1 TAC Report to the ERCOT Board July 18, 2006

2 TAC Summary 4 PRRs for approval (3 unanimous) 4 PRRs for approval (3 unanimous) 5 Nodal PRRs for approval (unanimous) 5 Nodal PRRs for approval (unanimous) High interest issues High interest issues 2007 Project Prioritization2007 Project Prioritization EECP Review and Follow-UpEECP Review and Follow-Up Credit working group recommendationsCredit working group recommendations TAC action regarding PRR 650TAC action regarding PRR 650 Guide Revisions Notice Guide Revisions Notice

3 PRR 666 – Modification of RPRS Under-Scheduled Capacity Charge Calculation-- URGENT Why has there been much discussion about Replacement Reserves Service (RPRS)? RPRS has been a defined ancillary service in the ERCOT Protocols since the implementation of the market in 2001 However, the RPRS engine was inactive due to software limitations ERCOT implemented RPRS pursuant to the ERCOT Protocols in late March 06 as part of a EMMS software update RPRS under the Protocols is procured for the following reasons: 1) local congestion; 2) zonal congestion; and 3) capacity insufficiency

4 PRR 666 – Modification of RPRS Under-Scheduled Capacity Charge Calculation-- URGENT Prior to implementation of RPRS in late March 06, if ERCOT needed capacity for the reasons RPRS is designed to address, ERCOT procured OOMC and allocated the cost per the Protocols After implementation of RPRS in March 06, ERCOT began to allocate the cost of RPRS procured for capacity insufficiency based directly to Qualified Scheduling Entities the under-schedule in the interval RPRS is procured (change in cost allocation) ERCOT has opened several RPRS markets since late March 06 and stakeholders have raised some concerns regarding RPRS

5 PRR 666 – Modification of RPRS Under-Scheduled Capacity Charge Calculation-- URGENT Purpose (Reliant Energy, IPM) Modifies RPRS settlement to charge QSEs when they are net short on an ERCOT-wide basis, rather than on a zonal basis; Urgent due to RPRS being in effect Benefit Allocates RPRS costs for system sufficiency on a QSE net position, system-wide; should reduce the over-collection of the under-scheduled charge for RPRS; and reduces costs charged to MPs that had no impact on the volume of RPRS procured by ERCOT. Market Impact Requires changes to shadow settlement. System Change Yes CBA -- $(300,000) Assumptions RPRS procurement may not be reduced TAC Vote TAC recommended approval with 5 votes in opposition and 6 abstentions; all market segments were present Effective Date Upon System Implementation (ERCOT estimate is 6 months) – Priority of 2 and Ranking of 1.5

6 PRR 666 – Modification of RPRS Under- Scheduled Capacity Charge Calculation-- URGENT Item Reviewed Description NoImpact Credit Monitoring/ Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact Requires Lodestar modification $100K - $500K

7 TAC Discussion Regarding PRR 666 The TAC had a lengthy discussion comparing the merits of PRR 666 and 667 Much of the discussion focused on the policy issue whether to base the charges on marginal cost (666) or on an average cost (667) and whether RPRS should remain an auction based service Discussion also focused on the distribution factor for the allocation of the RPRS charges collected by ERCOT It was agreed that both these PRRs likely cannot be implemented jointly because the proposed calculation of the under-schedule charge in each PRR is fundamentally different The TAC ultimately approved PRR 666 and assigned to PRS the task of addressing the allocation of the RPRS charges collected by ERCOT

8 Recommended Board Actions Approval Approval Urgent PRR 666 – Modification of RPRS Under-Scheduled Capacity Charge CalculationUrgent PRR 666 – Modification of RPRS Under-Scheduled Capacity Charge Calculation PRR 653 – OOME Ramp Rate AdherencePRR 653 – OOME Ramp Rate Adherence Urgent PRR 669 – Timing of Calculation of RPRS Under-Scheduled ChargesUrgent PRR 669 – Timing of Calculation of RPRS Under-Scheduled Charges Urgent PRR 670 – First Available Switch Date for Switch RequestUrgent PRR 670 – First Available Switch Date for Switch Request

9 Nodal PRRs TAC unanimously recommends approval of: TAC unanimously recommends approval of: NPRR001 – Section 1 (Overview)NPRR001 – Section 1 (Overview) NPRR004 – Section 8 (Performance Monitoring & Compliance)NPRR004 – Section 8 (Performance Monitoring & Compliance) NPRR005 – Section 7 (Congestion Revenue Rights)NPRR005 – Section 7 (Congestion Revenue Rights) NPRR006 – Section 4 (DA Operations)NPRR006 – Section 4 (DA Operations) NPRR007 – Section 9 (Settlement & Billing)NPRR007 – Section 9 (Settlement & Billing) Commission has approved Nodal Protocols Commission has approved Nodal Protocols Stakeholders and ERCOT have asked clarifying questions regarding intent of Nodal Protocols Stakeholders and ERCOT have asked clarifying questions regarding intent of Nodal Protocols Transition Plan Task Force has answered some of these questions by submitting the Nodal PRRs to the PRS for approval Transition Plan Task Force has answered some of these questions by submitting the Nodal PRRs to the PRS for approval TPTF and PRS recommended approval of the Nodal PRRs and posted for comment TPTF and PRS recommended approval of the Nodal PRRs and posted for comment TAC approved the nodal PRRs above without comment TAC approved the nodal PRRs above without comment

10 High Interest Issues  TAC unanimously approved 2007 Project Priority List and input includes recommendation regarding level of capital project budget (completes Board directive)  EECP event follow-up action items;  Review of EECP steps;  Load forecasting methodology review forum;  Review of Resource Plans and how related to the EECP event;  Review of settlement calculations for RPRS and OOM;  Review of LaaR performance;  Review of communications between ERCOT and market participants;  Review of planned generation outage scheduling  TAC discussion regarding Credit Working Group discussions/recommendations  TAC discussed Board remand of PRR 650, Balancing Energy Price Adjustment Due to Non-Spinning Reserve Service Energy Deployment and expects to consider PRR 650 again in August  Subcommittee leadership to review effectiveness/efficiency of working groups and task forces

11 Guide Revisions Notice Operating Guide Revisions: Operating Guide Revisions: RMGRR035 – Updates to Retail Market Guide for MarkeTrak RMGRR036 – Retail Market Transaction Processing Service Availability RMGRR037 – Submission of Switch Requests during a Mass Transition Event OGRR1179 – Under-Voltage Load Shedding Protection LPGRR012 – Process for Load Profiling Guide Revisions LPGRR013 – Annual Validation Business Timeline Adjustment LPGRR014 – Profile Decision Tree Modifications and Approval Process LPGRR015 – Profile Model Evaluations and Changes