SYSTEM PLANNING 1 SPRING 2003 RFP for Supply-Side Resources ENTERGY SERVICES, INC. March 2003 This...

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SYSTEM PLANNING

SPRING 2003 RFPfor Supply-Side Resources

ENTERGY SERVICES, INC.

March 2003

This presentation summarizes certain matters related to ESI’s Spring 2003 Request for Proposals (as it may be amended or modified, the “Spring 2003 RFP”). This presentation, as well as any verbal answers to the questions of any interested parties provided during or following this presentation, are qualified in their entirety by reference to the Spring 2003 RFP, including the Reservation of Rights set forth in the Spring 2003 RFP and the terms and acknowledgments set forth in the Proposal Submission Agreement, and any verbal answers shall be superceded by any written answers subsequently posted on the RFP web-site, https://emo-web.no.entergy.com/ENTRFP/index.htm.

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Agenda Items

• Introductions

• Overview of Fall 2002, Supplemental and Spring 2003 RFP Processes

• System Overview/Resource Needs

• Product Overview

• Proposal Evaluation 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 verbally to some questions during the Question and Answer Session today.

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RFP OVERVIEW Spring 2003 RFP


March 2003


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The principal topics of this discussion are:

• RFP Process

• Resource Procurement Options

• RFP Participants

• Fall 2002 RFP Review

• Timeline

• Role of Lexecon

Overview Of Discussion

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RFP Process

• Designed to implement the Entergy Operating Companies’ overall resource planning objective to provide a portfolio of low-cost, reliable, and flexible resources matched to both the near-term and long-term supply needs of our retail customers

• Cyclical Procurement Process– Formalized RFPs will be issued at least twice annually during the spring and fall– Will seek both short-term and long-term resources– Seek to limit exposure to fuel and market risks and uncertainties, while

maintaining reliability

• Types of Resource Supply Roles– Baseload– Dispatchable/load following– Peaking

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Entergy System Load

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

1/1/

01

1/15

/01

1/29

/01

2/12

/01

2/26

/01

3/12

/01

3/26

/01

4/9/

01

4/23

/01

5/7/

01

5/21

/01

6/4/

01

6/18

/01

7/2/

01

7/16

/01

7/30

/01

8/13

/01

8/27

/01

9/10

/01

9/24

/01

10/8

/01

10/2

2/01

11/5

/01

11/1

9/01

12/3

/01

12/1

7/01

12/3

1/01

Weekly Min Load Following

Entergy System Hourly Load 2001 (MW)

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Entergy’s Resource Procurement Options - Overview

• Semi Annual RFP Products - unit-contingent products– MUCPA/MUCCO (1-3 yrs.)– Acquisition/LOU Purchase

• Ongoing short-term purchase process– Annual Plan Products (e.g. call options, 5x16 block energy purchases, etc.)– Weekly and monthly RFP Products– Supplemental RFP Products

• Long-term Resource Acquisition Opportunities - unit-contingent products– Asset acquisition or life of resource purchase from existing generation resources– Acquisition, ownership position, or life of resource purchase from new generation resources

• Self Build/Self Supply Options - unit-contingent products– Identify and execute when and if appropriate “Real Options” for self build opportunities including:

• New Opportunities• Repowering• Upgrades of existing facilities

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Entergy’s Recent Supply-Side RFP Solicitations

• Fall 2002 RFP – for delivery starting in 2003– Annual Plan Products (less than 1 year)– MUCPA/MUCCO (1-3 years)– Acquisition/LOU Purchase– Indicative Renewable Products

• Supplemental RFP – for delivery starting in 2003– STUCPA (3-month, 1-year)

• Upcoming Spring 2003 RFP – for delivery starting in 2004– MUCPA/MUCCO (1-3 years)– Acquisition/LOU Purchase

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RFP Participants

• Potential RFP Participants– Electric Utilities– Marketers– Wholesale Generators– Independent Power Producers– Qualifying Facilities– Entergy Non-Regulated Affiliates

