TAC Report to the ERCOT Board

1. TAC Report to the ERCOT Board May 20, 2003

2. Summary • PRRs 362, 371, 381, 385, 386, 392, 393, 394, 396, 398, 400, 401, 403, 407 • 381: Update QSE Designation • 396: RMR • 371: Payment for Min Energy with OOMC • 401: Partial Payments and Credit • 407: Remove RBS Sunset • 2004 CSCs and zones • Load Profiling Guides Revision

3. PRR 362 – Load Profiling ID Type Correction • Allows the load profiling ID type to be corrected in the billing system, not the registration system • No computer system impact • Effective June 1, 2003 • Related revisions to the Load Profiling Guides approved by TAC (LPGRR2003-002)

4. PRR 385 – DLC Implementation • Provides clarification to an existing Direct Load Control project • Impacts ERCOT computer system • Effective upon system implementation

5. PRR 386 – Scheduling Information • Clarifies Protocol by indicating that not all services are deployed zonally and that zonally deployed services are reported zonally • No impact on ERCOT computer systems • Effective June 1, 2003

6. PRR 392 – Posting of Balancing Energy Forecast • Removes the requirement for ERCOT (PIP 138) to post the balancing energy forecast • No impact on ERCOT computer systems • Effective June 1, 2003

7. PRR 393 – Balancing Energy Bid Expiration Time • Eliminates the expiration time for balancing energy bids (PIP 147) • No impact on ERCOT computer systems • Effective June 1, 2003

8. PRR 394 – Balancing Energy Ramps as Instructed Deviations • Conforms Protocols to ERCOT system treatment of BE ramps outside of the target interval • No impact on ERCOT computer systems • Effective June 1, 2003

9. PRR 398 – CCGT Settlement • Clarifies implementation of previously approved PRR 369 (combined cycle unit aggregation for settlement), so that system development is not delayed • Impact on ERCOT computer systems integrated with PRR 369 ongoing work • Priority same as PRR 369 • Effective upon system implementation

10. PRR 400 – Provisional Approval of LaaRs • Allows LaaRs to obtain provisional approval once telemetry & calibration testing are complete – LaaR must still complete actual interruption test • Impact on ERCOT computer system integrated with PIP 112 • Priority same as PIP 112 • Effective upon system implementation

11. PRR 403 – URC Update for New Smoothing Algorithm • Clarifies changes to URC calculation related to HVDC tie schedules due to PRR 350. • Impacts ERCOT computer systems • Effective upon system implementation

12. Now it gets interesting…..

13. PRR 381 – Update QSE Designation (The Sequel) • Board remanded to TAC to reconsider initially approved 30-day period from QSE notice to time when scheduling for the Resource or LSE ends • TAC recommendation: shorten timeframe to 7 days from 30 days

14. PRR 381 – Update QSE Designation (The Sequel) • Current Default QSE contract does not recognize a transfer of a resource or an LSE without the QSE being in default; also does not address the situation where an LSE fails to choose a new QSE • Effective June 1, 2003 • TAC approved PRS recommendation by a vote of 23-6

15. PRR 396 – Reliability Must-Run Units Incorporates the TAC-approved decision points from April • Applicants must attest the unit is uneconomic to remain in service • Allow rejected applicants to continue market operations; • ERCOT staff to develop options for RMR ‘exit strategy’ within 90 days of contract execution; and • Provide for multi-year contracts

16. PRR 396 – Reliability Must-Run Units • Accept both seasonal and annual RMR concepts and reflect in pricing • Adopt “cost plus” methodology for both and reflect differences in risk (8%/2% of eligible costs) • Proposed effective date June 1, 2003

17. PRR 396 – Reliability Must-Run Units Section 6.8.3 (4) Eligible costs ... are defined to be costs that would be incurred by the RMR Unit owner to provide the RMR Service, excluding fuel costs, above the costs the RMR Unit would have incurred anyway had it been mothballed or shutdown. Examples of eligible costs include: labor, materials, supplies and services necessary to operate the RMR Unit.

18. PRR 396 – Reliability Must-Run Units Eligible costs: Section 6.8.3 (4) continued Examples of costs not included as eligible costs are: depreciation expense, return on equity, debt and interest costs, administrative and general expenses, allocated general plant, property taxes and other taxes not attributable to operating the RMR Unit, security costs for the facility, and labor costs associated with other, non-RMR Generation Resources at the same facility and any other costs the Generation Entity would have incurred even if the RMR Unit had been mothballed or shutdown.

19. PRR 396 – Reliability Must-Run Units • TAC approved PRS recommendation by a vote of 20-8-1 • Outstanding Issues: • How RMRs are selected-- by the Resource or by ERCOT upon notice of retirement / mothballing • The event where a resource owner retires the unit when ERCOT needs the unit

20. PRR 371 – OOMC Update • Review of OOMC completed in order to ensure proper economic tradeoff between RMR and OOM and to integrate PRR 371’s recognition of minimum energy • Likely to impact ERCOT computer systems • Effective with system implementation

21. PRR 371 – OOMC: Addition of Resource Categories • Combined Cycle, the largest CT in the train is: • Less than 90 MW • Greater than or equal to 90 MW • Gas Steam • Supercritical boiler • Reheat boiler • Non-reheat or boiler without air pre-heater • Simple Cycle • Less than 90 MW • Greater than or equal to 90 MW

