Long-term Solution Task Force Ellis Rankin & Bob Wittmeyer Co-Chairs

Long-term Solution Task Force Mission of finding alternative solutions to the emergency interruptible service that is required by Public Utility Commission of Texas (PUCT) Substantive Rule § The rule specifically requires the market participants to identify alternatives that are defined as long-term solutions. Any long-term solution must offer ERCOT the ability to avoid shedding firm load by bringing more resources online or curtailing load voluntarily. In this context, the PUCT is interested in the following: Better price signals leading up to an Emergency Electric Curtailment Plan (EECP) event; Bringing more resources (both interruptible load and generation) online through existing ancillary services; and Examining the priorities set by transmission/distribution service providers when shedding firm load. (ROS dealing with this issue)

Long-term Solution Task Force 8 Meetings held since April White Paper Developed and circulated to ROS and WMS 6 Specific proposals are addressed in the White Paper PUC Staff has generally adopted proposal 3 (Modification of Current EILS Program) and has published it. Commissioners “willing to wait” to analyze the Long-term solution proposed by Market Participants.

LTSTF Proposals 1.Administrative Price Adjustment 2.Zonal Market Administrative Shortage Pricing and Procurement of Additional Reserves 3.Modification of Current EILS Program 4.Procurement of New Ancillary Service (Direct Load Control) 5.Procurement of Additional Reserves 6.Priority Pricing Proposal

1) Administrative Price Adjustment PRO’s Sends price signal during period of shortage (Currently little ability to determine need to curtail.) May trigger response under existing programs Applies to both supply and demand Resolves price suppression related to OOME/C Cons Not market based May trigger Peaker Net Margin Significant system changes required Short duration – therefore limited load response May be costly to market (order of magnitude more than EILS) These proposals essentially create balancing energy service price floors based on triggers set by ISO Alert and EECP steps. The proposals suggest increasing the price floor as EECP progresses.

2) Zonal Market Administrative Shortage Pricing and Procurement of Additional Reserves PRO’s Sends price signal during period of shortage Provides price support to both LaaRs and generation. Provides for better frequency response Cons May be more expensive than EILS May trigger Peaker Net Margin Increasing the RRS hourly obligation to 2,800 MW, 50% allowed to be provided from under-frequency relay type Load Resources. For Intervals where ARRS > 2,500 and ERCOT deploys NSRS: MCPE = SPD MCPE + $50.00; for intervals 2,300<ARRS<2,500 SPD MCPE set to range of $ /MWh ; and for intervals where ARRS<2300 SPD set to CAP.

3) Modification of Current EILS Program PRO’s Provides ERCOT the tool it asked for Easy to implement PUC already down the road No system changes required Cons Value of service unknown Reducing quantity below 500 MW reduces the likelihood of avoiding any firm load shed Loads may already be participating in market (switching between demand side programs offers little additional benefits) Reduce the 500 MW Minimum requirement, Increase the $20 Million annual cost cap to $50 Million, removes the 500 KW/V size requirement.

4) Procurement of New Ancillary Service (Direct Load Control) PRO’s Provides real-time known and measureable demand response to ERCOT operations. Brings in both small and large loads May offer performance during frequency disturbances Cons Technology investment for larger loads Increased Risk of ERCOT Liability “First of its kind” issues for ISO Provides capacity payments for loads but not generators Provides known and verifiable Direct Load Control by ERCOT of telemetered loads over 10 MW; provides for aggregation of smaller loads that can be statistically proven to provide response.

5) Procurement of Additional Reserves PRO’s No system changes Provides known benefits to prevent firm load shedding Provides price support to both LaaRs and generation. May provide incentives for long-term resource adequacy Provides better frequency control performance Cons May be considerably more expensive than EILS Requires new Engineering Study (Scope development underway) Completion date of Engineering Study tied to as of yet undefined Project Scope This proposal represents a compromise among proponents of the option of procuring additional RRS and/or NSRS. It is designed to increase the amount of operating reserves available to ERCOT by 500MWs through existing Ancillary Services and ensures both Load and Generation Resources have the opportunity to competitively bid against each other to provide the Ancillary Services.

6) Priority Pricing Proposal PRO’s Loads would be contractually committed to shed. Paid only the predicted value of their interruption Can use same performance metrics as EILS Would be less expensive than the cost of new generation. Cons May result in distorted prices Requires price forecast from ERCOT. Requires price forecast before real-time for real- time prices. Nodal pricing will impose challenges to pricing model. Energy consumers (“loads”) would contractually commit to curtail their purchase of electricity from the grid whenever the wholesale price of electricity reached various levels ($750/MWH, $1000/MWH & $1500/MWH).

2) Zonal Market Administrative Shortage Pricing and Procurement of Additional Reserves PRO’s Sends price signal during period of shortage Provides price support to both LaaRs and generation. Provides for better frequency response Cons May be more expensive than EILS May trigger Peaker Net Margin Increasing the RRS hourly obligation to 2,800 MW, 50% allowed to be provided from under-frequency relay type Load Resources. For Intervals where ARRS > 2,500 and ERCOT deploys NSRS: MCPE = SPD MCPE + $50.00; for intervals 2,300<ARRS<2,500 SPD MCPE set to range of $ /MWh ; and for intervals where ARRS<2300 SPD set to CAP.

WMS Motions – Accepting Paper 1.WMS accepts the LTSTF White Paper with edits, and instructs ____ to develop Urgent PRR’s based on Proposal(s): _,_&_ ( 1,2,3,4,5,6). 2.WMS accepts the LTSTF White Paper with edits only to the Specific Proposals submitted by the proposers and instructs ____ to develop Urgent PRR’s based on Proposal(s): _,_&_ (1,2,3,4,5,6). 3.GUTLESS APPROACH – WMS accepts the LTSTF White Paper and sees all options presented in it as potential approaches to developing an effective Long-term solution. WMS recommends that TAC encourage interested parties to draft PRR language to the ERCOT Protocols that will implement their preferred solution.

WMS Motions – Accepting Paper 4.WMS accepts the LTSTF White Paper with edits only to the Specific Proposals submitted by the proposers. WMS recognizes that QSE Managers are in the process of developing a PRR based on the combination of administrative prices and increased reserves similar to those outlined in the White Paper. WMS believes that implementation of the QSE Mangers Proposal along with ___ (1,3,4,5,6) will offer ERCOT the ability reduce the probability of shedding firm load by bringing more resources online or curtailing load voluntarily. WMS advises TAC that the combination of improvements and enhancements that have been implemented since April 17, 2006 in combination with the PRR’s under development by QSE Mangers group and others, will constitute the Long-term Solution as outlined in Substantive Rule §

WMS Motions – Rejecting Paper 5.WMS Rejects the LTSTF White Paper, and advises to TAC that no Long-term Solution acceptable to WMS, has been identified. 6.WMS Rejects the LTSTF White Paper, and in light of the PUC Staff Published Proposal that removes the possibility for a Long-Term Solution, WMS recommends TAC take no further action on this topic.