• Entergy Non-Regulated Affiliates– Entergy’s Non-Regulated Affiliates will be allowed to bid in this process– Entergy Non-Regulated Affiliates will be required to meet the same bid requirements and

evaluation criteria as any third party– Entergy Non-Regulated Affiliates will be allowed to bid only during the formal RFP windows in

the fall and spring of each year– No offers for short-term purchases from Entergy Non-Regulated Affiliates will be considered

outside of the formal RFP window – All interactions with affiliates are subject to applicable FERC, state, and local affiliate rules

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Fall 2002 RFP Initiated a New Long-term Procurement Strategy

• For the summers of 2000 through 2002 Entergy’s summer capacity needs were met primarily by short-term purchases such as 5x16 products and call options

• In the Fall of 2002 ESI adopted a new long-term semi-annual procurement cycle to meet both long-term and short-term needs

• The Procurement Supply Strategy is designed to provide:– Entergy’s customers the benefits of the competitive wholesale market– an opportunity for merchant generators and other market participants to offer

capacity to Entergy through a variety of different products

• Fall 2002 RFP Products - Solicited– Short-term Products

• Annual Plan (1-3 months Summer 2003)• MUCCO/MUCPA (1 – 3 years)

– Life of Unit Products• Bricks and Mortar Acquisitions• Life of Unit Purchases

– Indicative Renewable Products

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Fall 2002 RFP Results:ESI Received Strong and Diverse Market Response

• 133 Proposals from 30 different Bidders– 37 Annual Proposals (Summer 2003)– 68 MUCPA/MUCCO Proposals (1-3 years)– 23 Life of Unit Proposals– 5 Indicative Renewable Proposals

• 45 Different resources offered, representing 17,856 MW of generation

• Response from resources located in:– Entergy Central 14– Entergy North 11– Entergy WOTAB* 10– Entergy Amite South 3– Outside Entergy Region 7

*West of the Atchafalaya Basin

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Summary of Results from Fall 2002 RFP

Total Proposals Received

Total Proposals Awarded/Short

listed

Total Contracts Executed/MW

Total Contracts in Negotiation/MW

Annual Plan Products

(1–3 mo. Summer)

37 0 0 0

MUCCO/MUCPA

(1-3 years)68 3/550* MW 2**/425 MW 0

Life of Unit 23 5 0 2**/825 MW

Indicative Renewable

5 0 0 0

Total 133 8 2**/425 MW 2**/825 MW

* After being selected, one Bidder refused to honor the terms of their bid** Indicates that one proposal in this category was awarded to an Entergy Non-Regulated Affiliate

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Fall 2002 RFP Results:Competitiveness of Limited-term Proposals Varied Substantially

• 37 Short-term Proposals for summer capacity were all priced above other available alternatives

• 13 CCGT/Cogen resources provideda wide distribution of proposals,see figure

• 7 CT resourceshad similardistribution(-1.23 - +1.76)

• A total of 550 MW of limited-term proposals were selected (425 MW actually contracted)

Illustrative

Standard deviations of bid price

MW

(2.50) (2.00) (1.50) (1.00) (0.50) - 0.50 1.00 1.50 2.00

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Fall 2002 RFP Common Problems Encountered with Limited-term Proposals

• Proposals submitted in the wrong proposal category– Call Options bid as Load-Following and vice versa– In the Spring 2003 RFP ESI has tried to make

the products easier to understand• Sufficient information to evaluate economic and operational

attributes was not provided– Fuel availability– Transmission capacity and interconnection point– Heat Rate and Capacity specification

• Minimum load requirements• Heat rate dependency of generation level

– Existing contractual obligations• Proposals not signed, or not binding

– From now on, ESI will exclude non-binding proposals from further consideration• Failure to price contract terms into the offered proposal

– Model Contracts should provide basis for pricing• Note that this is not an exhaustive list

ESI did not exclude any proposal in the evaluation of the Fall 2002 RFP based on incomplete information. ESI reviewed proposals after seeking clarifying information, but makes no commitment to do so in the Spring RFP.