22. PRR 371 – OOMC:Modified/Added/Deleted Costs for Some Resource Categories • Resource Category Generic Fuel Costs • Upward instructions • Downward instructions • Resource Category Generic Startup Costs • Resource Category Generic Minimum Energy Costs – Added • Resource Category Generic Operational Costs – Deleted

23. PRR 371 – OOMC:Generic OOMC Payment OOMC Payment = • Price for unit start, provided the unit is not connected to the grid PLUS • Price for operating a unit to provide “minimum” energy at its Low Sustainable Limit

24. PRR 371 – OOMC:Generic OOMC Startup Cost • Each Resource Category has an associated startup cost which includes: • Startup fuel cost • Ramp fuel cost (for Combined Cycle only) • These fuel costs are based on the Resource’s capacity • MPCE paid/charged for ramp energy is credited back to ERCOT via the formula for startup cost

25. PRR 371 – OOMC:Generic OOMC Min Energy Cost • Each Resource Category has an associated minimum energy cost per MW • During the instruction interval: • The cost per MW is multiplied by the lesser of the Low Sustainable Limit or the metered output of the Resource • MPCE paid/charged for the minimum energy is credited back to ERCOT via the formula for minimum energy cost

26. PRR 371 – OOMC:OOMC Instruction –Clarification • ERCOT will not issue an OOME Up instruction for energy associated with the Low Sustainable Limit • The QSE may maintain a Balanced Schedule during instruction interval by: • Scheduling energy • Being selected to provide Balancing Energy Service

27. PRR 371 – OOMC:OOMC Instruction –Clarification • Issue: How to treat the energy provided when complying with an OOMC instruction. • QSE cannot maintain a Balanced Schedule if OOMC instruction received less than 1.5 to 2 hours in advance of instruction interval • TAC revision: Actions to comply with OOMC instruction won’t result in URC. • ERCOT staff proposal: Actions to comply with OOMC instruction given within 30 minutes of operating period won’t result in URC.

28. PRR 371 – OOMC:Disclosure • TAC recommendation to post • Units receiving an OOMC instruction • Intervals for which a unit received an OOMC instruction • Intervals and energy requested from each unit receiving an OOMC instruction

29. PRR 371 – OOMC:Verifiable Incremental Costs • Deleted requirement that ERCOT BOD review and approve compensation for cost types except for fuel • Future Action Item: Describe other verifiable cost types and documentation required

30. PRR 371 – OOMC:Fallout for RMR Task Force • Verifiable incremental costs – Section 6.8.2.2(5)(b) • Optimization of OOMC instructions • Economic optimization • Honor physical characteristics of OOM Resource • QSE Resource Plan – Section 4.4.15 • Need to require additional data in plan • Review definition of Low Sustainable Limit • Determine other verifiable costs/documentation

31. PRR 401 – Partial Payments & QSE Credit Requirements • Partial payments (short pays) uplifted to loads on LRS basis if not collected within 120 days and the QSE is not in compliance with payment plan • Modifies Estimated Aggregate Liability (EAL) calculation • Allows ERCOT to offset against amounts owed by short-pay QSE

32. PRR 401 – Partial Payments & QSE Credit Requirements • Proposed EAL Calculation • Reduces EAL ratchet from 90 days to 60 days • Uses average of 2 initial invoices to calculate ADT – smooths collateral spikes • Includes TCR credits for ownership and auction revenues • Formalizes terms of “early pay”

33. PRR 401 – Partial Payments & QSE Credit Requirements • Proposed EAL Calculation • Changes calculation to include OUT • Outstanding invoices plus estimated unbilled items • Allows ERCOT to make downward adjustments in EAL outside ratchet period • Fixes SAF at factor of 1 until ERCOT gains more history on seasonal credit requirements

34. PRR 401 – Partial Payments & QSE Credit Requirements • Proposed EAL Calculation • Allows estimation of balancing energy and ancillary service usage • Estimation of finals and true-ups based on three week average • Mulitply final average by 9 weeks • Multiply true-up average by 48 weeks

35. PRR 401 – Partial Payments & QSE Credit Requirements • No impact on ERCOT computer systems; manual processes • Effective June 1, 2003 • TAC approved PRS recommendation by a vote of 25-1-4

36. PRR 407 – Removal of RBS Sunset Date • PRR submitted to delete sentence: • ERCOT will not initiate limitation or suspension of relaxed Balanced Schedules after May 1, 2003. • PRS recommended rejection • TAC recommends deleting entire paragraph by a vote of 27-1-1.

37. PRR 407 – Removal of RBS Sunset DateSection 4.3.5

38. 2004 CSCs and zones • Same CSCs as 2003 • STP - Dow (Velasco) • Sandow - Temple • Graham - Parker /Graham - Benbrook • Resulting 4 zones • North2004 • South2004 • West2004 • Houston2004

39. Final Recommended ERCOT 2004 Congestion Management Zones WEST NORTH HOUSTON SOUTH

40. Recommended Exceptions • STEC requested 3 busses (2 with total load ~11 MW) be designated in the South zone, rather than the clustering resulted Houston zone. • Bryan Texas Utilities requested the Dansby generator (110MW) be designated in the North zone, rather that the clustering resulted Houston zone.