TAC Report to the ERCOT Board

1. TAC Report to the ERCOT Board October 18, 2005

2. TAC Summary • 4 Unanimous PRRS • 1 System Change Request • Designation of Closely Related Elements & Boundary Generators • 2005 Prioritization Review • Improvements to Cost Benefit Analysis • Outstanding PRR System Change Review • Update Regarding Nodal Transition Plan

3. PRR 593 – Behind the “Fence” Reporting of Load • PRR submitted by CenterPoint (IOU) on behalf of GATF addressing generation adequacy • This PRR provides information that is necessary for ERCOT and TDSPs to determine generation adequacy • PRS reviewed TIEC’s proposed language requiring reporting of net generation • TAC unanimously recommends approval • All market segments were present • Effective November 1, 2005

4. PRR 593 – Behind the “Fence” Reporting of Load Impact Analysis No Impact Impact Description Item Reviewed Budget Staffing Computer Systems Business Functions Grid Operations Credit Monitoring/Liability

5. PRR 599 – Notification of Mismatched Inter-QSE Energy Schedule • PRR submitted by TXU (IOU) • PRR requires mismatch communication be given to both QSEs if ERCOT remedies the mismatch according to PRR 548, Settlement for Mismatched Inter-QSE Energy Schedules • Benefit: Provides shadow settlement information to QSEs • BOD remanded to TAC for development of Cost Benefit Analysis (CBA) • Commercial Operations Subcommittee developed CBA • PRS incorporated the benefits of PRR 613, Replacement Reserve Under Scheduled Capacity Delineation into CBA because extracts are linked

6. PRR 599 – Notification of Mismatched Inter-QSE Energy Schedule (cont.) • In October, TAC reviewed combined CBA for PRR 599 and PRR 613 • TAC unanimously recommends approval • All market segments were present • Effective upon implementation of PRR 548

7. PRR 599 – Notification of Mismatched Inter-QSE Energy Schedule Impact Analysis No Impact Impact Description Item Reviewed Budget < $100K Staffing Computer Systems Minor Lodestar coding Business Functions Change settlement process Grid Operations Credit Monitoring/Liability

8. PRR 613 – Replacement Reserve Under Scheduled Capacity Delineation • Submitted by ERCOT • PRS approved “URGENT” status • Updates calculation of RPRS obligation for under-scheduled capacity, including mismatched schedules • Benefit: Accuracy of Protocols and clarify RPRS cost assignment • TAC reviewed combined CBA for 599 and 613 • TAC unanimously recommends approval • All market segments were present • Effective upon Board approval • Priority 1.0; Rank 0.87 (Same as PRR 599 – PRR 613 & 599 are linked to PRR548)

9. PRR 613 – Replacement Reserve Under Scheduled Capacity Delineation Impact Analysis No Impact Impact Description Item Reviewed Budget Less than 100K Staffing Additional workload for settlement Computer Systems Minor impact to EMMS & Lodestar Business Functions Identify appropriate mismatch Grid Operations Credit Monitoring/Liability

10. Cost Benefit Analysis for PRR 599 and 613 • Cost Benefit Analysis (PRRs 599/613) • Benefits -- $540K • Implementation Cost -- $140K • CB Ratio – 3.79 • Benefits include reduced overall market credit exposure by reducing settlement amounts and potential to reduce number of settlement disputes

11. PRR 612 – Replacement Reserve Service Bid Cap • PRR submitted by Tenaska (IPM) on behalf of the QSEMWG • Allows for the update of AS bids after notice of ERCOT’s intent to procure AS in the adjustment period • Benefit: AS stack likely to be more sufficient • Amended by ERCOT • TAC unanimously recommends approval • All market segments were present • Effective November 1, 2005

12. PRR 612 – Replacement Reserve Service Bid Cap Impact Analysis No Impact Impact Description Item Reviewed Budget Staffing Computer Systems Revises procedures/training Business Functions Grid Operations Credit Monitoring/Liability

13. Recommended Board Actions • Approval • PRR 593 – Reporting of Net Generation & Load (unanimous) • PRR 599 – Notification for Mismatched Inter-QSE Energy Schedules (unanimous) • PRR 612 – AS Procurement During the Adjustment Period (unanimous) • Urgent PRR 613 – Replacement Reserve Under Scheduled Capacity Delineation (unanimous)

14. SCR 745Recommended Solutions for ERCOT Unplanned System Outages and Failures to the Retail Market System • SCR 745 will allow ERCOT to implement a high-availability solution to retail market outages that provides active system fail-over and redundancy. In the event of system outages, retail systems would continue to operate and data integrity would be maintained. • ERCOT IT performed a full system evaluation to determine the root causes for unplanned retail system outages. • Based on this evaluation, ERCOT IT recommended solution options to address single points of failure within the ERCOT Retail Market infrastructure. • TAC recommends approval with one opposing vote from IOU segment and 8 abstentions from the Municipal (2), Consumer (4) and Independent Power Products (2) • All market segments were present • Effective upon system implementation • Priority 1.1/Rank 30

