overview of fall 2002 rfp dave harlan/ sue tierney

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OVERVIEW OF FALL 2002 RFP

Dave Harlan/Sue Tierney

ENTERGY SERVICES, INC.

October 2002

This presentation summarizes certain matters related to ESI’s Fall 2002 Request for Proposals (as it may be amended or modified, the “Fall 2002 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 Fall 2002 RFP, including the Reservation of Rights set forth in the Fall 2002 RFP and the terms and acknowledgments set forth in the Proposal Submission Agreement, and any verbal answers shall be superceded by any written answers subsequently posted on the RFP web-site, https://emo-web.no.entergy.com/ENTRFP/index.htm.

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The principal topics of this discussion are:

New RFP Process

RFP Participants

Resource Procurement Options

Timeline

Role of Lexecon

Overview Of Discussion

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New RFP Process

• Designed to support our 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

• Cyclical Procurement Process– Formalized RFPs will be issued 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

• Projected Resource Requirements– Summer 2003

• 2000 MW

– 2003 – 2012 Planning Horizon• 3,600 – 6,800 MW (inclusive of 2000 MW indicated for summer 2003)

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

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Entergy System Load

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2,000

4,000

6,000

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1/1/

01

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1/29

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2/12

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2/26

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4/23

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5/21

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1/01

Weekly Min Load Following

Entergy System Hourly Load 2001 (MW)

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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 FERC, state, and local affiliate rules

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Supply Side Resource Procurement Options

• RFP Products– Annual Plan Products (< 1 yr.)– 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.)

• Long Term Resource Acquisition Opportunities– 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– 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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BindingProposals Due

11/15/02

NoticeOfIntentTo SubmitProposal

11/08/02

Final RFP Issued

On or about10/31/02

Spring 2003Formal

RFPSolicitation

Process*12/13/02

Decision onShort TermProposals

By 4/03

Final DecisionsRegardingSpring 2003RFP

Bidder’sConf. Open to all parties

Houston10/16/02

RFP Process TimelineFor Annual Plan & MUCPA Products (short-term products)

Evaluation & Negotiation

Fall 2002 Formal RFP Solicitation Process

Tech.Conf.w/ LPSC &InterestedParties

Baton Rouge10/15/02

* It is ESI’s intent that decisions regarding short-term proposals received in conjunction with the Fall 2002 RFP process will be completed prior to the Spring 2003 RFP.

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Spring 2003Formal

RFPSolicitation

Process

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

Short ListIdentified

On or About12/13/02

Commercial & Regulatory Discussions/Negotiationsfor Fall 2002 Proposals

Additional evaluation& due diligence asrequired

Fall 2002 Formal RFP Solicitation Process

Tech.Conf.w/ LPSC &InterestedParties

Baton Rouge10/15/02

Final RFP Issued

On or about10/31/02

Bidder’sConf. Open to all parties

Houston10/16/02

NoticeOfIntentTo SubmitProposal

11/08/02

IndicativeProposals Due

11/15/02

FinalBindingProposals Due

On orabout1/15/03

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Role of Lexecon

• Pre-eminent 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 and provide an independent third party perspective

• Expertise in both domestic and international energy markets with specific experience in:– Procurement of Supply for Standard Offer Service– Design of RTO Strategy– Performance Analysis of Western Wholesale Markets– Analysis of Regional Power Markets– Design of Regional Congestion Management Policies– Determination of Wholesale Power Market Policy– State and federal regulatory policy for the electric and gas industries

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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• 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

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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.

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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Q& A Process at the Technical Conference

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

– Oral responses will be provided where practicable at the technical conference

– 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 at the technical conference, 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 FALL 2002 RFP

Ken Turner


October 2002


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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 longer 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 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 Base Load 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

• Financial Integrity Risk Management

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Long-Term Resource Plan – Needs Assessment

– Peak Period Reliability Requirements

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

*Reserve Margin based on 2002 LOLP.

