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The Experimental Market The Experimental Market Valued Energy Reduction Valued Energy Reduction Service (MVER) Rider for Service (MVER) Rider for Arkansas and LouisianaArkansas and Louisiana

2005 update2005 update

The Experimental Market The Experimental Market Valued Energy Reduction Valued Energy Reduction Service (MVER) Rider for Service (MVER) Rider for Arkansas and LouisianaArkansas and Louisiana

2005 update2005 update

Background

Market Valued Energy Reduction (Schedule MVER)

Market Valued Call Option (MVCO) Service

Market Valued Energy (MVE) Service

Sources of Information

Presentation ContentsPresentation Contents

An airline has oversold a flight by five seats

Passengers with “firm” reservations can not be bumped against their will provided they have checked in prior to 10 minutes before departure

The airline has made a conscious decision to meet high demand despite having a fixed supply of seats available on the plane

Given the high demand, the airline has most likely sold those last few seats to business travelers at higher than average fares

BackgroundBackground

Potential solutions1. Request another plane to take the five passengers2. Have their maintenance crew add five more seats to the plane3. Randomly draw five names and not let those passengers board4. Not sell those last five tickets5. Provide a financial incentive to five customers with time

flexibility in return for them volunteering to give up their seats

By choosing Option 5, the airline has met the objective of fulfilling its demand given a fixed supply and has done so at the lowest total cost

Customers that volunteer to give up their seats are happy as are those that retain their seats and fly to their destination


How does the airline analogy fit?– First, our motive is not to generate profit, but to lower the total delivered cost of

power to our customers– Entergy uses both generation and purchased power to meet our customer’s energy

needs on a real-time basis– We have no control over real-time customer demand and are subject to generation

and purchased power supply constraints– There is a very strong correlation between high real-time customer demand and

when resources are scare in the market– The wholesale power market’s response to scarce supply is to price available

power at high prices– Going back to the airline analogy, our options have been historically limited to the

first three choices– MVER creates the opportunity to pay participating customers to reduce their

energy consumption when resources are needed, hopefully displacing higher cost alternatives



$10

$100

$1,000

$10,000

1 10 19 28 37 46 55 64 73 82

Highest to Lowest Business Day of the Summer

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16-

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1999

1998

1998 & 1999 Into Entergy Energy Prices*

* Represents firm delivery of a 16-hour (6 a.m. - 10 p.m.) block of power scheduled “day ahead”

Is your site(s) a good candidate for MVER?– Do I meet the applicability section in the rider?– Do I have (1) discretionary load that can be shed with one-day

notice, (2) a back-up diesel or gas-fired generator(s)* or (3) a load management system in place today?

– Would anything prevent me from using this equipment/capability for 50 – 150 hours this upcoming year?

– What is the total variable cost per hour (or per curtailment) that our site(s) would incur by participating in any of the programs (e.g., fuel, labor, upgraded metering, inventory)?

– Does the potential economic benefit from participation outweigh the associated cost?


* Note that Entergy is not purchasing power via a physical interconnection.

Two unique options under MVERSchedule MVERSchedule MVER

Market Valued Energy Reduction

Market Valued Call Option (MVCO) Service

Participants bid prior to the summer for a specific “package” of curtailments

Bid will be compared against options to purchase similar power from other utilities as well as independent power producers

Market Valued Energy (MVE) Service

Participants bid “day ahead” for a curtailment on the following day

Bid will be compared against options to purchase day ahead power from other utilities as well as independent power producers

Criteria to participate– Participants must deliver at least 1 MW of curtailable load at

each participating site*

– Appropriate metering must be in place for monitoring and verification of hourly load data

– A customer may participate in MVER via: Submitting a successful bid under MVCO by March 31 Signing an enabling agreement under MVE prior to daily bidding

– The same load can not be served under another interruptible tariff and MVER simultaneously

– A customer can participate in both MVER programs, but the same load can not be in both simultaneously

Schedule MVERSchedule MVER

* Under MVCO, sites that can provide 500 KW of curtailable load may aggregate within the same jurisdiction as long as at least 1 MW total is provided. Under MVE, each site is treated independently and must be able to deliver 1 MW of curtailable load.

Additional program features– MVER runs year-round for MVE; May - September for MVCO– Payments made under MVER will appear as credits on your

May - September energy bills– There is no “buy-through” provision under either program (i.e.,

once a bid has been accepted, you have obligated your site to curtail when called upon)

– Once a bid has been accepted, if a curtailment is called for, but not provided for some reason, a penalty will apply

– Penalty provisions are unique to each program. In general, participating customers must deliver at least 80% of the promised load curtailment to begin receiving economic value (please refer to the rider language for more information)

Schedule MVERSchedule MVER

MVCO = Market Valued Call Option– You would sell Entergy the right, but not the obligation, to purchase a

curtailment in the future at a specific energy price for a predetermined number of occurrences for each summer month

