP”). 1
Agenda Items l l l l l Introductions ESI’s RFP Process Overview System Overview/Resource Needs Fall 2003 RFP Results Fall 2004 RFP Overview RFP Process Safeguards Proposal Evaluation Process Proposal Submission Process Question and Answer Session ESI requests that all questions be submitted in writing so as to allow ESI the ability to provide written responses which will be made accessible to all parties on the RFP web site. ESI will respond orally to some questions during the Question and Answer Session today. 2
Introductions Presenters l Bill Mohl l Sue Tierney l Charles De. George l Lee Kellough l Patric Stafshede l Ravi Sankaran VP of Commercial Operations, ESI Principal, Analysis Group – Independent Monitor Manager of Supply Planning & Analysis, ESI Manager of Transmission Engineering*, ESI Manager of Asset Management, ESI Asset Management Associate, ESI Other l Laura Berryman RFP Administrator, ESI * Transmission Engineering is a group in Entergy System Planning and Operations, and is not associated with Entergy’s Transmission Business Unit. 3
ESI’s RFP Process Overview 4
Entergy’s Market-Based Resource Procurement Process Overview l Designed to support ESI’s resource planning objective to provide a portfolio of low-cost, reliable resources matched to both the near-term and long-term supply needs of our customers. l Supply Procurement Process – Formalized RFPs will be issued in accordance with regulatory requirements and policies, including the LPSC’s Market-Based. Mechanism order. – Formalized RFPs will seek limited-term (1 -3 year) and long-term resources on an as-needed basis. – Formalized RFPs complement ESI’s on-going procurements via short -term purchases (e. g. , one-year or less) from the market – Seeks to meet reliability and economic objectives, and limit exposure to fuel and market risks, and uncertainties. l Types of Resource Supply Roles – Baseload – Dispatchable/Load-following – Peaking/Reserve 5
Market-Based Mechanisms (MBM) Overview l Key Points and LPSC Requirements for RFP process – 60 days notice required prior to filing draft RFP. – 45 days notice required for review/settlement for draft RFP for limited-term products. 75 days for long-term products. – Independent Monitor should be enlisted to ensure no undue preference to affiliate bids or self-supply options. – Documentation of procedures to enforce codes of conduct in handling of affiliate bids. – If self-supply options exist, they must be identified at the time draft RFP is issued with cost support data. (Note: No self-supply options exist in Fall 2004 RFP) – Collaborative process on evaluation criteria between ESI, IM, LPSC, and Bidders. – Documentation of how transmission capability and costs will be evaluated. – MBM calls for part or all IM costs to be recovered through bid fees (capped at $5, 000/bid). However, ESI chose not to charge bid fees in the Fall 2004 RFP due to the nature of proposals sought and the fact that Entergy Competitive Affiliates will not be permitted to participate, and no self-build or self-supply options will be considered, in the Fall 2004 RFP. Market Participation and Input Encouraged on Front-End 6
ESI Resource Procurement Options Summary l Formal RFP Products – Limited-term MUCPA/MUCCO, LD (1 -3 year) – Asset acquisition or life of resource purchase from existing generation resources (Note: No long-term options to be solicited in Fall 2004 RFP) – Acquisition, ownership position, or life of resource purchase from new generation resources (Note: No long-term options to be solicited in Fall 2004 RFP) l Ongoing short-term purchase process – Annual Plan Products (e. g. , call options, 5 x 16 block energy purchases) – Weekly and monthly RFP Products – Supplemental RFP Products – Hourly and Day-ahead Purchases l Self Build/Self Supply Options – Identify and execute (when and if appropriate) “Real Options” for selfbuild opportunities including: » New Opportunities » Repowering » Upgrades of existing facilities 7
ESI Gas/Oil Generation and Purchases 1999 -2004 Note: Purchases include Joint-Account sales, individual Operating Co. sales, and QF Put 8
FALL 2004 RFP System Overview / Resource Needs 9
Entergy 2005 Load and Resources by Region Assumptions: • Regional loads are based on coincident peaks of Op. Cos within regions. • Regional generation numbers do not include internal or external transmission import capability. WOTAB Regional Peak Firm Load ETR Controlled Generation No. Ark. Regional Peak Firm Load ETR Controlled Generation Central Regional Peak Firm Load ETR Controlled Generation 4, 677 MW 3, 372 4, 665 MW 4, 057 6, 812 MW 8, 142 Amite South Regional Peak Firm Load ETR Controlled Generation 5, 111 MW 5, 807 10
Resource Plan – Needs Assessment System Peak Period Reliability Requirements (MW) 2005 Forecast of Firm Planning Requirement Existing System Resource Capability Total Controlled Resources Nuclear Coal Gas/Oil Hydro Acquired Long-term Resources Acquired Limited-term Resources Total Resources Additional Resources Needed to Reliably Meet System Load (Requirements less Resources) (1) 2006 2007 25, 378 25, 740 26, 109 21, 378 21, 178 1, 991 390 1, 991 0 23, 894 23, 559 23, 169 1, 484 2, 181 2, 940 4, 656 2, 265 14, 228 229 1, 328 1, 188 4, 512 2, 209 14, 228 229 ESI anticipates purchasing up to 1, 500 MW in the form of limited-term resources through this RFP, with the possibility of acquiring additional resources, should ESI receive economically beneficial proposals. (1) Does not include resources which may be procured for economic reasons 11
