Report to TAC June 2008

In Brief Working Group Reports Working Group Reports CMWG CMWG MCWG MCWG QMWG QMWG VCWG VCWG Other Reports Other Reports NOGRR 025 NOGRR 025 Congestion Report Congestion Report EILS Report EILS Report

Working Group Reports CMWG Business Process for Adjusting TTC for TCR Auctions – Related to PRR801, Manual TCR Adjustments Business Process for Adjusting TTC for TCR Auctions – Related to PRR801, Manual TCR Adjustments Work is continuing on Manual TCR Adjustments Work is continuing on Manual TCR Adjustments ERCOT will evaluate 3 TCR cases to compare: Transfer capability for sale vs. most limiting transfer capability (on each CSC) given different sets of outages ERCOT will evaluate 3 TCR cases to compare: Transfer capability for sale vs. most limiting transfer capability (on each CSC) given different sets of outages Only point of agreement so far is that revenue neutrality should be for forward month only (not to make up historical shortfalls Only point of agreement so far is that revenue neutrality should be for forward month only (not to make up historical shortfalls CMWG continues to support for ERCOT goal of making each month revenue neutral CMWG continues to support for ERCOT goal of making each month revenue neutral

Working Group Reports CMWG SAPS – Menard SAPS – Menard Back in Service since May 15 th with the addition of the Shrew Tap and a breaker at SAPS Back in Service since May 15 th with the addition of the Shrew Tap and a breaker at SAPS CREs Notices/Attributes CREs Notices/Attributes Current goal is to find transmission elements the respond similarly to CSC’s from the deployment of BES. Experience with CREs shows that refinements may be needed. Current goal is to find transmission elements the respond similarly to CSC’s from the deployment of BES. Experience with CREs shows that refinements may be needed. Four Component Test under Consideration Four Component Test under Consideration Threshold weighted shift factor/PTDFs Threshold weighted shift factor/PTDFs Shift Factors between Source/Sink Zones Shift Factors between Source/Sink Zones Weighted averages consider only price responsive gen Resource concentration Weighted averages consider only price responsive gen Resource concentration Boundary generation Boundary generation Generation that has impact on constraint that is counter to the zone it is in Generation that has impact on constraint that is counter to the zone it is in Concentration of Effective Generation Concentration of Effective Generation Compare percentage of capacity to the percentage of impact Compare percentage of capacity to the percentage of impact Correlation of CRE to its zone Correlation of CRE to its zone

Working Group Reports CMWG Upcoming activities: Upcoming activities: Review ERCOT findings on TCR Cases for PRR 801 Review ERCOT findings on TCR Cases for PRR 801 June 8 - Discuss CRE criteria June 8 - Discuss CRE criteria 2010 CSC Discussions 2010 CSC Discussions July 8 July 8 July 24 July 24 August 4 August 4 August 10 August 10

Working Group Reports MCWG NPRR147, DAM Short Pay Changes NPRR147, DAM Short Pay Changes Current Nodal Protocols Current Nodal Protocols Short pay by an entity in the Congestion Revenue Rights (CRR’s) market will result in the Day Ahead Market (DAM) being short paid Short pay by an entity in the Congestion Revenue Rights (CRR’s) market will result in the Day Ahead Market (DAM) being short paid NPRR 147, Proposed Changes NPRR 147, Proposed Changes Reallocates short payments using a procedure that draws from the Congestion Revenue Right (CRR) Auction revenue account first and then draws any additional shortfalls from the CRR Balancing Account Reallocates short payments using a procedure that draws from the Congestion Revenue Right (CRR) Auction revenue account first and then draws any additional shortfalls from the CRR Balancing Account Allocation to the DAM of short pays is ineffective due to the voluntary nature of the DAM. This NPRR will prevent the potential collapse of the DAM should a large default event occur with CRRs or the DAM. Allocation to the DAM of short pays is ineffective due to the voluntary nature of the DAM. This NPRR will prevent the potential collapse of the DAM should a large default event occur with CRRs or the DAM. Benefit: The NPRR should prevent distortion of the DAM results or complete failure of the market. Benefit: The NPRR should prevent distortion of the DAM results or complete failure of the market. Impact: Qualified Scheduling Entities (QSEs) serving Load would receive reduced CRR Auction revenue disbursement payments and potentially receive reduced Balancing Account closure payments should a CRR account holder default on an obligation. Impact: Qualified Scheduling Entities (QSEs) serving Load would receive reduced CRR Auction revenue disbursement payments and potentially receive reduced Balancing Account closure payments should a CRR account holder default on an obligation.

