ERCOT: A Work In Progress Board of Directors Austin, TX July 16, 2002

Introduction Two Part Process: Perspective on ERCOT’s role (Noel) Retail activities update (Jones)

Background ERCOT began as a stakeholder organization It hired professional staff to qualify as an “Independent Organization” under PURA The transition of leadership responsibility from stakeholders to ISO staff is evolving (as it did with PJM and others) Size and composition of the ERCOT Board will also change over time

Requirements of SB 7 Ensure open access to transmission and distribution systems on a nondiscriminatory basis Ensure the reliability and adequacy of the regional electrical network Ensure timely conveyance of information relating to customer choice in the retail market Ensure accurate accounting for production and delivery services in the wholesale market

Some Successes Reliability of the grid has been maintained Inter-zonal congestion issue was resolved and TCR auctions have functioned well More than 20% of retail market has switched, moved-in, or moved-out NewPower customers have been switched to new providers

And, Some Failures Too many customers are not being billed accurately or on a timely basis Transactional processes remain problematic ERCOT’s response to identified problems has not met expectations As a result, confidence in the retail market is lower than expected

Retail Issues Billing –Move-in/Move-out process –Meter data Inter-participant settlement (Synchronization) Reliability of transactional systems –Hardening of systems –Transparency

Wholesale Issues Intra-zonal Congestion –Short-term fixes in place –Mid- to long-term changes in market design are being considered Balanced schedules –Relaxed rules are being evaluated –Control measures needed to ensure reliability

Retail Focus Correct deficiencies Accelerate change Measure performance

Correct Deficiencies Document problems using Quick Response Team Enlist assistance of market participants via TAC committees Focus activities and prioritize requests Develop and implement a well-defined work plan

Accelerate Change Communicate effectively to all participants Improve interaction with TAC committees Strengthen ERCOT staff with expertise and partnering skills needed to succeed Supplement critical skills by outsourcing Integrate ERCOT’s internal processes more effectively (planning, budget, protocols, etc.)

Measure Performance Establish clear goals Customer expectations drive metrics Verify resource allocations Provide scheduled updates to Board, PUC, Legislative Oversight Committee, and media Track progress

Actions Taken Feld Group has been hired to supplement transactional skills within ERCOT ERCOT staff is assuming direct responsibility (and accountability) for TAC outcomes Relationships with PUC staff have been formalized Lists of “key contacts” are being developed

ERCOT’s Dual Roles Provide technical and administrative support to the stakeholder committee process (TAC and its subcommittees) Provide independent recommendations to the ERCOT Board of Directors on behalf of electricity customers in Texas

Potential Issues Several “models” have been suggested for ERCOT: –“Order givers, not order takers” –“Independent, self-governing organization like TMTA or NYSE” –“ERCOT staff is there to implement stakeholder wishes” –“Need to focus on ratepayers, not stakeholder interests” “Consensus” decision making is democratic, but the process can be inefficient

Examples Inter-zonal congestion (Resolved) Intra-zonal congestion (Pending at PUC) “Single REP” move-ins (Pending at TAC) Relaxed scheduling (Pending at TAC)

Conclusions Board structure will evolve as part of ERCOT’s maturation as an organization Stakeholders are ERCOT’s “technical backbone” Consensus processes can be “messy” Additional specialized skills are needed to manage transactions “as a business”