Resource Planning Objective and Planning Principles l Primary Objective – Provide for both the limited-term and long-term capacity and energy needs of the Operating Companies’ regulated retail customers through the selection of a supply portfolio that is expected to result in the lowest reasonable total production costs consistent with operational constraints and other reliability considerations. l Planning Principles – Planning for uncertainty » Load » Market structure » Fuel prices – Key considerations for resource supply planning » Adequacy of resources for peak period reliability » Security of long-term supply through long-term controlled capacity resources » Adequacy of base-load resources » Supply technology efficiency » Diversity of supply » Price stability » Financial integrity risk management 12
ESI Supply Procurement Objectives l Resource Procurement Objective – Retains long-standing objectives for Entergy Operating Companies. – To ensure that newly acquired resources, together with existing resources, have the necessary characteristics to satisfy customer needs efficiently, effectively and appropriately. l Determination of Type of Capacity Needed – Identify generation supply role: » Base-load » Intermediate dispatchable load-following » Peaking/reserve l Assess Operating Company Resources versus Load Shape requirements – Evaluate how existing resources compare to the approximate level for each supply role category that is typically desirable over a long-term planning horizon. 13
ESI Supply Procurement Objectives 14
Fall 2003 RFP Results 15
ESI has Received Strong and Distributed Market Response Prior ESI RFPs for Supply Side Resources - # of Proposals Fall 2002 Supplemental Spring 2003 Fall 2003 1 -3 Years 68 24 44 137 Long-Term 23 n/a 30 n/a Other 42 n/a n/a Total 133 24 74 137 BIDDERS 30 11 22 12 RESOURCES 45 13 40 18 17, 856 2, 828* 17, 950 5, 315* PROPOSALS CAPACITY (MW) Note: Non-conforming proposals are not included in the summary “n/a” indicates that the proposal type was not 16
Summary of Contracts Resulting From Previous RFP Shortterm rd Party 3 Limitedterm Affiliate Limitedterm rd Party 3 Longterm Affiliate Longterm rd Party 3 Total 0 MW 185 -206 MW Note 1 231 MW 101 -121 MW Note 2 718 MW 1235 -1276 MW 222 MW n/a n/a 222 MW Spring 2003 n/a 0 MW 381 MW Note 3 0 MW 381 MW Fall 2003 n/a 0 MW 390 MW n/a 390 MW 222 MW 185 -206 MW 1002 MW 101 -121 MW 718 MW 2228 -2269 MW Fall 2002 January 2003 Supplemental RFP Total Note 1: Includes a conditional option to increase the Capacity up to the upper bound of the range. Note 2: The contracted Capacity will increase from 101 MW to 121 MW in 2010. Note 3: It should be noted that this table does not reflect the River Bend 30% life-of-unit power purchase agreements totaling approximately 300 MW between Entergy Gulf States, Inc. (“EGS”) and Entergy Louisiana, Inc. (“ELI”) and between EGS and Entergy New Orleans, Inc. (“ENO”) related to EGS’s unregulated portion of the River Bend nuclear station which portion was formerly owned by Cajun Electric Power Cooperative, Inc. or the Entergy Arkansas Inc. (“EAI”) wholesale baseload capacity lifeof-unit power purchase agreements totaling approximately 220 MW between EAI and ELI and between EAI and ENO related to a portion of EAI’s coal and nuclear baseload resources (which were not included in retail rates) to ELI and ENO executed in 2003. That capacity was identified and selected outside of the RFP process, but was market-tested in the Spring 2003 RFP, as a result of which the propriety of the selection of those resources was confirmed. 17
FALL 2004 RFP Overview 18
Fall 2004 RFP - Highlights l ESI will accept written feedback from market participants and other interested parties on the draft RFP, provided that such comments are provided to the RFP Administrator by no later than December 10, 2004. l Final RFP will be issued on or about January 5, 2005. l Final proposals will be due by 6: 00 p. m. CPT on January 20, 2005. l ESI is not identifying any self-build or self-supply options in this Fall 2004 RFP. l Although not required by the LPSC Market-Based-Mechanism order, ESI has retained an Independent Monitor to oversee the design and implementation of this RFP and provide an objective third-party perspective. l The electronic proposal submission process used in the Fall 2003 RFP is used in this RFP as well to simplify the proposal submission process for Bidders and to help streamline and make ESI’s RFP evaluation process more efficient. l ESI will have an RFP “Hotline” available during January 10 th through 20 th to assist Bidders only with respect to technical questions regarding the electronic registration or proposal submission process. l No short-term or long-term resource proposals are being requested in the Fall 2004 RFP, only limited-term (1 -3 year) products are being solicited. l ESI has added new limited-term products in this RFP in an effort to provide Bidders additional opportunities to participate in the RFP process. l ESI intends to solicit long-term LOU purchases and acquisitions in 2005. 19
