1. ERCOT Update to CMWGNPRR463 and CARD Distribution Matt Mereness ERCOT Manager Day-Ahead Market and CRR Auction ERCOT Public

2. Outline of CMWG Discussion • CRR Rolling Auction update (risks and issues) • Reminder of TAC approved calendar and key dates • Reminder of rolling-auction mechanics for implementation • Potential over-subscription of Sequence 1 (60%) due to scaling changes • Transaction bid limits to be considered • CARD Distribution consideration ERCOT Public

3. Reminder of Rolling Auction Transition • NPRR463 “CRR Auction Structure Enhancements” Board Approved June 2012 • A.K.A. 6-month Rolling Auction or Long-Term Auction Sequence • Milestones and Key Dates • Internal • September development of Nexant scope/requirements • Oct/Nov focus on Integration issues/scope • October FTE hired to support rolling auction started • December 19 project moved into Execution • Internal testing Jan/Feb/Mar (FAT and iTest) • External • Dec 31 ERCOT released draft CRR Calendar inclusive NPRR463 Long-Term Auction • WMS reviewed CRR Calendar (Jan 9th)- unanimously approved two changes: • Deferral/Suspension of auction sequences during December holidays • Remove overlapping month/long-term bid windows with earlier monthly auction • TAC approval of CRR Calendar (today) • No market-facing trials are currently planned but will host Q&A webex/calls (late March) • Review of Bid Transaction Limits in February/March (CMWG/WMS) • TAC approval of Bid Transaction Limits (April 4 meeting) • Go-Live April (Models post April 2, Auction Notice post April 10, Credit Lock April 29) ERCOT Public

4. Current Auction Structure - 1x/Year In 4th Quarter of each year, sell next 2 years of CRRs at monthly granularity in an annual 12-month optimization - Year 1 on 55% Model - Year 2 on 15% Model - Optimize each time-of-use across multi-period months for annual - Monthly auction is 90% and optimize across 3 times of use 90% of System/Model in Monthly Auction Year 1 55% of Model OnPeak WkDay OffPeak OnPeakWkEnd Year 2 15% of Model OnPeak WkDay OffPeak OnPeakWkEnd ERCOT Public

5. 2013 Auction Structure - 2x/Year In 2nd and 4th Quarter of each year, sell next 2 years of CRRs at monthly granularity in an 6-month optimization - First 6-months at 60%, Second 6-months 45%, Third at 30%, Fourth at 15% - Optimize each time-of-use across multi-period months for annual - Monthly auction is 90% and optimize across 3 times of use 90% of System/Model in Monthly Auction 60% 45% 30% 15% ERCOT Public

6. Spring 2013 CRR Calendar- Long-term Auction Sequences MAY JUNE JULY Sequence1 July-Dec 2013 60% Sequence2 Jan-Jun 2014 45% Credit Lock and Run dates April29-May17, 2013 Sequence3 July-Dec 2014 30% Credit Lock and Run dates May20-Jun7, 2013 Sequence 4 Jan-Jun 2015 15% Credit Lock and Run dates June10-28, 2013 Credit Lock and Run dates Jul1-19, 2013 ERCOT Public

7. Winter 2013 CRR Calendar- Long-term Auction Sequences NOV DEC JAN FEB Sequence1 Jan-Jun 2014 60% Sequence2 Jul-Dec 2014 45% Sequence3 Jan-Jun 2015 30% Sequence 4 Jul-Dec 2015 15% Credit Lock and Run dates Oct28-Nov15, 2013 Credit Lock and Run dates Nov18-Dec6, 2013 Dec9-Dec27, 2013 Dec30-Jan17, 2013 Sequence3 Jan-Jun 2015 30% Sequence 4 Jul-Dec 2015 15% WMS vote on Calendar Options: - Back-to-Back or - Defer after holiday Jan6-Jan24, 2014 Jan27-Feb14, 2014 ERCOT Public

8. Format of Calendar has been changed From WMS Jan 28th email, ERCOT proposed final dates as well as format improvements and no comments received (good news). - Simplified format for the CRR Calendar (summary of dates rather than all days) - 2014 Extension of the CRR activity calendar timeline through the end of 2014 - Inclusion of additional worksheets separating and detailing NOIE PCRR nomination sequence as well as protocol references that drive the auction and nominations dates ERCOT Public

9. TAC Vote Requested later this week Motion to be considered from ERCOT: In accordance with Protocols 7.5.1 (4) (b) (iii), and within the boxed language of NPRR463, TAC approves the ERCOT Proposed CRR Calendar for 2013-2014 which includes monthly and Long-Term Auction Sequence dates. Protocols excerpt 7.5.1 (4) (b) (iii) : A calendar of key milestone dates, specifically the weeks of bid and credit windows for each CRR Auction in the CRR Long-Term Auction Sequence, must be approved in final form by the Technical Advisory Committee (TAC) no later than the earliest of May 1 (for a CRR Long-Term Auction Sequence to be held in the second half of a year), November 1 (for one being held in the first half of the following year), or 120 days prior to the planned closure of the bid window for the first CRR Auction in the CRR Long-Term Auction Sequence. This timeline can be shortened to 60 days notice for implementation of the first CRR Long-Term Auction Sequence. ERCOT Public