Estimated Resource Supply Requirements for the Energy Operating Companies

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Firm Load, (Excl. interruptible)Peak MW 20,060 20,642 20,967 21,346 21,682 21,984 22,423 22,819 23,232 23,612 Reserve Margin* 16.8% 3,380 3,478 3,533 3,597 3,653 3,704 3,778 3,845 3,915 3,979 Total Resources (21,423) (21,436) (21,504) (21,544) (21,544) (21,544) (21,544) (21,544) (21,544) (21,544) Forecast Need 2,017 2,684 2,996 3,399 3,792 4,145 4,658 5,121 5,603 6,047

Peak MW (excluding EGSI-TX) 17,019 17,510 17,889 18,183 18,446 18,669 19,011 19,316 19,632 19,919 Reserve Margin* 16.8% 2,868 2,950 3,014 3,064 3,108 3,146 3,203 3,255 3,308 3,356 Total Resources (excluding EGSI-TX) (18,312) (18,325) (18,393) (18,433) (18,433) (18,433) (18,433) (18,433) (18,433) (18,433) Forecast Need (excluding EGSI-TX) 1,574 2,135 2,510 2,814 3,121 3,382 3,782 4,138 4,507 4,843

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– 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:

– Base load– 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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ETR 2003 Forecasted System Load vs. Existing ResourcesLoad Shape Includes Curtailable Demand

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5000

10000

15000

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25000

30000

MW

Baseload Intermediate Peaking & Reserves

Existing Capability from OPCOControlled Resources

Load Duration Curve vs.Desirable Long-term Resource Mix

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PRODUCT OVERVIEWFALL 2002 RFP

Jim Kenney


October 2002


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Overview of the product proposals being sought in the Fall 2002 RFP

Description of the six product families (11 term sheets)

Operational Terms & Conditions

Pricing


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ANNUAL PLAN CAPACITY

• Products– Unit contingent capacity and associated energy structured as either a:

• Daily Call Option (1 x 16)• Block Energy (5 x 16)

• Term– Summer Season

• June 1, 2003 – August 31, 2003• July 1, 2003 – August 31, 2003• June 1, 2003 – June 30, 2003

• Quantity– Up to 200 MW (In 50 MW increments) per proposal

• Pricing– Daily Call Option (1 x 16)

• Premium ($/kW-month)• Guaranteed heat rate multiplied by gas price index

– Block Energy • Fixed price ($/MWh)

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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) or three (3) years

• Beginning May 1, 2003• 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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MULTIPLE-YEAR UNIT CAPACITY PURCHASE AGREEMENT (MUCPA)

• Products– Proposals for gas 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) or three (3) years

• Beginning May 1, 2003• Bidder may propose a different start date after May 1, 2003

• Quantity– Up to 200 MW (In 50 MW increments) per proposal (although other 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– Purchaser prefers to provide fuel pursuant to a gas tolling agreement but is willing to negotiate an

alternative structure in which the bidder manages the fuel

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STABLE FUEL PRICE LIFE OF UNIT (“LOU”) CAPACITY PURCHASE

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

• Term– May 1, 2003, May 1, 2004 or later date 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

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

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

• Solid Fuel– Not to exceed $18.00 /MWh for the initial ten (10) years of contract, then adjusted

annually pursuant to mutually agreed 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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OWNERSHIP ACQUISITION OF “STABLE FUEL PRICE” BASELOAD

• Products– Solid fuel (coal, lignite, petroleum coke or nuclear)– CCGT or Cogeneration with long-term gas contract– Dispatchable, Load-following CCGT or Cogeneration– Dispatchable, Load-following CT/Quick response

• Term– Ownership of asset

• 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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RENEWABLE POWER GENERATION AND RENEWABLE ENERGY CREDITS (RECs)

• Products– Indicative proposals for Renewable Power Generation Products (capacity and energy)