Fall 2004 RFP - Adjustments from Previous RFPs l Consistent with practice in some previous RFPs, the process will now formally lead to a primary award list and secondary award short-list. l As in the Fall 2003 RFP Factor Evaluation process, the formal scorecards for each proposal are eliminated. Deliverability will be addressed separately for the proposals that evaluate best economically. Credit exposure will only be evaluated for awarded or short-listed Bidders. l ESI has more clearly identified the possibility for Bidders to add unit contingent capacity from more than one plant together, and provide a “combined proposal” for evaluation, within one and the same product category. (Each unit will still be required to provide unit contingent capacity, not the equivalent of a system sale. ) l Addition of LD products to be evaluated on separate timeframe from other products. 20
RFP Participants – Fall 2004 l Potential RFP Participants – Electric Utilities – Marketers – Wholesale Generators – Independent Power Producers – Qualifying Facilities l Entergy Competitive Affiliates and Entergy Operating Companies will not be allowed to participate in this Fall 2004 RFP 21
Fall 2004 RFP Process Timeline Evaluation & Negotiation Tech. Conf. w/ LPSC & Interested Parties Bidder’s Conf. Open to all parties Baton Rouge 11/15/04 Houston 11/16/04 Final RFP Issued 1/28/05 LD Proposals On or about 1/5/05 Bidders Notified of Decision Bidder Registration Process completed Proposals Due 2/4/05 LD Proposals 1/14/05 1/20/05 Execution of Definitive Agreements 2/25/05 MUCCO and MUCPA Proposals Bidders Notified of Decision 4/15/05 MUCCO and MUCPA Proposals Execution of Definitive Agreements Formal Solicitation Process 22
Fall 2004 RFP Products Limited-term product proposals being sought in the Fall 2004 RFP: l l l Day-Ahead Multiple-Year Unit Capacity Call Option Product (Day Ahead MUCCO) Intra-Day Peaking Multiple-Year Unit Capacity Call Option Product (Intra-Day Peaking MUCCO) Three-Year Reserve Capacity Multiple-Year Unit Capacity Call Option Product (Three-Year Reserve Capacity MUCCO) Dispatchable Multiple-Year Unit Capacity Purchase Agreement Product (Dispatchable MUCPA) Three “Into Entergy” Liquidated Damages (LD) Products: – a “ 5 x 16 ‘Into Entergy’ LD” Product – a “ 7 x 8 ‘Into Entergy’ LD” Product 23
Day-Ahead Multiple-Year Unit Capacity Call Option (MUCCO) l l l Product – Unit-contingent call option rights to Capacity and associated energy from a specifically designated generating unit, with the ability for ESI to preschedule energy from the unit for a minimum of 8 hours on a day-ahead basis. Delivery Term – Full-year proposals for one (1) or three (3) years – Start Date of June 1, 2005, or July 1, 2005 if Bidder has exceptional circumstances Capacity Quantity – ESI encourages Capacity Quantities between 50 and 350 MW, but will consider any amount above 50 MW. Pricing – Option Premium ($/k. W-year) » Shaped monthly and paid monthly in arrears subject to an adjustment based on actual capacity availability. – Fixed Guaranteed Heat Rate multiplied by daily Henry Hub index » 7, 900 Btu/k. Wh for a min. 8 hours, max. 11 hours schedule » 7, 750 Btu/k. Wh for a min. 12 hours, max. 15 hours schedule » 7, 700 Btu/k. Wh for a min. 16 hours schedule – Variable O&M Payment $1. 00/MWh – Fixed Start-up Payment $50. 00 per MW per Start – Bidder should assume that Fixed Guaranteed Heat Rate includes fuel basis, transportation, and start fuel. Other – Bidder has the option of combining two or more separate unit contingent proposals and requesting these to be considered as a “combined proposal” for evaluation purposes. This provides Bidders the opportunity to combine unit contingent resources but the capacity committed from each plant will continue to be considered as unit contingent (in other words, this does not provide Bidder the option to provide capacity from any or all of the plants specified in the package at their discretion). 24
Intra-Day Multiple-Year Unit Capacity Call Option (MUCCO) l l l Product – Unit-contingent call option rights to Capacity and associated energy from a specifically designated generating unit, with the ability for ESI to preschedule energy from the unit for a minimum of 4 hours on a day-ahead or intra-day basis. Delivery Term – Full-year proposals for one (1) or three (3) years – Start Date of June 1, 2005, or July 1, 2005 if Bidder has exceptional circumstances Capacity Quantity – ESI encourages Capacity Quantities between 50 and 500 MW, but will consider any amount above 50 MW. Pricing – Option Premium ($/k. W-year) » Shaped monthly and paid monthly in arrears subject to an adjustment based on actual capacity availability – Fixed Guaranteed Heat Rate of 12, 500 Btu/k. Wh multiplied by daily Henry Hub index – Variable O&M Payment $2. 00/MWh – Fixed Start-up Payment $75. 00 per MW per Start – Bidder should assume that Fixed Guaranteed Heat Rate includes fuel basis, transportation, and start fuel. Other – Bidder has the option of combining two or more separate unit contingent proposals and requesting these to be considered as a “combined proposal” for evaluation purposes. This provides Bidders the opportunity to combine unit contingent resources but the capacity committed from each plant will continue to be considered as unit contingent (in other words, this does not provide Bidder the option to provide capacity from any or all of the plants specified in the package at their discretion). 25