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Fall 2002 RFP Common Problems Encountered with Long-term Proposals

• Sufficient information to evaluate economic and operational attributes was not provided– Fuel availability– Transmission capacity and interconnection point– Heat Rate and Capacity specification

• Heat rate curves• Heat rate and capacity as a function of steam load of cogen host• Minimum load requirements

– Existing contractual obligations– Operational cost structure

• Potential transaction structure omitted– Information regarding ownership, financing, etc. is required if the Bidder is

considering anything else than a straight bricks-and-mortar acquisition

• Did not address resource needs specified in the RFP– CCGT resource with COD later than summer 2005– Life-of Unit proposals for CCGT resources without long-term gas contracts– Proposals for conceptual units, not specific units as requested

• Note that this is not an exhaustive list

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The Supplemental RFP Provided Additional Summer 2003 Capacity

• The Supplemental RFP intended to meet the remaining 2003 needs by a request for summer term (June-August) or one-year term (May-April) proposals

• 24 proposals received for CCGT and CT capacity

• Approximately 500 MW of gas-fired capacity was selected– After being selected, one Bidder refused to honor the terms of their bid

• No Long-term Capacity– The acquisition of the capacity in the Supplemental RFP will not eliminate the need for

additional capacity sought by this Spring 2003 RFP.

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BindingProposals Due

4/23/03

NoticeOfIntentTo SubmitProposal

4/18/03

Final RFP Issued

On or about4/11/03 Fall 2003

FormalRFP

SolicitationProcess*

5/16/03

Decision onShort- termProposals

Bidders’Conf. Open to all parties

Houston3/28/03

Spring 2003 RFP Process TimelineFor MUCCO & MUCPA Products (limited-term products)

Evaluation & Negotiation

Spring 2003 Formal RFP Solicitation Process

Tech.Conf.w/ LPSC &InterestedParties

Baton Rouge3/27/03

* It is ESI’s intent that decisions regarding short-term proposals received in conjunction with the Spring 2003 RFP process will be completed prior to the Fall 2003 RFP.

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Fall 2003Formal

RFPSolicitation

Process

Spring 2003 RFP Process Timelinefor Asset Acquisition & LOU Purchase (long-term products)

Short ListIdentified

On or About5/16/03

Commercial & Regulatory Discussions/Negotiationsfor Spring 2003 Proposals

Additional evaluation& due diligence asrequired

Spring 2003 Formal RFP Solicitation Process

Tech.Conf.w/ LPSC &InterestedParties

Baton Rouge3/27/03

Final RFP Issued

On or about4/11/03

Bidders’Conf. Open to all parties

Houston3/28/03

NoticeOfIntentTo SubmitProposal

4/18/03

IndicativeProposals Due

4/23/03

FinalBindingProposals Due

On orabout6/30/03

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Role of Lexecon - Background

• National economics and policy consulting firm with offices in Chicago and Cambridge, MA, established in 1977.

• Retained by ESI to assist in the development and oversight of the RFP process and provide an independent third-party perspective

• Expertise in both domestic and international energy markets with specific experience in:

– Economic regulation of utilities– Competitive procurement of energy resources by electric companies– Resource planning processes by electric companies– Wholesale power market design and analysis

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Role of Lexecon (cont.)

• Seeks to ensure objectivity and impartiality of the RFP process through the oversight and monitoring of the following:

– Solicitation Process• Review of draft RFP documents• Receipt of actual “Notice of Intent to Submit Proposal” from prospective Bidders• Oversight of opening of all proposals• Classification and distribution of Proposal information

– Evaluation Process• Review of evaluation processes and criteria prior to receipt of proposals• Monitoring of actual evaluation process

– Selection Process• Monitoring and review of final portfolio selections

– Negotiation Process• Selective monitoring of communications between Entergy and non-affiliate Bidders• Monitoring of all communications between Entergy and any Affiliates

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The objectives of the Question and Answer Process include the following:

• To ensure to the extent practicable that all Bidders have equal access to information that may be potentially relevant to their proposals.

• To minimize the need for either ESI or Bidders to disclose confidential information.

• To maintain to the maximum extent practicable the confidentiality of confidential information that is disclosed in Bidders’ proposals or otherwise in connection with the RFP.

• To ensure compliance with all applicable affiliate rules and codes of conduct and other information sharing rules.

Spring 2003 RFP - Q & A Objectives

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Communications with ESI regarding RFP issues before Proposal Submission

• For all purposes related to the RFP, except the submission of questions relating to the Entergy Transmission System, there is only ONE contact - Julie Ell.

• 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.

• 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.