– In return for selling Entergy this right, you will receive (1) a Call Option Premium each of the five summer months and (2) an energy payment tied to each curtailment

– Standard features of MVCO Curtailments will be for 8 hours only and can be any day of the week Curtailments run from noon - 8 p.m. with either “day ahead” notice (4 p.m.) or

“same day” notice (10 a.m.) at the customer’s option Cap of 2 days/month in May/June/Sept and 5 days/month in July/Aug Total potential for 16 curtailments across the five summer months (16

curtailments x 8 hours each = 128 hours total) May/June/September energy price of $50/MWH July/August energy price of $100/MWH

MVCO ServiceMVCO Service

How does MVCO work?– Step 1 -- You submit a bid between Mar 1 - Mar 31 (bid includes

applicable site(s), Call Option Premium, MVCO Firm Demand and an estimate of curtailable load)

– Step 2 -- If the bid is accepted (mid April), you will be required to sign an MVCO contract prior to May 1. During the summer, you will receive the Call Option Premium bid as a credit on your May - September energy bills (e.g., Call Option Premium bid of $2,500/MW-month* and load of 5 MW each month = $12,500 credit per month for each summer month)

– Step 3 -- If a curtailment is called for, you will also receive a credit tied to curtailable demand multiplied by the appropriate energy price (e.g., 8 hours with curtailable demand of 5 MW and an energy price of $100/MWH = $4,000 credit)

– Step 4 -- Total credit per month equals Call Option Premium and sum of the credits from each 8-hour curtailment (customer is only guaranteed to receive the Call Option Premium)

MVCO ServiceMVCO Service* Call option price is shown for illustrative purposes only!

Advantages of MVCO– More Certainty -- Successful bidders will receive their Call Option

Premium bid and will also know up-front exactly what energy prices will be paid for any curtailments

– Aggregation* -- Allows sites to be aggregated, which may appeal to certain types of customers who operate multiple eligible sites

– Minimal Credit Loss for Load Volatility -- Credits for both the Call Option Premium and the energy payments are tied to the highest 8-hour average demand (from noon - 8 p.m.) during that particular calendar month

Disadvantages of MVCO– Less Control -- Your site(s) will be obligated to curtail when called

upon with day ahead/same day notice


* Must provide at least 500 KW of curtailable demand at each site and a minimum of 1 MW total across all sites.

Aggregated sitesMVCO ServiceMVCO Service

Company aggregates three sites underMVCO and bids to curtail to a net firm demand of 5.0 MW. It doesn’t matter which sites curtail as long as net demand during a curtailmentis below the firm demand of 5.0 MW.

Site

Maximum Demand

(kW)

Highest Concurrent

Demand (kW)

A 9,000 5,000B 7,000 3,000C 4,000 2,000

20,000 10,000

How is MVCO credit calculated?MVCO ServiceMVCO Service

* Call option price is shown for illustrative purposes only!

Call Option Premium Payment (5.113 MW)($2,500/MW-month)*

= $12,782.50

Curtailable Billing Energy Credit (5.113 MW)(8 hrs)($100/MWH)(5 days) = $20,452.00

Total Credit for July = $33,234.50 $163/MWH

Example Data for July MVCO Firm Contract Demand = 5.000 MW Curtailable Demand = 5.113 MW (based on highest 8-hour average aggregated demand between noon - 8 p.m. occurring during that particular calendar month) Assume five (5) curtailments are requested and that sites reduce to 5.000 MW for all applicable hours

Tota

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ad (

MW

)

Noon - 1 p.m.1 - 2 p.m.2 - 3 p.m.3 - 4 p.m.4 - 5 p.m.5 - 6 p.m.6 - 7 p.m.7 - 8 p.m.

Average Peak Demand (MW)

Call Option Firm Contract Demand (MW)

Curtailable Demand (MW)

Peak Hourly Demand

(MW)9.900

10.10010.20010.30010.20010.20010.1009.900

10.1135.000

5.113

What happens if you exceed the MVCO Firm Contract Demand during a curtailment?


Call Option Premium Payment (5.113 MW)($2,500/MW-month)*

= $12,782.50

Curtailable Billing Energy Credit (5.113 MW)(8 hrs)($100/MWH)(5 days) = $20,452.00

Total Credit for July = $33,234.50

Example Data for July MVCO Firm Contract Demand = 5.0 MW Curtailable Demand = 5.113 MW (based on highest 8-hour average demand between noon - 8 p.m. occurring during that particular calendar month) Assume five (5) curtailments are requested and that site reduces to 5.0 MW for all hours except one day where site reduces to 6.500 MW instead

Step 1

Penalty Demand 6.500 MW - 5.000 MW = 1.500 MW

Part (A) (1.500 MW)(8 hrs)($100/MWH) = $1,200.00

Part (B)

(1.500 MW)(5)($2,500/MW-month)*

= $18,750.00

Total Credit for July = $33,234.50 - 19,950.00 = $13,284.50 $65/MWH

Step 2

* Call option price is shown for illustrative purposes only!