Three-Year Reserve Capacity Multiple-Year Unit Capacity Call Option (MUCCO) l l l Product – Unit-contingent call option rights to Capacity and associated energy from a specifically designated generating unit exercisable on a three-day notice Delivery Term – Full-year proposals for three (3) years – Start Date of June 1, 2005, or July 1, 2005 if Bidder has exceptional circumstances Capacity Quantity – ESI encourages Capacity Quantities between 50 and 500 MW, but will consider any amount above 50 MW. Pricing – Option Premium ($/k. W-year) » Shaped monthly and paid monthly in arrears subject to an adjustment based on actual capacity availability » Proposals will be compared to forward costs in a range of $3. 00 -$8. 00 per k. W-year – Fixed Guaranteed Heat Rate of 15, 000 Btu/k. Wh multiplied by daily Henry Hub index – Variable O&M Payment $2. 00/MWh – Fixed Start-up Payment $75. 00 per MW per Start – Bidder should assume that Fixed Guaranteed Heat Rate includes fuel basis, transportation, and start fuel. Other – Bidder has the option of combining two or more separate unit contingent proposals and requesting these to be considered as a “combined proposal” for evaluation purposes. This provides Bidders the opportunity to combine unit contingent resources but the capacity committed from each plant will continue to be considered as unit contingent (in other words, this does not provide Bidder the option to provide capacity from any or all of the plants specified in the package at its discretion). 26
Dispatchable Multiple-Year Unit Capacity Purchase Agreement (MUCPA) l l l Product – Unit-contingent tolling product which include rights to Capacity and energy from a specifically designated generating unit on an hour-ahead basis under a Gas Tolling Agreement Delivery Term – Full-year proposals for one (1) or three (3) years – Start Date of June 1, 2005, or July 1, 2005 if Bidder has exceptional circumstances Capacity Quantity – ESI is seeking proposals that offer the full capacity of a single train combined-cycle generating unit. – Bidder may provide proposals for all of the Capacity of a specified generating plant, as well as any other Capacity amount they deem appropriate. Pricing – Option Premium ($/k. W-year) » Shaped monthly and paid monthly in arrears subject to an adjustment based on actual capacity availability – Actual Heat Rate curve, guaranteed by Seller within a +/- 2% bandwidth – Variable O&M Payment $1. 00/MWh – Fixed Start-up Payment $12, 500 per CT per Start Fuel – Buyer will supply fuel pursuant to a gas tolling agreement. If proposal is not for entire facility, Bidder must provide sufficient fuel metering to allow for the segregation of fuel associated with the Buyer’s portion of the facility. Other – Bidder has the option of combining two or more separate unit contingent proposals and requesting these to be considered as a “combined proposal” for evaluation purposes. This provides Bidders the opportunity to combine unit contingent resources but the capacity committed from each plant will continue to be considered as unit contingent (in other words, this does not provide Bidder the option to provide capacity from any or all of the plants specified in the package at its discretion). 27
“Into Entergy” Liquidated Damages (LD) Product l Products – Firm Capacity and energy delivered into the Entergy System with liquidated damages as provided in the WSPP Agreement » a 5 x 16 “Into Entergy” LD Product » a 7 x 8 “Into Entergy” LD Product l Delivery Term – Full-year proposals for one (1) or three (3) years – Start Date of June 1, 2005 l Capacity Quantity – l ESI will accept proposals offering Capacity Quantities ranging from 50 to 200 MW. Pricing – 5 x 16 and 7 x 16 LD Product: Fixed Guaranteed Heat Rate (Btu/k. Wh), multiplied by daily Henry Hub index – 7 x 8 LD Product: Fixed Energy Price ($/MWh) 28
Deliverability Evaluation l For non-LD Products: – ESI will conduct a transmission deliverability evaluation to identify and characterize transmission issues that could affect ESI’s utilization of a proposal and its total delivered cost to ESI. – ESI will agree to an initial one year Delivery Term for all awarded proposals that result in a Definitive Agreement, with the exception of the Three-Year Reserve Capacity MUCCO. – The remaining years of the Delivery Term for Definitive Agreements of three years in duration will be contingent upon the results of a subsequent Deliverability Evaluation for the second and third years of the Delivery Term, or upon the results of a System Impact Study from the Entergy Transmission Business Unit (TBU). l For LD Product proposals, deliverability evaluation is not performed due to the nature of the product. 29