• All questions from market participants relating to the RFP should be submitted through the question and answer process outlined in Section 2.6 of the RFP. The procedure for issuing questions regarding the transmission system is outlined in Section 2.7 of the RFP.

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SYSTEM PLANNING

Q & A Process at today’s Conference

• At today’s conference, all questions will be submitted in writing

– Oral responses will be provided where practicable today

– Written answers in any case will be posted on the Entergy RFP website

– Written answers may contain information different from or in addition to information provided orally today, in which case the written answer will supercede the oral answer

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Question and Answer Process

• ESI will respond to market participant’s questions and requests for clarification or additional information relating to the RFP.

• The Entergy RFP website will be the official information source for accessing information relating to the RFP. All questions and answers will be posted on the RFP website. Responses will not be sent directly to Bidders who have submitted questions. Therefore, Bidders are encouraged to check the website periodically.

• All information contained in a question that is necessary for a complete articulation of the question will be posted on the website.

• ESI will attempt to redact information that would identify the Bidder and other information that Bidders are precluded from disclosing to other Bidders pursuant to the Proposal Submission Agreement (Appendix C to the RFP). (It would be preferable for Bidders to redact such information prior to submitting a question.)

• Although a proposal submitted pursuant to this RFP process is considered to be confidential, and will be given the protections described in Section 2.10 of the RFP, other information supplied by potential Bidders will not be considered to be confidential unless particular arrangements have been made for the submission of such information pursuant to a suitable confidentiality agreement.

• A potential Bidder should not submit questions to ESI containing confidential Bidder information without following the procedures specified in Section 2.6 of the RFP.

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Protection of Confidential Information in the Q & A Process

• ESI’s preference is to avoid the need for ESI or Bidders to disclose confidential information.

• ESI does not expect that Bidders will need to include confidential information in questions relating to the RFP, and urges potential Bidders not to do so.

• If a Bidder believes that it must submit a question containing confidential information, then:

– the Bidder must notify ESI in writing of the purpose of the question and the nature of the confidential information contained in that question, and

– ESI, without receiving any confidential information, will then determine whether the disclosure of such information is necessary or can be avoided for purposes of the RFP process.

• If ESI determines that it is necessary for either ESI or any Bidder to submit confidential information in connection with the Q&A process, then such information may be provided pursuant to a suitable confidentiality agreement.

• Confidential Bidder information contained in a question or in a response to a question will only be disclosed to the Bidder who asked the question and to which the confidential information relates. A response containing confidential ESI information (but not any confidential Bidder information) will be sent to all Bidders who execute the applicable confidentiality agreement.

• Please review carefully Sections 2.6 and 2.7 of the RFP, as they describe in detail the procedures that ESI will follow.

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SYSTEM OVERVIEW / RESOURCE NEEDS Spring 2003 RFP


March 2003


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• Entergy System Resource Planning Process

• Long-Term Resource Planning Principles

• Supply Procurement Objectives

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Resource Planning Process

• Resource Planning In Recent Years– Supply needs met through a variety of short-term supply resources– Limited procurement of mid- to long-term supply resources

• Resource Planning in Future Years– Broaden range of supply resources while meeting both short- and long-term

reliability needs

• Overall Resource Planning Process– Retains long-standing elements of the planning process

• Forecast of System Load• Determination of existing resource capability• Determination of additional resources needed to reliably meet System Load

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Long-Term Resource Planning Objective and Planning Principles

• Primary Objective

– Provide for both the short-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 reliability and operational constraints.

• Planning Principles

– Planning for Uncertainty• Supply Plan Matched to Certainty (and Uncertainty) of Future Demand Obligations

– Industrial Load – Retail Open Access (current policy in states, and future potential exposure)– Regulated Retail Customer Demand

• Market Structure Uncertainty• Use of Planning Scenarios

– Gas Supply and Price Volatility– Purchase Power Price Volatility Demand-Supply Balance Uncertainty

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• Planning Principles (cont’d)

– Minimum Criteria for Resource Supply Planning

• Adequacy of Resources for Peak Period Reliability– Based on Loss of Load Probability– Combination of Annual Plan purchases and longer-term capacity additions

• Security of Long-Term Supply Through Long-Term Controlled Capacity Resources

– Provide secure supply of generation resources for firm regulated retail customers