MVE = Market Valued Energy– MVE does not require any commitment up-front to participate, only an

enabling agreement which allows you to bid day ahead

How does MVE work?– Step 1 -- Each weekday of the year, you decide if you want to bid

between 8 a.m. - noon into the “day ahead” market for a curtailment to occur on the following day

– Step 2 -- If your bid is accepted, the site will be notified by 4 p.m. that your load needs to be reduced to the level you bid on the following day from noon - 8 p.m. (summer only – see curtailment hours table on next slide)

– Step 3 -- You will receive a credit on your monthly bill for each curtailment equal to the load curtailed multiplied by the energy price that you bid multiplied by 8 hours (e.g., 5 MW @ 8 hrs @ $500/MWH* = $20,000 credit)

MVE ServiceMVE Service

* Energy price is shown for illustrative purposes only!


Curtailment hours– Arkansas and Louisiana have different winter peaks. The

curtailment hours are shown below:

Curtailment hours

Arkansas Louisiana

Summer Noon to 8:00 p.m.

Winter 1:00 – 9:00 p.m. 2:00 – 10:00 p.m.

Advantages of MVE– Flexibility -- Ability to tailor a bid each day to your site’s operational

needs/constraints, market conditions, etc.– Opt-In/Opt-Out -- The only commitment being made when you sign

an enabling agreement is that you will comply with the terms and conditions of the rider if and when you submit a successful day ahead bid.

– Load Consistency -- Energy payments are tied to actual load during the day the bid is submitted between noon - 8 p.m. versus the same hours on the day of the curtailment. Sites with consistent hour-to-hour usage patterns may find this attractive.

Disadvantages of MVE– No Guarantee of Economic Value -- There is no guarantee that a

site will successfully bid during the summer


How is MVE credit calculated?MVE ServiceMVE Service

Load Data for One July Curtailment Firm load of 5.0 MW (dark blue line) Load on day of bid (light blue bars) Load on day of curtailment (red bars)

MVE Curtailable Billing Energy Payment Assume bid of $500/MWH*

(40.9 MWH)($500/MWH) = $20,450

Total July Credit = $20,450 plus credits for any additional curtailments in July

Tota

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MW

)


Example Data for July MVE Firm Demand = 5.0 MW Confirmation Price = $500/MWH Curtailable Billing Energy = 40.9 MWH (based on 8-hour energy usage between noon - 8 p.m. occurring on the prior weekday) Assume during curtailment that site reduces load to 5.0 MW for all hours

Day of Bid -- Same Hours

Peak Hourly Demand

(MW)Noon - 1 p.m. 9.900

1 - 2 p.m. 10.1002 - 3 p.m. 10.2003 - 4 p.m. 10.3004 - 5 p.m. 10.2005 - 6 p.m. 10.2006 - 7 p.m. 10.1007 - 8 p.m. 9.900

Day Before Usage (MWH) 80.900MVE Firm Demand (MW) 5.000

Curtailable Billing Energy (MWH) 40.900

What happens if you exceed the MVE Firm Demand during a curtailment?


Step 1

Penalty Amount (1.500 MW)(8 hrs)(5)($500/MWH) = $30,000.00

Total Credit for Curtailment = $20,450.00 - 30,000.00 = ($9,550.00)

Step 2

MVE Curtailable Billing Energy Payment

Assume bid of $500/MWH*

(40.9 MWH)($500/MWH) = $20,450.00

Example Data for July MVE Firm Demand = 5.0 MW Confirmation Price = $500/MWH Curtailable Billing Energy = 40.9 MWH (based on 8-hour energy usage between noon - 8 p.m. occurring on the prior weekday) Assume during the curtailment that site reduces load to 6.5 MW instead of the MVE Firm Demand of 5.0 MW


E-mail/Fax Services– MegaWatt Daily

Daily update sent by e-mail or fax Financial Times Energy - 1600 Wilson Blvd., Suite 600, Arlington, VA 22209; (800) 424-2908; www.ftenergy.com

– Energy Market Report Daily update sent by e-mail Economic Insight, Inc. - 3004 SW First, Portland, OR 97201; (503) 222-2425; [email protected]

– Power Markets Week Weekly update sent by e-mail McGraw-Hill - Subscriber Relations, Energy & Business Newsletters, Two Penn Plaza, 5th Floor, New York, NY 10121-2298; (800) 223-6180; www.mhenergy.com

Sources of Information Sources of Information

On-Line Services– Bloomberg Energy

www.bloomberg.com/energy/index.html Call them at (609) 806-1349 for subscription information

– Altra Energy Technologies www.altra.com/home.html Altra Energy Technologies, Inc., 1221 Lamar, Suite 950, Houston, TX 77010; (713) 210-8000

– Houston Street.Com www.houstonstreet.com Call them at 1-877-725-0510 (toll-free) E-mail them at [email protected]

Sources of Information Sources of Information

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