• Base Load Supply– Life of Unit Purchase– Base Load Unit Acquisition

• Dispatchable Load Following– Multiple-year Unit Capacity Purchases – CCGT or Cogeneration– Multiple-year Unit Capacity Call Option – CCGT or Cogeneration– Unit Acquisition – CCGT or Cogeneration

• Quick Response/Peaking Supply– Multiple-year Unit Capacity Purchases – CT– Multiple-year Unit Capacity Call Option – CT– Unit Acquisition – CT– Capacity Call Option at designated Heat Rate

• Term– Specified by bidder based on each product

• Quantity– Increments of 5 MW or as specified by bidder

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

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Other Key Issues

• Transmission Service– All resources selected must 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– All resources with the exception of Annual Products will require prior regulatory approval

• Contracts– Draft model contracts detailing key terms and conditions have been provided for all short term

products and are expected to be utilized for final contract execution. Bidders are encouraged to conform to these contracts but are provided an opportunity to provide feedback regarding key contract provisions in their proposals.

– Draft model contracts will be provided to Bidders which are short-listed for long term product proposals.

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Proposal Evaluation ProcessFall 2002 RFPBob Cooper


October 2002


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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 2003 needs and beyond.

• The Proposal Evaluation Team will use a pre-defined evaluation process. Each proposal will be evaluated using the proposal evaluation criteria and methodology established prior to receipt of the proposals.

• 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 pre-defined procedures, criteria, and scoring systems (“Factor Evaluation”).

• 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.

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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.)

• 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, and

• 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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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.

• A point scoring system will be established 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.

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Factor Evaluation of Proposals (cont.)

• The Factor Evaluation Score will be recorded on a Factor Evaluation Scorecard. Performance factors will include (but are not limited to) features such as:

– Credit Issues – Compliance with the corporate risk management processes and limits for exposure to counterparties in transactions.

– Gas Supply Issues – Issues such as fuel supply flexibility (e.g. number of and availability of capacity in pipelines serving facility) and fuel supply flexibility for daily load following.

– Unit Commitment and Dispatching Issues – Issues such as ramp rate for units for load following and the availability of AGC for generation control.

– Transmission Issues – Issues such as resource location relative to previously identified transmission constraints, potential limitations on economic dispatch, exposure to single contingency event risks, etc.

– Operational Issues – Issues such as environmental compliance, unit operating and maintenance history, staffing and labor issues, and bidder experience in developing and /or operating projects that are of a comparable size and technology to the resource being proposed.

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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.)

• The primary analytical tool for the product category economic comparison will be a “PROSYM 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 identical or 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 on both economic and qualitative factors, 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 total Entergy System production costs given specified constraints and objectives.

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Development of Supply Portfolio Alternatives Consistent with Resource Supply Planning Objectives and Constraints (cont.)

• A “Portfolio Evaluation Model” (an integer programming model, which is a type of linear programming optimization model appropriate for evaluating discrete proposal packages) will be used to select a portfolio of proposals that result in the lowest evaluated total production cost consistent with constraints developed from the Resource Supply Objectives and the targeted product mix requirements for the Portfolio Alternative case. This model uses each proposal’s total production cost impacts as determined in the Economic Evaluation along with constraints based upon the Supply Resource Objectives and the targeted product mix to determine the lowest cost combination of proposals satisfying the constraints. This model will also be used to evaluate “sensitivity cases” associated with the Portfolio Alternative considering the impacts of various constraints.

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

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Comprehensive Cost and Operational Analysis

• 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”).

• Supply Plan Alternative cases will be further evaluated to assess the impacts of the entire portfolio of proposals upon total system production costs, transmission flows, overall credit risk of the portfolio, fuel supply risks, and the financial impact upon the Operating Companies' revenue requirements. The results of these evaluations will be summarized and included in the documentation for each Supply Plan Alternative.

• 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 and determine the participation in resources by each Operating Company.

overview of fall 2002 rfp dave harlan/ sue tierney

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