– Combination of:» Owned generation capacity» Long-term (> 10 year) capacity purchases» Real executable supply options (repowering or self-build)

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• Adequacy of Baseload Resources

• Supply Technology Efficiency

• Diversity of Supply– By fuel type, resource size, location and supplier

• Price Stability– Stable Fuel Price Capacity

» Solid fuel (e.g. coal, lignite, petroleum coke or nuclear),» Highly efficient gas-fired generation with fixed price gas contracts

– Fuel Risk Mitigation» Availability and Price

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Long-Term Resource Planning Objectives and Planning Principles



• Purchase Power Risk Management– Diversity of Contract Duration– Annual Plan purchases < one year– One, two and three year unit capacity purchases

• Diversity of Supply Contracts and Suppliers

• Geographic Distribution of Purchases– Address uncertainties regarding transmission market structure, congestion

management and import capabilities– Transmission losses

• Risk Management

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Long-Term Resource Plan / Needs Assessment

• Between 2004-2012 ESI’s incremental needs grow from 1,500 to 4,700 MW

• Peak Period Reliability Requirements• Forecast of System Load• Determination of existing resource capability (including recently added

resources)• Determination of additional resources needed to reliably meet System Load

*Reserve Margin based on 2002 LOLP.

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Firm Load (Excl. Interruptible) 19,946 20,500 20,816 20,924 21,206 21,498 21,751 22,137 22,541 22,912Reserve Margin (16.85%)* 3,361 3,454 3,508 3,526 3,573 3,622 3,665 3,730 3,798 3,861Total Requirement for Firm Load 23,307 23,955 24,324 24,450 24,779 25,120 25,416 25,867 26,339 26,772Total Controlled Resources as of 1/1/2003 (1) (21,324) (21,324) (21,387) (21,281) (21,233) (21,233) (21,122) (21,122) (21,122) (21,122)Long-Term Resources expected to be acquired as of 5/1/2003 (2) (621) (621) (621) (821) (821) (821) (929) (929) (929) (929)Short-Term Resources expected to beacquired as of 5/1/2003 (3) (1,147) (485) (185) 0 0 0 0 0 0 0

Total Resources as of 5/1/2003 (23,092) (22,430) (22,193) (22,102) (22,054) (22,054) (22,051) (22,051) (22,051) (22,051)Forecast Need for Firm Load 215 1,525 2,131 2,348 2,725 3,066 3,365 3,816 4,288 4,721Potential Resources for Operational Savings and/or Opportunity Sales 700 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000

(1) Excludes Paterson #4, GG Retained Share, EAI Wholesale Baseload Capacity(2) Solid Fuels Plan Capacity(3) Includes Fall 2002 and Supplemental RFP results

Estimated Resource Supply Requirements for the Entergy System

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SYSTEM PLANNING

Supply Procurement Objectives

– Resource Procurement Objective• Retains long-standing objectives for Entergy Companies • To ensure that newly acquired resources, together with existing resources, have the

necessary characteristics to satisfy customer needs efficiently, effectively and appropriately

– Determination of Type of Capacity Needed

• Identify generation supply role:

– Baseload– Intermediate dispatchable load-following– Peaking/reserve

• Assess Entergy Generation Resources versus Load Shape requirements (next slide)

– Evaluate how existing resources compare to the approximate level for each supply role category that is typically desirable over a long-term planning horizon

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SYSTEM PLANNING

Supply Procurement Objectives

ETR 2004 Forecasted System Load vs. Existing Resources

0

5000

10000

15000

20000

25000

30000

MW

Base Intermediate Peaking & Reserves

Load Shape Includes Curtailable Demand

Load Duration Curve vs. Desirable Long-term Resource Mix

Existing Capability from Long-Term Resources

SYSTEM PLANNING

PRODUCT OVERVIEW SPRING 2003 RFP


March, 2003


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• Overview of the product proposals being sought in the Spring 2003 RFP

• Describe the three product families (11 term sheets)– Operational Terms & Conditions– Pricing

• All products are unit-contingent

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Multiple-Year Unit Capacity Call Option (MUCCO)

• Products– Unit contingent capacity and associated energy from a

• Combined cycle gas turbine (“CCGT”) • Simple cycle gas turbine (“CT”)

