Proposed Outline For ERCOT EILP Program Submitted by Air Products and Chemicals, Inc.

1. Proposed Outline For ERCOT EILP Program Submitted by Air Products and Chemicals, Inc. 31 October 2006

2. ILRP Characteristics Requested By ERCOT: • 1,000 MW of participants from outside existing demand response programs. • Rarely deployed (last step before firm load shed). • Needs to be available at all times. • Loads bid to provide this service (similar to Black Start). • Contract is with QSE. • Initial two-year term then re-evaluate need. • Dispatched by ERCOT through QSE. • Deployed in 10-minutes or less as block. • Need interval data metering for measurement but no telemetry or under frequency relay required. • Reduction is measured as the load in last full Settlement Interval prior to instruction less load in next full Settlement Interval following 10-minute deployment instruction from ERCOT to the QSE. • Limit to number of hours deployed per year. • Suggested payment options: capacity & energy, energy-only with defined price, and energy-only with market price; all subject to claw-back or penalty for underperformance. • Allocation options: (a) QSE representing load on load-share ratio, or (b) allocate using RPRS methodology.

3. Concerns With ERCOT Proposal From A Pure Load Perspective: • If the load has to be available 24/7 for two years, the issue of facility maintenance needs to be addressed. • A shorter commitment period (on the order of a month) is needed to attract wider participation. To implement a monthly process, loads could sign an “enabling agreement” up front and then fill-in the awarded MW and price for each commitment period. • If providing EILP precludes other load behind an ESID from providing LaaR ancillary services or BUL, industrials will likely not be inclined to participate. • Using 15-minute interval data to judge 10-minute performance could invite gaming. • A monthly capacity payment for standing by to provide EILP is more likely to attract participation than simply providing an energy payment when the service is utilized. • To allow participants to make reasonable risk reward decisions, ERCOT should also limit the number of times per period this service can be called. • When the load needs to be back up following the end of a deployment is also important. • The broad parameters of qualification testing that would satisfy ERCOT are needed.

4. Possible Building Blocks for an EILR Program From Other Similar ISO Programs: • Physical Criteria (PJM Synchronized Reserve Providers): • Ability to receive phone messages or control signals. • Controls to automatically drop load. • Telemetry that is capable of providing metering information at no less than a one-minute scan rate around a deployment call. The metering is sent to ERCOT through daily uploads. Data sent should capture 10-minutes before and after return to service signal is given. • Attendance at mandatory training on EILP load response. • At most one level of operator intervention to deploy (a QSE would be an operator invention). • Must pass a qualification test and subject to periodic retesting. • Customer must provide a description to ERCOT of the EILP strategy they will employ to reduce load when deployed (from IESO ELRP program). This description should include: • Nature of the load reduction measures including the type of end-use equipment involved (whether they are (i) constant, staged, or continuously variable, (ii) weather or time-dependent, and (iii) have interactive effects on other loads) • Manner in which the load will be controlled.

5. Possible Building Blocks for an EILR Program From Other Similar ISO Programs (cont.): • Acceptable sources of metering interval data include (from IESO ELRP program): • ESID meter – works unless the amount of load to be curtailed is so small relative to the total load that it cannot be accurately measured. • End-use demand meter where the measurement can come from an existing energy management or control system. • Proxy metering of some variable other than kW such as current and voltage or equipment operating status (on/off or operating time) • Baseline measurement methodology is selected by participant and approved by ISO (from IESO ELRP program). Options provided include: • Real-Time baseline – the maximum value of the load in the two-hours before the deployment (participant specifies fixed MW reduction commitment) • Historic Baseline – along the lines of BUL • Back-up or load displacement generation - baseline is defined as zero MW for the metered MWH gross output of back-up or load-displacement generation where the only meters contributing to the EILP are measuring generator output.

6. Oxy had a good proposal: • Participant: any load (including LaaR or aggregated loads) with a response amount greater than or equal to 1 MW that can respond within 10 minutes of a manual call to deploy. • Equipment: IDR Meter and any UFR is disabled • Testing: Capability to deploy within 10-minutes demonstrated through testing (a successful event response could replace a test) • Procurement • ERCOT issues a monthly notice of EILP quantity necessary for reliability ten business days prior to month start (although the purchase period could be seasonal or annual) • Bidding for EILP provision commences similar to the other daily Ancillary Services seven business days prior to month start • EILP pricing is determined by its own clearing price • Deployment: ERCOT request sent to participant’s QSE; alternatively sent directly to participant • Claw-back for non-performance (dropped for repeated non-performance)

7. Oxy’s Proposal Also Has A Few Unanswered Questions: • Is payment an energy-only payment for performance or capacity-based payment for standing by ready to interrupt? • Are IDR meters on 15-minute Settlement Intervals conducive to measuring the 10-minute performance? • Is the participant load equipment specific or behind the ESID? • Can QSE’s self-supply this service? • When does the load have to return to service following the event? • Any limit on number of hours load can be interrupted? • What is the baseline from which performance is measured?