Other Key Considerations l Regulatory Approvals – All definitive agreements greater than one year in term shall be conditioned upon receipt of regulatory approvals, acceptable to ESI (Does not apply to LD Product) l Contract Terms – Draft model contracts detailing terms and conditions have been provided – These model contracts are expected to be utilized for final contract execution without any material changes – Bidders should take the terms and conditions specified in these agreements into consideration in the pricing of their proposals 30
FALL 2004 RFP Process Safeguards 31
RFP Process Safeguards l Code of Conduct l Independent Monitor l RFP Process Design and Implementation l Confidentiality Protections 32
RFP Process Safeguards l Code of Conduct – All employees of ESI, any Entergy Operating Company, or any Entergy Competitive Affiliate, including those involved in the RFP process, must adhere to the appropriate Affiliate Rules and Codes of Conduct as applicable and further outlined in the Fall 2004 RFP. – Link provided on ESI RFP website. l RFP Process Design and Implementation – Various elements of the RFP process have been designed to assure fair treatment of all Bidders (as described in the following slides). 33
RFP Process Safeguards Role of Independent Monitor l ESI has retained Sue Tierney of the Analysis Group (an independent consulting firm) to serve as the “Independent Monitor” (“IM”) and to assist in the development of the RFP solicitation, evaluation and selection process in support of ESI’s efforts to ensure that the RFP and its evaluation process will be objective and impartial. l The Independent Monitor also will monitor the design of the RFP and the conduct of the RFP solicitation, evaluation, selection and contract negotiation processes to provide an objective third-party perspective in support of ESI’s efforts to ensure that all proposals are treated in a consistent fashion. l The Scope of Work Activities of the Independent Monitor is posted on the LPSC website at www. lpsc. org, and can be accessed at: http: //www. lpsc. org/_pdfs/_news/IMScope 10 -5 -04 Final. pdf 34
RFP Process Safeguards Communications with ESI before Proposal Submission l For all issues related to the RFP, there is only ONE contact – Berryman, the RFP Administrator. Laura l Any inquiries about the Entergy Transmission System should be directed to the Transmission Organization through the OASIS web site http: //oasis. e-terrasolutions. com/OASIS/EES. l Unapproved contact with ANY other ESI Employee for ANY purpose in connection with the RFP is prohibited, and may, depending on the circumstances, constitute grounds for disqualification. l All questions from market participants relating to the RFP should be submitted through the question and answer process outlined in Section 2. 5 of the RFP. The procedure for issuing questions regarding the transmission system is outlined in Section 2. 6 of the RFP. l ESI will have an RFP “Hotline” available during January 10 th through 20 th to assist Bidders only with respect to technical questions regarding the electronic registration or proposal submission process. 35
RFP Process Safeguards Data Segregation l The objective of the proposal segregation process is to limit data distribution on a “need-to-know basis” within the ESI organization, and to reduce to the extent possible the distribution of confidential information. l Segregation of information obtained from proposals is performed automatically by electronic processing of all proposals. – Pre-formatted proposal data reports with information about proposals are prepared by the automated process prior to the distribution of reports to factor evaluators – This process captures relevant information submitted in “Special Considerations” fields l The proposal data reports are reviewed by the Independent Monitor before distribution to the Proposal Evaluation Team. – This process supports the effort to keep the Bidder identity unknown to the Proposal Evaluation Team l Proposal data reports are limited to the data necessary for each sub-team to perform its specific analysis. – Economic Evaluation requires details regarding dispatch flexibility, pricing, availability, and mutual exclusivity of the proposals – Factor Evaluation requires details regarding the specific area of evaluation (i. e. , Fuel, Transmission, Credit) 36
RFP Process Safeguards Communication with Bidders During Evaluation l No communication with Bidders is expected during evaluation. l Bidders should direct questions to ESI according to the same protocol as prior to the Proposal Submission. l ESI retains the right to contact Bidders for clarification. l Any communication with Bidders will be under the supervision of the IM. 37