• Term– Full year proposals for one (1), two (2) and three (3) years

• Beginning May 1, 2004• Bidder may propose a different start date

• Quantity– Up to 200 MW (In 50 MW increments) per proposal (although other amounts will be considered)– May offer entire capacity of unit

• Pricing– Premium ($/kW-year)

• Paid monthly in arrears subject to an adjustment based on actual capacity availability– Guaranteed heat rate multiplied by gas price index or guaranteed heat rate curve (if for entire unit)

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SYSTEM PLANNING

Multiple-Year Unit Capacity Purchase Agreement (MUCPA)

• Products– Proposals for gas purchase or tolling products which include rights to capacity and energy

• Combined cycle gas turbine (“CCGT”) or Cogeneration– Dispatchable MUCPA– Limited dispatch MUCPA

• Simple cycle gas turbine (“CT”)

• Term– Full year proposals for one (1), two (2) and three (3) years

• Beginning May 1, 2004• Bidder may propose a different start date after May 1, 2004

• Quantity– All amounts will be considered– May offer entire capacity of unit

• Pricing– Capacity Payment ($/kW-year)

• Paid monthly in arrears subject to an adjustment based on actual capacity availability– Guaranteed heat rate or guaranteed heat rate curve (if for entire unit)

• Fuel– Buyer may provide fuel pursuant to a gas tolling agreement or Bidder may provide fuel through a

purchase power agreement

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Stable Fuel Price Life of Unit (“LOU”) Capacity Purchase

• Products– Solid fuel (nuclear, petroleum coke, coal or lignite) – CCGT or Cogeneration with long-term gas contract

• Term– Commencing on a date in 2004 or 2005 specified by Bidder through current expected

retirement date– Successive one-year extension options if Bidder operates resource beyond the end of the

term

• Quantity– As specified by Bidder


• Paid monthly in arrears subject to an adjustment based on actual capacity availability– Energy Pricing

• Solid Fuel– Fixed energy charge for the initial ten (10) years of contract as specified by

Bidder, then adjusted annually pursuant to mutually agreeable methodology• CCGT or Cogeneration with long-term gas contract

– Based on the resource’s actual thermal efficiency and a 10 year fixed gas price

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Other Life of Unit (LOU) Purchase

• Products– Life of unit capacity and energy from a portfolio of specific generating resource units

(or individual CCGT or CT units)• scheduled day ahead with the ability to change schedule on a real time basis

• Term– Commencing on a date in 2004 or 2005 specified by Bidder through current expected

retirement date– Successive one-year extension options if Bidder operates resource beyond the end of the

term

• Quantity– MW of Summer Dependable Capacity for each generating unit as specified by Bidder


• Paid monthly in arrears subject to an adjustment based on actual capacity availability– Energy Pricing

• Based on the resource’s actual thermal efficiency and a 10 year fixed gas price

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Ownership Acquisition

• Products– “Stable Fuel Price” Baseload

• Solid fuel (nuclear, petroleum coke, coal or lignite)• CCGT or Cogeneration with long-term gas contract

– Dispatchable, Load-following • CCGT or Cogeneration• CT/Quick response

– Multiple Units• Portfolio of Specific Generating Units (may include baseload, load-following or peaking)

• Term– Ownership

• Quantity– As specified by Bidder

• Pricing– Purchase Price ($/kW) to be paid upon closing– Flat price to be paid upon closing

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SYSTEM PLANNING

Other Key Issues

• Transmission Service– ESI prefers resources that qualify as a firm network resource (prior to initial delivery as

determined by the Entergy Transmission Organization)– ESI will manage requests for firm network service for the selected winning resources

• Regulatory Approvals– Resources will require prior regulatory approval

• Contracts– Draft model contracts detailing terms and conditions have been provided for the limited-term

products and are expected to be utilized for final contract execution. Bidders should take the terms and conditions specified in these agreements into consideration in the pricing of their product proposals

SYSTEM PLANNING

Proposal Evaluation ProcessSpring 2003 RFP


March 2003


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• Overview of Evaluation Method

• Key Evaluation Factors for Product Categories Utilized in the Proposal Evaluation Process

• Factor Evaluation of Proposals

• Economic Evaluation of Proposals

• Development of Supply Portfolio Alternatives Consistent with Resource Supply Planning Objectives and Constraints

• Comprehensive Cost and Operational Analysis

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Evaluation Method Overview• The proposal evaluation process will be conducted by the Proposal Evaluation Team,

with oversight from the Supply Procurement Executive Team. The Proposal Evaluation Team will evaluate proposals and develop supply portfolio alternatives to be presented to the Operating Committee for its decision regarding procurement of resources for 2004 needs and beyond.