10. Oversold Risk? 55% System previously sold in Year1 15% System previously sold in Year2 First auction Sequence2 Jan-Jun 2014 45% Sequence1 July-Dec 2013 60% Sequence3 July-Dec 2014 30% Sequence 4 Jan-Jun 2015 15% Potential issue beyond only having 5% incremental capacity in Seq 1 Scenario of oversell on 100MW line: Sold Y2 2013 as 15% model -> 15MW award cleared in Y2 Sold Y1 2013 as 55% model Y2 inventory was scaled to 55% of 15MW = 8.25MW reserve Y1 clears remaining 46.75MW (55MW-8.25MW reserved) Sequence 1 Inventory = 15MW + 46.75MW = 61.75MW reserved In sequence 1, no longer scaled with NPRR463 60% Model = 60MW, but already sold 61.75MW Potentially no new sales unless counterflow ERCOT Public

11. Oversold Risk continued ERCOT received NPRR463 code this week to see how significant this issue may be based on current inventory and historical bidding ERCOT will run scenarios and consider any significant updates at Feb WMS If significant (eg,Load Zones do not clear any MW), potential considerations: 1- Do nothing, proceed as planned 2- For transitional purposes make first Sequence 65-70% 3- For Sequence 1 auction use scaling of existing inventory 4- Skip first sequence for 2013 ERCOT Public

12. Transaction Bid Limits • For Year 1 annual auction ran in Nov  2012 (which has 2500 bid limit): • Total number of Transactions (bids and offers) entered by market into the auction 133k • Total number of Awards 39k • Number of Transactions that were 12-month strips 29k • Number of Awards that were 12-month strips 5.5k • Number of Transaction that were more multi-month (including the 12-month) 75k • Number of Awards that were multi-month 17k • Number of CRRAH that bid more than 2,400 bids 21 of 118  • Repeat for Year 2 annual auction ran in Dec 2012 (which had 3500 limit) • Total number of Transactions (bids and offers) entered by market into the auction 121k • Total number of Awards 23k • Number of Transactions that were 12-month strips 31k • Number of Awards that were 12-month strips 3k • Number of Transaction that were more multi-month (including the 12-month) 71k • Number of Awards that were multi-month 8k • Number of CRRAH that bid more than 3,400 bids 5 • For monthly auctions in 2012 • Total average number of transactions submitted 120k • Average number of awards 15k • Number of CRRAH that bid more than 7,400 bids 5 to10 ERCOT Public

13. Protocol expiration of CRR Auction Revenue Distribution Methodology • 7.5.7  Method for Distributing CRR Auction Revenues • (2)  Prior to December 1, 2013, ERCOT shall credit the net CRR Auction revenue (including PCRR revenue) produced from CRRs cleared in each CRR Auction that source from a Settlement Point located within a 2003 ERCOT Congestion Management Zone (CMZ) and sink at a Settlement Point located within the same 2003 ERCOT CMZ to Qualified Scheduling Entities (QSEs) in the 2003 ERCOT CMZ on a zonal Load Ratio Share (LRS) basis.  All other net CRR Auction revenues must be allocated to QSEs on an ERCOT-wide LRS basis.  For these allocation purposes, any Non-Opt-In Entity (NOIE) Load Zone is considered to be located entirely within the 2003 ERCOT CMZ that represented the largest Load for that NOIE or group of NOIEs in 2003.  Before the end of the three-year period described above, the ERCOT Board shall consider whether to extend the policy or ratify some other alternative. • ERCOT asks that stakeholders consider if any policy changes are needed: • Recommend stakeholder review for policy consideration • Board review and approval due in late 2013 • If NPRR and system changes are needed then timing becomes an issue • ERCOT can support analysis if necessary in the decision process • If no significant ideas/progress, ERCOT will sponsor NPRR to maintain as is. ERCOT Public

14. Potomac summary reflecting 2011 CARD distribution ERCOT Public

15. APPENDIX ERCOT Public

16. CRR Roadmap 2012 2013 Q3 Q4 Q1 Q2 Q3 Q4 NPRR 357/430 Credit Q3 NPRR 453 Yr 1 / Yr 2 Execution Q3/4 CRR Upgrade to Linux Hardware Q3/4 NPRR463 – 6 month / Rolling Auction Break-up scaling PCRR/CRR Integration fixes and improvements ERCOT configuration / testing Requirements – Oct 2012, Test - Jan, Prod – April 2012-2013 work in parallel on: Stress testing 200,000 bid limit on Linux Potential Future Changes: NPRR407 Phase 2 – CRR Credit (initiate 1Q?) SCR769 - Read-only Role (initiate 1Q?) NPRR455 - CRR Shift Factors NPRR484- CRR Credit Calculations CRR API - Leverage new Nexant functionality PhaseShiftTxfrmr Optimization Refine Hub calculation for outage redistribution ERCOT Public