Proxy $G and other Loads in SCED 2 Litmus Tests Loads in SCEDv2 Subgroup Dec. 2, 2014

2 Background Loads in SCED Subgroup is contemplating a v2 that would allow three settlement options, all consistent with the concept of LMP minus G: 1.Existing Bid-to-Buy – for LRs represented by their LSE 2.Volumetric G – for LRs represented by 3 rd party QSEs with DR measurable at ESI ID level 3.Proxy $G – for LRs represented by 3 rd party QSEs and… With hedged retail energy pricing With DR measurable at the LSE portfolio level Loads in SCEDv2Dec. 2, 2014

3 Loads in SCED Resource/ALR Request Can we accurately estimate customer- level curtailment? Yes No DR QSE LSE/ REP Offer to sell in SCED Bid to buy in SCED Does aggregation meet minimum customer count for baseline accuracy? Represented by LSE/REP or DR QSE? No ALR fails qualification (Bilateral only) Yes Offer to sell in SCED Settled as LMP-VG Settled as LRISv1 Settled as LMP-$G Is Resource a residential aggregation with customer rate composition compatible with LMP-$G? Yes No LMP-G Road Map (Hybrid approach) Dec. 2, 2014Loads in SCEDv2

4 Who’s eligible for Proxy $G? Under this settlement option, the LR’s LSE(s) would be reimbursed by the DR QSE for the demand response value at the Proxy $G rate –IE, the DR QSE will ‘sell back’ the (unused) energy to the market at LMP minus G This only works if the LR is buying its energy on a hedged price contract –If the LR is avoiding a real-time price, this would amount to ‘double payment’ Proxy $G eligibility should be a simple binary designation – ‘Hedged’ or ‘Unhedged’ – assigned by the LSE The question is, who’s hedged and who isn’t? Loads in SCEDv2Dec. 2, 2014

5 Retail product types (from the DR data project) RTP – Real Time Pricing – retail prices for all hours or intervals based on ERCOT Real-Time Settlement Point Prices for the premise Load Zone, calculated every 15 minutes, or other real-time wholesale price indicator(s). BI – Block & Index – fixed pricing for a defined volume of usage, coupled with pricing indexed to the wholesale market for usage exceeding the block. Block prices and volumes may vary by time of day/week. Option could include if usage dips below the block. CPP – Critical Peak Pricing –prices that rise during critical peaks: limited duration periods of time identified by the LSE that usually correlate to high prices in the real-time wholesale market. Critical peak events may occur a limited number of times per year and typically are communicated a day in advance. PR – Peak Rebates – rebates paid to customers for load reductions taken during periods of time identified by the LSE. Loads in SCEDv2Dec. 2, 2014

6 Retail product types (from the DR data project) 4CP – Four Coincident Peak – predictor signals or direct load control provided to customers in advance of potential Four Coincident Peak (4CP) intervals during summer months (June through September). Reducing load during such intervals lowers transmission charges. 4CP charges apply to large customers (peak demand ≥700 kW) in competitive choice areas, and also to NOIEs at the boundary meter level. TOU – Time of Use — prices that vary across defined blocks of hours, with predefined prices and schedules. (As used here, does not apply to seasonal adjustments). OLC – Other Direct Load Control – contracts that allow the LSE or a third party to control the customer’s load remotely for economic or grid reliability purposes. This category applies to Direct Load Control (DLC) with different deployment criteria than described elsewhere. (Avoid double counting if DLC data was reported in other categories.) OTH – Other Voluntary Demand Response Product – any retail product not covered in the other categories that includes a demand response incentive or signal. FO – Financial Option – product where LSE purchases an option from the customer that is backed by a specified level of DR and uses it for portfolio trades in the wholesale market. Loads in SCEDv2Dec. 2, 2014

7 Time of Use trends (from ‘14 data collection project) TOU as of 6/15/13:117,570 TOU as of 9/30/14*:290,400 * Preliminary and unofficial Most of the other categories also showing strong increases ERCOT still working with REPs to clarify some anomalies We need good discussion on which of these product types qualify as ‘unhedged’ Especially TOU -- almost entirely residential Loads in SCEDv2Dec. 2, 2014

8 Things to think about Absent a TX SET change, LSEs will need to submit lists of Unhedged ESI IDs to ERCOT on a regular (monthly?) basis ERCOT will need a mechanism to inform DR QSEs when a member of an ALR is designated as Unhedged –DR QSE must then remove it from the ALR Does the current list of product types cover all the bases? Should the litmus test requirement also extend to NOIEs that permit 3 rd party DR QSEs in their territories? –If so, how to coordinate unique meter IDs? Loads in SCEDv2Dec. 2, 2014

9 Other litmus tests… An Aggregate Load Resource (ALR) must meet a minimum size threshold in order for performance to be measured accurately –For Weather-Sensitive ERS, ERCOT set the minimum at 500 kW of DR capability –Is this the right threshold for ALRs in SCED? –Are there incentives for QSEs to create many small ALRs vs. a few large ALRs, and if so, are those incentives perverse? Members of an ALR may be served by multiple LSEs – should a minimum size be established for LSE portfolios within ALRs? –ERCOT Settlements will need to allocate DR values (x Proxy $G) back to each LSE –DR QSEs may not know REPs for all their clients, and customers switch – minimum thresholds could be unworkable –Is a threshold really necessary? Loads in SCEDv2Dec. 2, 2014

10 Loads in SCEDv2Dec. 2, 2014 ON OFF Questions?