RFP Process Safeguards Q&A Process The objectives of the Question and Answer Process include the following: l To ensure to the extent practicable that all Bidders have equal access to information that may be potentially relevant to their proposals. l To minimize the need for either ESI or Bidders to disclose confidential information. l To maintain to the maximum extent practicable the confidentiality of proprietary information that is disclosed in Bidders’ proposals or otherwise in connection with the RFP. l To ensure compliance with all applicable affiliate rules and codes of conduct and other information sharing rules. 38
RFP Process Safeguards Q&A Process at today’s Conference l At today’s conference, all questions will be submitted in writing – Oral responses will be provided where practicable. – Written answers will be posted on the RFP website. – Written answers may contain information different from, or in addition to, information provided orally at the technical conference, in which case the written answer will supercede the oral response. 39
FALL 2004 RFP Proposal Evaluation 40
Proposal Evaluation Process - Objective The primary objective of the proposal evaluation is to identify the proposals that result in the highest benefit to Entergy’s customers The highest benefit is realized through proposals that: – Result in lower total system production costs; – Meet incremental capacity needs; – Meet ESI’s planning objectives; – Accomodate supply deliverability constraints; and – Can be controlled by ESI System’s dispatchers. 41
Proposal Evaluation Process – Overview (Does not apply to LD’s) ILLUSTRATIVE Independent Monitor Proposal Submission Proposal Segregation Proposal Data Reports Limited Factor Evaluation Shortlist Evaluations Decision by Operating Committee Specific Proposal Data Points Portfolio Economic Evaluation Credit Factor Evaluation Individual Economic Evaluation Development of Potential Portfolios Primary Award Candidate Shortlist Proposals Deliverability Evaluation • Verify proposal parameters, • Negotiations, • Execution of Definitive Agreement, • Regulatory Approvals 42
Proposal Evaluation Process – Key Evaluation Drivers The Economic Evaluation is the primary determinant in the selection of proposals for the primary award list and the secondary award short-list. Key drivers for the Economic Evaluation: – Option Premium – Heat Rate – Operational flexibility – operating range, ramp rate, etc. – Availability – required annual maintenance days – Proximity to load centers – transmission zone – Ability to deliver supply The Economic Evaluation will be based upon the net present value impact of the proposal on the Entergy System’s total production costs. The Initial Economic Evaluation will also include a spreadsheet based economic analysis calculating the proposal’s overall production cost under a fixed set of assumptions. 43
Proposal Evaluation Process – Limited Factor Evaluation No scoring or ranking of proposals based on Factor Evaluation A limited amount of specific information is required from the Factor Evaluation in order to perform the Economic Evaluation. The Economic Evaluation requires two inputs from the Factor Evaluation. – Transmission Factors - Transmission zonal location is determined based on the location of the facility. All proposals (except the LD products) are required to be unit contingent and therefore tied to a specific location. – Fuel Factors – For MUCPA Gas Tolling Agreement proposals, estimated fuel transportation cost and basis adder are determined. 44
Proposal Evaluation Process – Economic Evaluation The Initial Economic Evaluation of individual proposals results in the ranking of proposals within product categories based upon the incremental economic impact of each proposal on the total Entergy system production cost, verified by a fundamental economic analysis. Two evaluation tools will be utilized: – A production costing model will be used to evaluate all products except the Three. Year Reserve Capacity MUCCO products and the LD products – A fundamental spreadsheet analysis will calculate the all-in production costs in $/MWh for all products Both proposal specific and pre-determined information appropriate for the specific product category will be used to evaluate the proposals across a range of sensitivities. The Day-Ahead and Intra-day MUCCO products, the Dispatchable MUCPA, and the LD products will all be compared to market prices for equivalent products, established immediately prior to the receipt of proposals. The Three-Year Reserve Capacity MUCCO product will be compared to the existing Entergy reserve units which operate in a similar manner. Prior to receipt of proposals, a list of potential units and their respective forward costs will be provided to the IM and appropriate regulatory agencies only. The Proposal Evaluation Team will select proposals which are the most economic ‘Candidate Proposals’, for further evaluation and the deliverability evaluation. 45