Working Group Reports MCWG ALTERNATIVE 1 TO NPRR 147 Concerns were raised with NPRR147 by some stakeholders Concerns were raised with NPRR147 by some stakeholders the amount that would ultimately be “uplifted to load” at one time the amount that would ultimately be “uplifted to load” at one time those benefiting from the CRR market bear the cost of a default those benefiting from the CRR market bear the cost of a default CPS offered an alternative to NPRR147 that would result in a charge being added to CRR bids and offers to “fund” a short pay fund to reduce the magnitude of any loss that would need to be uplifted, and after the shortfall fund was exhausted would revert to the methodology contained in PRR147 CPS offered an alternative to NPRR147 that would result in a charge being added to CRR bids and offers to “fund” a short pay fund to reduce the magnitude of any loss that would need to be uplifted, and after the shortfall fund was exhausted would revert to the methodology contained in PRR147 Issues were raised with Alternative 1, that it would impact price convergence for the CRR markets Issues were raised with Alternative 1, that it would impact price convergence for the CRR markets Other issues raised included Other issues raised included Should there be a cap on the fund, and if so, what amount? Should there be a cap on the fund, and if so, what amount? What to set the charge at for the “fund”, do you charge after funded? What to set the charge at for the “fund”, do you charge after funded? System Impact System Impact Inefficient use of capital by “prefunding” Inefficient use of capital by “prefunding” Refunding of amounts? Refunding of amounts?

Working Group Reports MCWG With both NPRR147 and Alternative Proposal 1 (CPS) some stakeholders raised that losses from CRR’s in the DAM could still be uplifted to load With both NPRR147 and Alternative Proposal 1 (CPS) some stakeholders raised that losses from CRR’s in the DAM could still be uplifted to load Alternative Proposal 2 attempts to address concerns brought up by parties with respect to the existing nodal protocols, risks to price convergence, impact of large losses at one time, and the loss uplift methodology Alternative Proposal 2 attempts to address concerns brought up by parties with respect to the existing nodal protocols, risks to price convergence, impact of large losses at one time, and the loss uplift methodology

Working Group Reports MCWG ALTERNATIVE 2 TO NPRR 147 ERCOT establishes a facility to fund short pays from CRR’s in the DAM ERCOT establishes a facility to fund short pays from CRR’s in the DAM DAM immediately paid DAM immediately paid Short pays for DAM allocated to ERCOT membership on a loss mutualization methodology like the northeast ISO/RTO markets Short pays for DAM allocated to ERCOT membership on a loss mutualization methodology like the northeast ISO/RTO markets Short-pays above a certain level that become defaults would be allocated up to a predetermined maximum per billing period (i.e. $2MM per participant) Short-pays above a certain level that become defaults would be allocated up to a predetermined maximum per billing period (i.e. $2MM per participant)

Working Group Reports MCWG ALTERNATIVE 2 TO NPRR 147 Benefits Benefits Allows for price convergence in the CRR markets (no adder to bids/offers) Allows for price convergence in the CRR markets (no adder to bids/offers) Does not unnecessarily tie up scarce collateral of stakeholders to fund a prepay account Does not unnecessarily tie up scarce collateral of stakeholders to fund a prepay account Allows for a cap on any amount to be charged in any period to any one counterparty (smoothes impact) Allows for a cap on any amount to be charged in any period to any one counterparty (smoothes impact) Cost to market is less by obtaining a facility in case of loss Cost to market is less by obtaining a facility in case of loss Open Issues Open Issues ERCOT Inc., obtaining approvals to enter into such a facility ERCOT Inc., obtaining approvals to enter into such a facility Other markets do have such facilities (NYISO has a $50MM fund) Other markets do have such facilities (NYISO has a $50MM fund) Amount of facility Amount of facility Cap for charges for a single period, per participant Cap for charges for a single period, per participant System Impact System Impact Methodology for uplifting to market participants Methodology for uplifting to market participants Socialized losses across all market participants (Mutualization) Socialized losses across all market participants (Mutualization) LRS LRS Conforming changes to Protocols Conforming changes to Protocols

Working Group Reports QMWG Implementation of SCR 754, Wind Generation Forecast transfer using XML query Implementation of SCR 754, Wind Generation Forecast transfer using XML query On schedule for mid-June, 2009 On schedule for mid-June, 2009 WGRPP Forecast accuracy analysis WGRPP Forecast accuracy analysis Consistent over last three months – under forecast off-peak and over forecast on-peak Consistent over last three months – under forecast off-peak and over forecast on-peak