• The Proposal Evaluation Team will use the same evaluation process as was used during the Fall 2002 RFP. Each proposal will be evaluated using the same proposal evaluation criteria and methodology used in the Fall 2002 process.

• Proposals will be opened and reviewed for compliance with threshold requirements as specified in the RFP prior to the evaluation of any proposals.

• The primary consideration in the evaluation of individual resource proposals will be an objective evaluation of the economic impacts of a proposal on Entergy System total production costs (“Economic Evaluation”).

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Evaluation Method Overview• Key proposal factors that cannot be easily included in the Economic Evaluation (such as

credit, gas supply and flexibility, potential transmission issues, etc.) will be evaluated using the same general procedures, criteria, and scoring systems (“Factor Evaluation”) as in the Fall 2002 RFP.

• A “Portfolio Evaluation Model” will be used to identify a portfolio of proposals that result in the lowest evaluated production cost consistent with constraints developed from the Resource Supply Objectives and the targeted product mix requirements. This model will also be used to evaluate “sensitivity cases” associated with each Portfolio Alternative considering the impacts of various constraints.

• The Proposal Evaluation Team will select a set of the Evaluated Portfolio Alternatives for possible presentation to the Operating Committee for its review and decision (“Supply Plan Alternatives”). Supply Plan Alternative cases will be further evaluated to assess the integrated effect of each alternative portfolio of proposals upon total system production costs, transmission issues, and the financial impact upon the Operating Companies.

• Lexecon will oversee the various steps in the Evaluation process, as it did during the Fall 2002 RFP process.

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SYSTEM PLANNING

Key Evaluation Factors for Product Categories Utilized in the Proposal Evaluation Process

The key price, cost and performance factors that will influence selection include:

• Non-fuel annual revenue requirements

• Energy price as a function of heat rate curve and operating level

• Expected and historical availability factor

• Dispatch flexibility (minimum run levels, start-up costs and start-up times, etc.)

• Dispatch benefits (i.e. displacement of more expensive energy)

• An assessment of transmission impacts including:• constraints on dispatch;• the potential for the resource to qualify as a firm network resource;• any estimated transmission costs (or avoided transmission costs associated with

qualifying the resource for firm network service); and• the ability of non-firm resources to deliver into multiple Entergy geographic load areas,

• Fuel supply availability and flexibility

• The Bidder’s credit quality and willingness to offer credit security, if needed

• An assessment of operational issues including but not limited to environmental compliance and risks, unit operating history, and experience of the plant operator

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SYSTEM PLANNING

Factor Evaluation of Proposals

• The operational performance of proposals will be assessed by factor evaluators using evaluation methodology that will include examination of features of the proposal response that are difficult to translate into economic parameters but which can be used to differentiate relative benefits of resource alternatives.

• The same point scoring system that was used during the Fall 2002 RFP process will be used to reflect relative performance of one or more non-economic factors. Each proposal will be assigned an overall point score for each factor (“Factor Evaluation Score”) using the pre-established factor evaluation procedure.

• No proposals were rejected in the Fall 2002 RFP as a result of the screening process using the Factor Evaluations.

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SYSTEM PLANNING

Economic Evaluation of Proposals

• The Economic Evaluation consists of two steps:– The ranking of individual proposals based upon their individual impact upon

Entergy System total production costs; and– The development and evaluation of supply portfolios consisting of a

combination of proposals meeting the overall supply requirements and the objectives established by the Operating Committee for resource supply.

• The economic evaluation of individual proposals results in the ranking of individual proposals within product groups and product categories based upon the incremental economic impact of each proposal on the total production cost of the Entergy System. The results include a “Product Category Supply Cost Curve” that can be used to illustrate the proposal responses and to evaluate alternative product mix portfolio alternatives.