Proposal Evaluation Process – Deliverability Evaluation Overview Primary objective: – to assess the potential for being able to fully utilize proposals based on transmission deliverability, and – to put proposal benefits on a comparable basis such that all proposals have consistent deliverability prospective. The Deliverability Evaluation assesses: – whether a resource associated with a Candidate Proposal exhibits any “flowgate” constraints at the time of evaluation, and; – the feasibility and cost of different flowgate constraint mitigation strategies. 46
Proposal Evaluation Process – Deliverability Evaluation The cost of mitigation strategies will be assessed as “transmission economic adders” as follows: – Uses the Entergy OASIS Available Flowgate Capacity (AFC) analyzer to identify potential constraints that may limit all or a portion of their output. – The AFC process grants up to 18 -months of transmission service based on a response factor evaluation of resources to pre-defined system constraints (“flowgates”). – If no constraints are identified → no further deliverability evaluation and no economic adder. – If constraints are identified → resource will be further evaluated to determine an expected cost (the ‘transmission economic adder’) associated with the supply delivery from the new resource. – “Threshold criteria” have been established to gauge the feasibility of each mitigation strategy. 47
Proposal Evaluation Process – Deliverability Evaluation After review of the ‘threshold criteria’, a Delivery Cost Adder will be determined through the consideration of the following mitigation strategies: – Delisting and/or displacement of existing network resources – Active transmission service management, and – Counter-flow generation portfolio selection Each mitigation strategy is tested for the constrained resources to determine feasibility The cost of the most economic mitigation strategy is then added to the Candidate Proposal cost 48
Proposal Evaluation Process – Deliverability Evaluation – Delisting and/or displacement option » If flowgate constraint can be alleviated by the delisting/displacement of existing resources, a delivery cost adder will be developed which estimates the required cost to replace the delisted/displaced unit(s). » The adder will be based upon a market capacity cost by month. – Counter-flow generation portfolio selection » An assessment of the potential for mitigating proposal resource constraints by secondary purchases to create counter-flow and thus mitigate the constraint. » The ‘pool’ of resources is not limited to proposals received in the RFP but includes any resources available. » The adder will be based upon a market capacity cost by month for counter-flow purchases. – Active transmission service management » Used where the resource may qualify as a network resource through the use of short-term or subsequent requests for longer-term transmission service. » Constrained magnitude and months are determined based on AFC analysis. » The adder will be based upon the reduction in system production cost benefit associated with the reduced resource availability due to constrained period. – The least-cost delivery adder will be applied to the Candidate Proposal cost and will be incorporated into the Economic Evaluation to yield a new ranking of proposals. 49
Proposal Evaluation Process – Portfolio Evaluation Using the results of the deliverability evaluation, potential portfolios of proposals will be selected for the portfolio economic evaluation. The Portfolio Economic Evaluation adds selected Candidate Proposals to the Proposal Evaluation Model. – Utilizes the same proposal evaluation model as the evaluation of the individual proposals. – PROSYM simulations of the production costs implied by these portfolios will be performed to determine each portfolio’s overall system production cost impact. – The deliverability of the selected Portfolio(s) will be evaluated to determine any new or exacerbated flowgate constraints; Portfolio capacity and availability will be adjusted accordingly. – Final proposal portfolios will be ranked according to their overall economic benefit to the system. 50
Proposal Evaluation Process - Selection Entergy’s Operating Committee will make the final decision with regards to the selection of limited-term proposals, which will proceed to negotiations for a transaction. The Operating Committee is the group of decision makers responsible for administrating the System Operating Agreement. – The Entergy System includes five Operating Companies – The Operating Committee decides on certain issues affecting multiple Operating Companies The Operating Committee will only see selected parts of the evaluation. – The Bidders whose proposals are selected will not be revealed to the Operating Committee until counterparties are notified of selection. – All presentations will reveal only information necessary for reaching decisions about proposal selections. 51
Next Steps Carry out Credit Evaluation Verification of proposal parameters Carry out negotiations – Address potential Credit Collateral Requirements Execute definitive agreements – Contingent on successful resolution of the issues arising during the negotiations Submit requests for network transmission service to TBU Submit proposals for appropriate regulatory approvals 52