8. Elements of a Viable EILP: • Commitment period much less than 2-years. • Ideally, participating load should have to provide one-minute interval metering for the “interruptible” load that can be uploaded to ERCOT after the fact for performance verification; however, to reduce participation cost existing IDR meter data could perhaps be used to estimate ESID performance if ERCOT believes this data will allow them to verify 10-minute performance. • The participant needs to demonstrate its plan and ability to reduce load by the full bid amount within 10 minutes. • Compensation based on a capacity payment • The penalties for non- or partial performance (including test performance) need to be clearly spelled out. • The minimum participation size needs to be large enough that ERCOT settlements are not overwhelmed. • Requirement to provide this service should be allocated to QSE’s based upon their load-ratio share. They should have the option to self-supply and be required to purchase what they don’t self-supply from ERCOT.

9. APCI Proposal: Utilize the best of ERCOT, Oxy, and other ISO approaches: • Technical: • 1,000 MW total • One MW minimum reduction in load (can be a single ESID, a specific piece of equipment behind an ESID, or an aggregated load across several ESIDs) • Metering: • Participant installs special metering capable of recording load on one-minute intervals starting 10-minutes before the event and continuing until 10 minutes after the load is returned to service if a specific piece of equipment behind an ESID is used for EILP or if ESID can not realistically measure EILP reduction due to size of ESID load relative to committed EILP reduction. • For single ESID or load shared by several ESIDs utilize existing IDR meters with compliance based on average load for last four full Settlement Intervals prior to ERCOT deployment compared to the average load for first full Settlement Interval: • After 10-minute deployment period for reduction, and • After end of return-to-service period for return-to-service. • Participant may need to install a control device to receive time delay deployment control signal from QSE to automatically initiate load reduction if Participant takes no action. • Participant must provide a detailed plan for achieving 10-minute deployment to ERCOT for approval prior to being accepted for participation. • Participant must pass deployment test designed by ERCOT (and is subject to retesting each year) to establish maximum bid capacity. • ERCOT deployments limited to 2 deployments per calendar month and not more than 4 hours per deployment. • Load displacement generation can participate.

10. Commercial • Participant executes a standard EILP program agreement with ERCOT and if selected for a month fills in the MW amount, term, and price. • Participant Selection: • 1,000 MW requirement is allocated monthly to each QSE based on their applicable average hourly load-ratio share. QSE requirement must be published 10 days prior to the start of the month. The QSE can self-supply all or a portion of its allocated share and must purchase the balance from ERCOT, but must notify ERCOT of monthly self-supply amount 8 days prior to start of month. • ERCOT Procurement Options: • ERCOT holds monthly auction on the last Wednesday of the month to procure the remaining EILP MW requirement (in one MW increments) for a one-month period. Providing a capacity payment probably maximizes participation; providing an energy payment only if called upon minimizes ERCOT costs but likely reduces participation. All Participants are awarded bid price of highest bid selected by ERCOT. In the case of tie bids at the MW limit to be procured, tie bids are equally prorated. • ERCOT offers a fixed capacity payment each month (like typical utility interruptible rates) to procure the remaining EILP MW requirement for a one-month period and accepts the first qualified MWs that apply or conducts a lottery.

11. Participant Obligation If Selected: • Participant must agree that selected equipment or load reduction capability cannot provide any other ancillary service or be price responsive when providing this service. • Deployment: • Deployed as a block by ERCOT through QSE. QSE has option to send time-delay control signal directly to participants in parallel with notification to deploy so if participant fails to act in time, load is still un-deployed within 10 minutes. • Participant has 5 hours to return to normal operation following end of deployment by ERCOT. • Performance Verification: • For individual pieces of equipment, within 24 hours of a deployment participant transmits performance data from its meter to its QSE. QSE certifies participant performance in response to a deployment to ERCOT for settlement. • For all other participants ERCOT uses IDR meter data for settlement. • Penalty for Partial Compliance: • Participant is fined $_____/MW for each fraction of a MW of EILP commitment that is not deployed within 10 minutes and the participant must immediately pass a re-qualification test to establish its bid capacity. • Annually, the participant must pass a re-qualification test to establish the maximum bid amount for the following 12-month period, the participant shall be permitted one retest. • If the participant fails to fully comply with two successive deployments (whether actual or test) the participant is terminated and cannot participate for six months at which time the participant must pass the qualification test to be reinstated.