15. SCR 745 ERCOT Retail System Architecture Single Points of Failure EAI D PAPERFREE F M TCH I Z Paperfree R Process Servers E S PROXIES W W A I INTERNET INBOUND NAESB L T L C HP Paperfree File IN / OUT H SIEBEL Server W 2 K OUTBOUND W 2 K Solaris W 2 K W 2 K Key : Inbound Data Flow NAESB Database Paperfree Database TCH Database Siebel Database Outbound Data Flow Single Retail Database Server Bi - Directional Data Flow ( Multiple Oracle Databases ) Single Point of HP Failure

16. Cost Benefit Analysis for SCR 745 • Cost Benefit Analysis • Benefits -- $28,649,493 • Implementation Cost -- $3,479,489 • CB Ratio – 8.23 Benefit – Improve market performance and reliability

17. Recommended Board Actions • Approval • SCR 745 – Retail Market Outage Evaluation and Resolution

18. Designation of Closely Related Elements (CRE) & Boundary Generators • Protocol Section 7.2.3, requires that, for each year, ERCOT Staff identify potential CREs • CREs are defined as “ those transmission facilities that have shift factor impacts similar to those associated with a particular Commercially Significant Constraint, and for which there exists a limited amount of Boundary Generation Resources between it and the particular CSC, so that the zonal deployment of Balancing Energy Service is effective in mitigating Zonal Congestion.” • When facility outages prevent the normal method for monitoring CSCs for Zonal Congestion, CREs are used as the reference transmission facilities • The WMS and TAC support the CREs identified by ERCOT Staff • Most of the 2005 CREs are recommended as 2006 CREs, with several transmission elements added to the 2006 recommendation

19. 2005 Prioritization Process Review • Reviewed 2005 project prioritization process and reached the following conclusions/action items: • Need to initiate process earlier to ensure adequate time to review ERCOT projects, including background project explanations • Need to revisit/revise priority definitions (e.g., 1.1, 1.2, etc.) • Unclear how PUCT projects are incorporated onto the project list (i.e., who approves putting projects on list and who reviews priority) • Need to work on process to ensure necessary commercial projects (e.g., extracts) are done when compared to reliability-related projects • Need posting of CBAs showing primary benefit driver assumptions • Need to incorporate CBAs into protocol revision request process • Should use significant digits in CBA reporting • Acknowledgement that CBA process and overall prioritization process is evolutionary

20. PRR Submission Requirement Changes • PRR Submission Form is being changed to reflect existence of nodal protocols and greater emphasis on CBA • Does PRR apply to nodal protocols? If so, what sections? • Provide sponsor’s estimate of market cost and benefits • ERCOT will begin building CBA based on the submitted data • Market Participants may comment on CBA estimates from sponsor • PRS will discuss comments to sponsor’s CBA estimate and adjust as needed • PRR sponsor must fill out all portions of the form • ERCOT will reject PRR submission if items left blank are not cured after ERCOT notice to submitter of deficiency

21. 2005/2006 System Project Status • 2005/2006 Project Priority List now available • Priority 1.0a • Projects that had been planned to run past 10/31/05 • Priority 1.0b • Projects that were not planned to run past 10/31/05 • Priority 1.1a • Projects ranked above the projected 2006 cut-line • Priority 1.1b • Projects ranked below the projected 2006 cut-line • Project accelerations due to mid-year cash flow analysis also shown

22. 2005/2006 System Project Status Carryovers $5.3 MM ERCOT $12.4 MM PUCT $2.6 MM Market $5.3 MM Projected 2006 Cut-Line -- $25.6 MM

23. 2005/2006 System Project Status • Projects immediately above the projected 2006 cut-line accomplish the following: • Improve State Estimator accuracy • Improve accuracy of congestion management solutions by reducing the delay in updating the network topology • Upgrade ERCOT Digital Certificate technology • Expand Taylor Data Center to maintain necessary redundancy and increased storage capability • Automate manual processes for DC-tie scheduling • Continue IT service oriented architecture improvement using TIBCO

24. Outstanding PRR System Change Review • PRS initiating review of outstanding PRRs awaiting system implementation • Special PRS meeting held on October 7, 2005 • Goals • Develop criteria to apply to current market design system change proposals for appropriate prioritization • Apply criteria to existing protocols on the project list and determine if priority is appropriate

25. Outstanding PRR System Change Review (cont.) • Prioritization Criteria • 1. Projects required by Statute, PUCT order, NERC compliance, or critical reliability of grid operations, IT infrastructure, or commercial settlement • 2. High "value" to all market segments • 3. High "value" to one or two segments, or ERCOT • 4. Medium "value" for all segments • 5. Medium "value" for only one segment or ERCOT • "value" as determined by CBA, longevity (e.g. modification is long term or short term), and qualitative considerations as shown below: • ·Potential to conflict with ERCOT resources devoted to other projects • ·Subcategory (IT infrastructure, grid operations, commercial settlement) and level of criticality (critical/high/medium/low) for reliability projects • ·Straw vote information on priority • ·Direct benefit to Customers • ·Impact on existing approved and prioritized projects • ·Risk exposure as defined by risk management program

26. Nodal Transition Plan • TAC continued discussions regarding Nodal Transition Plan at October TAC Meeting • TAC and ERCOT will continue to discuss Nodal Transition Plan • Goal is for TAC to approve Nodal Transition Plan at November TAC Meeting