Credit Evaluation The primary objective of ESI’s credit evaluation is to ensure the ESI receives sufficient credit risk protection from a supplier who is awarded a proposal. ESI’s credit evaluation procedures provide for a two-step calculation of potential required collateral. – First, a calculation of Maximum Supplier Exposure is performed for each Bidder. This value is only communicated inside the credit evaluation team and has no impact on the ranking or selection of proposals. – The second step occurs after selection of proposals to the primary award list and the secondary award shortlist. Required collateral requirements, if any, for the selected proposals will be calculated. The collateral calculation has been simplified compared to previous RFPs. 53
Network Transmission Service Non-LD Products ILLUSTRATIVE Definitive Agreement Executed Primary Award Network Shortlist Transmission Requests PPA commences for initial one-year period regardless of results from TBU Initial 1 -year Delivery Term 2 nd and 3 rd Year of Delivery Term TBU Results NOT Satisfactory Results Satisfactory 2 nd and 3 rd Year of Delivery Term continues in effect ESI Deliverability Evaluation Results NOT Satisfactory Results Satisfactory 2 nd and 3 rd Year of Delivery Term continues in effect ESI may terminate Definitive Agreement within 270 days for the remaining Delivery term (i. e. , years 2 and 3) 54
FALL 2004 RFP Proposal Submission Process 55
Benefits of Electronic Proposal Submission Why ESI uses a process with only electronic submission of proposals: l Process worked very well in Fall 2003 RFP l Consistent data and formats for required information l Elimination of potential transcription errors and reduction of need to interpret information l Enhanced security and segregation of data (less human intervention) l Improved ability to store and retrieve electronic files (with information removed from view, as appropriate) l Pre-formatted reports and pre-determined access to information 56
Proposal Submission Sequence ILLUSTRATIVE Final RFP Posted to Website Bidder electronically submits Bidder Registration Form to ESI’s automated data review Return email sent to Bidder by Registration rejected ESI (incomplete) Registration confirmed Bidder ID provided Bidder prepares proposals Bidders electronically submits proposals to ESI’s automated data review Return email sent to Bidder by Proposal rejected ESI Proposal confirmed After conclusion of Proposal Submission period, segregated data reports generated for evaluation by RFP Proposal Evaluation Team (incomplete or invalid) These data reports are reviewed by Independent Monitor and RFP Administrator prior to distribution to RFP Proposal Evaluation Team 57
Electronic Bidder Registration l Bidder Registration is required of all Bidders and must be successfully completed before 6: 00 p. m. CT on January 14, 2005. l Bidders must properly complete all required fields of Bidder Registration Form. l Proposals from plants which have not been registered will not be accepted by ESI. It is recommended that Bidders submit Forms to register plants even if a Bidder is uncertain about whether to submit a proposal for a particular plant, and even if that plant is not ultimately proposed. l Bidder must provide a correct e-mail address; a confirmation of receipt of Bidder registration form will be sent to the Bidder only if a correct e-mail address has been provided. l Bidders must submit the Bidder Registration form first via e-mail; upon receiving confirmation of receipt of Bidder Registration, Bidders must fax an executed Bidder Registration Form to ESI’s RFP Administrator. BIDDER REGISTRATION IS NOT COMPETE UNTIL A FAXED, EXECUTED BIDDER REGISTRATION FORM IS RECEIVED BY ESI’S RFP ADMINISTRATOR. l Bidders must submit the Bidder Registration Forms well in advance of the deadline in order to provide adequate time to correct any errors which may be identified in the electronic registration process, and in order to resubmit a valid registration form by the specified deadline. l Bidder Registration Forms submitted after the deadline will be automatically rejected. l Bidders should keep a record of Bidder ID, Plant ID(s) and Signature ID. This information will be required during proposal submission and for other correspondence. l All Bidders should periodically check the RFP Website for additional information. 58
Electronic Proposal Submission l All proposals must be properly submitted via electronic submission only (email) by 6: 00 p. m. CPT on January 20, 2005. Bidders should: l Properly complete all required fields of the Proposal Submission Form. l Provide a correct e-mail address. l Submit proposals well in advance of the deadline in order to provide adequate time to correct any errors which may be identified by ESI in the electronic proposal submission process in order to provide ample time for the Bidder to submit a valid proposal by the specified deadline. l Periodically check the RFP Website for additional information. 59
Question & Answer Session 60
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