Discuss infrastructure to support bilateral contracting between CSPs and REPs in the Retail Market

1. Discuss infrastructure to support bilateral contracting between CSPs and REPs in the Retail Market Loads in SCED Sub-group May 22, 2014

2. Key Terms • CSP = Curtailment Service Provider (i.e. 3rd Party DR Provider) • For simplicity, ‘REP’ is used in these slides as entity involved in transaction flow • REP settlement remains thru REP’s QSE, a separate entity

3. Objectives • Design a transaction-based infrastructure to facilitate bilateral contracts between CSPs providersand REPs. • Promote more robust competition in the DR space. • Address the impact of customer switching on CSPs. • Eliminate LMP-volumetric G issues. • Provide notification and transparency for all parties involved and impacted by a DR transaction. • Utilize retail electric service customer protection rules well-established by the PUCT for the solicitation of DR products and services. • Eliminate complex changes to MMS/EMS for LRISv2.

4. Features of Bilateral Approach • ALRs represented by REPs continue to participate in SCED on a ‘bid to buy’ basis • REP’s QSE is the only entity involved in ERCOT settlement • Allows CSP to solicit customers directly • CSPs gain ability to maintain DR relationships when customers switch REPs • Creates incentive for CSPs and DR-friendly REPs to contract bilaterally to promote DR products and services • CSP new role in market: Qualification to submit and receive ERCOT transactions • Maximum flexibility for DR market

5. Status Quo: REP initiates DR product/service Customer 2) REP markets bundled DR products/services with electric service Benefits: -Simplifies implementation and operations by ERCOT (no change) -Easiest to understand for customers? CSP REP 1) CSP and REP negotiate contract terms for DR products and services, settlement 3) Interaction as currently designed ERCOT

6. Transaction-Based Bilateral Approach

7. Service initiation by CSP Requires bilateral contract between CSP & REP Customer Existing relationship w/customer for electric service 1) CSP initiates DR service w/customer Benefits: -Provides CSP and REP with customer level DR information to facilitate bilateral contracts and partnerships -Improves ERCOT’s ability to centrally track and manage ALRs CSP REP Existing Contract or Negotiate New 2) CSP notifies ERCOT of DR relationship w/customer; identifies and provides ERCOT information about customer type, aggregation, response type, etc. Return transaction reveals REP of record to CSP. New transactions New transactions 3) ERCOT notifies REP of DR relationship between CSP and customer ERCOT Manage CSP/ALR-REP relationships

8. DR customer deployment Customer Customer deployment flexibility, contractual terms dictate CSP REP 2) SCED dispatches ALR when LZ SPP is >= bid price 1) REP submits bids to ERCOT for ALRs (negotiated in bilateral contracts with CSP) ERCOT 3) M&V, ALR telemetry validation

9. Settlement of DR customer deployment 3) REP charges customer for actual metered consumption and may provide additional incentives for load reduction (DR service terms) Customer 2) REP pays CSP for curtailment (G) based on bilateral contract terms including performance true ups CSP REP • ERCOT settles REP for load curtailment as reduced adjusted metered load (Base Point Deviations and CLREDP scores apply) Benefits: -No double payment by ISO -Eliminates the volumetric G problem -REP acts as single billing agent for customer ERCOT

10. Customer switches REPs Customer 3) CSP has option to continue serving customer; informs customer of service continuity or change 1) Customer with CSP relationship switches REPs via normal switching process (TDSP interaction not shown for simplicity) CSP New REP Old REP New transactions 4) ERCOT notifies new REP of DR relationship Normal switching process (TDSP interaction not shown for simplicity) New transactions 2) Switch transaction at ERCOT triggers 2nd transaction notifying CSP of new REP ERCOT Manage ALR-REP relationships

11. Issues/concerns with this approach • Forces CSPs to contract with REPs to deliver products and servicesto customers (is this a bad thing?) • CSP incurs REP risk as well as customer risk (is this a bad thing?) • Operational • Credit • REP may incur commercial risk as a result of CSP deployment • REP incurs deployment compliance risk for the CSP (same as today) • REP acts as settlement agent for CSP (same as today) • Implement via TX SET/NAESB additions?

12. Is there another way? LMP- Proxy $G? Customer 5) REP charges customer for actual metered consumption 6) CSP passes on DR payment at contract terms 1) CSP notifies REP of DR relationship with customer CSP REP 2) SCED Base Points sent to CSP Issues: -Complex implementation -Must implement Loads in SCED as a resource for this -Disruptive to REPs -Is critical mass realistic? -Define acceptable Proxy $G (target for litigation/dispute?) 3) ERCOT pays CSP for load curtailment (X) at LMP-Proxy $G 4) ERCOT charges REP for adjusted metered load Drawback: Customers on indexed price are ‘double-paid’? ERCOT

13. 3 Ways to Implement LMP - G • Avoid it! (Status quo or bilateral approach) or • L = Actual Load (MWh) • C = Curtailment (MWh) • G = Retail Rate 2) Volumetric LMP-G (Proving unworkable) Customer settlement = -(L+C)*G + LMP*C = -L*G + (LMP-G)*C 3) LMP – Proxy $G (Complex and disruptive to retail) Customer settlement = -L*G + (LMP-G)*C