Maximizing The Next Two Years Draft for Discussion September 16, 2005

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Maximizing The Next Two Years Draft for
Discussion September 16, 2005
The Structure Group 2000 W. Sam Houston Pkwy.
South Suite 1600 Houston, TX 77042
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Agenda
Todays meeting will cover the following topics

• Cost Considerations
• Impact of Delays and Design Flaws
• FERC Staff Report (2005)
• Importance Of The Next Two Years
• Developing A Critical Path
• Getting Started The First Two/Three Months
• Resolve Remaining Market Design Issues
• Create Protocol Development Approach
• Develop A Project Plan (e.g. resources, skills,
  schedule)

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Cost Considerations
As a part of previous efforts the following cost
considerations were discussed

• Build and Design Timing Completing the market
  design or re-design prior to the build phases
  will result in lower start-up/re-design costs.
• Build and Regulatory Approval Minimizing
  spending on systems before major regulatory
  hurdles have been cleared will likely reduce
  costs.
• Contract Terms - Creating the proper incentives
  and risk sharing mechanisms will mitigate startup
  costs/risks. Change management processes can
  manage risk and cost tremendously
• System Flexibility Implementing systems that
  are flexible to change and are not reliant on a
  single vendor will reduce re-design costs.
• Costs of changing market functionality Do the
  cost benefit before making a market design
  change.
• Leverage other markets functionality when
  regional differences dont come into play if it
  can be re-used, costs will be reduced.
• IT leading edge avoid paying for vendor
  development.

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Impact of Delays and Design Flaws
The costs associated with market delays and/or
market flaws are significant in the form of

• Costly change orders
• Extensive reliance on contractors
• Increased headcount
• Lowered credibility

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FERC Staff Report (2005)
A recent FERC report on RTO/ISO implementation
costs cited the following statistics on
implementation efforts

• Approximately 34 of IT projects succeed
• Approximately 51 fail substantially
• Approximately 15 fail completely
• Failure is defined as the inability to meet
  schedule, budget or functionality commitments
• Failure is the result of poorly qualified
  managers trying to force ahead IT projects
  without proper preparation.

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FERC Staff Report (2005)
The report identifies similar factors driving
RTO/ISO implementation time delays and cost
overruns

• organizations must undertake a significant
  amount of detailed business process and rules
  development work.
• Expect that a large complex project, like the
  implementation of a new electric market, will
  take twice as long to implement if
  decision-makers under-allocate the time and
  resources needed for the planning effort, fail to
  employ a phased implementation approach and do
  not lock down the business rules early in the
  project.
• The schedulesare established by regulators,
  managers and politicians without first taking
  stock of the effort required to specify,
  integrate and implement the technology.

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Importance Of The Next Two Years
To minimize the chance of implementation delays
and cost overruns, the following activities would
need to be completed over the next two years
Sep. 2007- Sep. 2009
Sep. 2005- Sep. 2007
The Next Two Years
Implementation
Requirements
Key Implementation Inputs Finish market
design Approve protocols Draft sign trans.
agreement Complete market mechanics Publish RFPs
Design
Build
Test
Go-Live
What you do (or dont do) here
impacts you here
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Developing A Critical Path
Many of the implementation inputs have key
dependencies that form a critical path
2006
2005
2007

• Key Considerations Dependencies
• Protocols depend on the market design
• TA depends on the protocols
• Protocol development can be a lengthy process
• Protocols are usually not sufficient for RFPs

Finish Design (4 months)
Draft Revise Protocols (8 months)
Draft Revise TA (6 months)
Sign TAs (8 months)
Planning Begins
Implementation Begins
Complete Market Mechanics (8 months)
Draft RFP (3 months)
TA Drafted
TA Signed
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Getting Started
Given the established dependencies and critical
path, the following items represent the
activities that need to be completed (during the
first 2-3 months) prior to pre-implementation
efforts such as protocol development

• Resolve Remaining Market Design Issues
• Develop A Protocols Approach
• Develop A Project Plan

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Getting Started Complete Market Design
Assuming DP2 is favorable, several issues need to
be resolved before starting protocol development

• Highlights
• Remaining Papers
• Prioritized issue list
• Bi-monthly meeting
• Design alternatives

• Papers/Issues
• Commercial Model Paper
• Tariff Admin Paper
• Top 10 Issues List

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Getting Started Develop A Protocols Approach
Prior to starting protocol development, a
thorough approach needs to be developed

• Highlights
• Schedule
• Workgroups
• Protocols library
• Templates
• Issue resolution process
• Standards
• Revision process

• Key Questions
• How long will it take?
• How should the work be divided?
• How do we staff/mobilize workgroups?
• How have others developed protocols?
• What standards/templates should be used?
• How will we manage protocol revisions?

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Getting Started Develop A Project Plan
Prior to ramping up pre-implementation efforts,
several planning activities need to be completed

• Highlights
• Master work plan
• Work streams
• Resource commitments
• Communication approach
• Document mgmt strategy

• Key Questions
• What activities should be completed prior to
  implementation?
• What type (and how many) resources may be needed
  over the next two years?
• How can we most effectively communicate with a
  large stakeholder group?
• How do we manage revisions with a large
  stakeholder group?