Working Group Reports QMWG PRR 776 Automatic MCPE Adjustment – implemented May 22 PRR 776 Automatic MCPE Adjustment – implemented May 22 PRR 812 Wind Generator Forecast Scheduling Metric – endorsed with QMWG comments PRR 812 Wind Generator Forecast Scheduling Metric – endorsed with QMWG comments PRR811 & OGRR223 Real Time Production Potential – tabled PRR811 & OGRR223 Real Time Production Potential – tabled Data calculation and aggregation methods will be studied and QMWG will recommend final language Data calculation and aggregation methods will be studied and QMWG will recommend final language NOGRR025 - finalizing metrics NOGRR025 - finalizing metrics Next Meeting: June 9, 2009 Next Meeting: June 9, 2009

Working Group Reports VCWG RUC Cancellations RUC Cancellations Add definition of RUC Cancellation to section 2 of Nodal Protocols. Add definition of RUC Cancellation to section 2 of Nodal Protocols. Discussion on how to apply the charge on a LRS basis per WMS Direction. Discussion on how to apply the charge on a LRS basis per WMS Direction. Use an adjustment to the Decommitment Payment to settle RUC Cancellations. Use an adjustment to the Decommitment Payment to settle RUC Cancellations. Will require language in section to add RUC Cancellations. Will require language in section to add RUC Cancellations.

Working Group Reports VCWG NPRR 168 NPRR 168 ERCOT presented a white paper on determining heat rate from breaker close to LSL. ERCOT presented a white paper on determining heat rate from breaker close to LSL. VCWG Comments VCWG Comments Use previous months heat rates that would be effective on the 5 th of the month. Use previous months heat rates that would be effective on the 5 th of the month. WMS directed VCWG to use Daily average prices to use for calculating proxy heat rates WMS directed VCWG to use Daily average prices to use for calculating proxy heat rates VCWG directed to finalize the timing for adjusting proxy heat rate (weekly, bi-weekly, monthly) VCWG directed to finalize the timing for adjusting proxy heat rate (weekly, bi-weekly, monthly)

Working Group Reports VCWG NPRR 174 NPRR 174 PRS agreed on the 10% adder for X. PRS agreed on the 10% adder for X. PRS remanded back to WMS to get input from VCWG on Settlement of disputes resulting from this NPRR. PRS remanded back to WMS to get input from VCWG on Settlement of disputes resulting from this NPRR. 1. Leave as the NPRR is written with RUC Capacity Shorts being charged prior to uplift. 2. Uplift on a LRS charge all disputes. 3. Have a ceiling; when a Fuel Expense exceed a certain % of FIP then the amount above that % is uplifted. WMS remanded issue to VCWG WMS remanded issue to VCWG

Other WMS activity NOGRR 025 – WMS continues to actively review metrics and language and will finalize at June meeting NOGRR 025 – WMS continues to actively review metrics and language and will finalize at June meeting Congestion Report Congestion Report High OOMC costs in the North zone ($28.66 million total) High OOMC costs in the North zone ($28.66 million total) OOMC costs in the South zone increased ($33.45 million total) OOMC costs in the South zone increased ($33.45 million total) OOM Down costs increased in the West zone ($52.69 million total) OOM Down costs increased in the West zone ($52.69 million total) BES Down was highest in the North ($7.24 million) and South ($6.07 million); BES Down was highest in the North ($7.24 million) and South ($6.07 million); OOM Up costs were the highest in the South zone ($25.54 million); next highest (West zone) was at $4.29 million) OOM Up costs were the highest in the South zone ($25.54 million); next highest (West zone) was at $4.29 million) Highest inter-zonal costs were between North to South zones at $ million. Highest inter-zonal costs were between North to South zones at $ million. EILS update (P. Wattles to present) EILS update (P. Wattles to present)

WMS 2009 Goals Item WMS input/direction needed by Nodal Market Transition On-going Nodal Verifiable Cost Methodology On-going (VCWG) Approved Zonal PRRs – Analysis and Prioritization Q1-Q2 Consideration of timely, economic improvements to Zonal Market Before Q4 Determine CSCs for 2010 Q3 (CMWG) Market Issues Related to: Credit issues On-going (MCWG) EILS and AS Markets On-going Integrating advanced meters & other demand response into Ancillary Service Markets On-going (DSWG) Wind & related renewable technology integration On-going (QMWG/RTWG)