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Economic Evaluation of Proposals (cont.)

• As in the Fall 2002 RFP process, the primary analytical tool for the product category economic comparison will be a “Proposal Evaluation Model” production costing model that will utilize information provided in the proposal response to examine the proposal’s incremental total production cost impact on Entergy System production costs

• The economic performance evaluation methodology will consider multiple Evaluation Scenarios for each proposal to capture the impact of uncertainties resulting from “uncontrollable cost drivers” such as gas prices, the future price and availability of economy or other power purchases, or other significant factors.

• The resulting economic analysis of the total production cost for individual proposals will be consolidated into a Product Category Economic Ranking (Product Category Supply Cost Curve). Factor evaluations will also be considered in this ranking, particularly with respect to proposals that have very similar economic impacts.

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Development of Supply Portfolio Alternatives Consistent with Resource Supply Planning Objectives and Constraints

• The proposal evaluation process will produce a set of Supply Plan Alternatives to be presented to the Operating Committee representing combinations of proposal responses in several product categories that meet the Resource Supply Objectives.

• Once individual proposals have been evaluated by product category and product group, several potential portfolio alternatives that meet the Supply Procurement Plan Objectives will be developed through analysis that seeks to select the optimum set of resources to minimize Entergy System total production cost given specified constraints and objectives.

• The combination of economic and factor evaluations with ESI’s supply planning constraints and objectives is used to identify several “portfolios,” consisting of the lowest cost combinations of proposals across a robust range of planning assumptions.

• For each Portfolio Alternative evaluated, the Proposal Evaluation Model will be used to assess the impact of the combined proposals included in the Portfolio Alternative upon Entergy System total production cost.

• The Proposal Evaluation Team will select a limited set of Evaluated Portfolio Alternatives for possible presentation to the Operating Committee for its review and decision (“Supply Plan Alternatives”).

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Comprehensive Cost and Operational Analysis

• Supply Plan Alternatives will be further evaluated to assess the impacts of the entire portfolio of proposals upon Entergy System total production cost, transmission flows, overall credit risk of the portfolio, fuel supply risks, and the financial impact upon the Operating Companies' revenue requirements.

• The Supply Plan Alternatives, along with associated analyses, sensitivities and recommendations, will be presented first to the Supply Procurement Executive Committee and then to the Operating Committee for its review. Additional studies may be requested.

• Based upon the Supply Plan Alternatives and associated analyses, the Operating Committee will select the resources to be acquired or short listed and determine the participation in resources by each Operating Company.

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SPRING 2003 RFPQuestions & Answers


March 2003


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In the Fall 2002 RFP, virtually every bid had technical deficiencies. These can be avoided by:• Completing and signing all required forms.

• Providing sufficient, accurate information regarding fuel supply and Seller’s ability to ensure fuel can be provided to meet the capacity of the facility during peak operating conditions and in the anticipated mode.

• Providing sufficient, accurate information regarding the heat rate or capacity of a generating resource. Proposed cogeneration facilities must provide detailed information regarding the expected steam demand.

• Providing sufficient information regarding the available transmission capacity of the facility, any known constraints or the specific interconnection point.

• Identifying specifically relevant operating constraints or concerns associated with the facilities. Minimum load requirements should be fully explained and disclosed in the proposal.

• Disclosing sufficient, accurate information about existing contracts regarding the sale of the output of the generating resources and/or the steam demand associated with a cogeneration facility.

• Providing information regarding the transaction structure which Bidder is proposing including issues relating to ownership, financing, etc., as well as key components or requirements of that structure.

• Providing requested cost information as it relates to the facilities.

• Reading the Model Contracts and ensuring these terms and conditions are taken into consideration in the development of the proposal.

• Providing adequate information regarding the credit support associated with a specific proposal.

• Reviewing for any significant typographical or other errors.

Lessons for Spring 2003 RFP

SYSTEM PLANNING 1 SPRING 2003 RFP for Supply-Side Resources ENTERGY SERVICES, INC. March 2003 This...

Documents

Transcript of SYSTEM PLANNING 1 SPRING 2003 RFP for Supply-Side Resources ENTERGY SERVICES, INC. March 2003 This...