Loads in SCED v2 Subgroup Update to DSWG 3/9/2015 1

LMP-G History in ERCOT TAC endorsed “LMP-G” instead of “Full LMP” – Principle of LMP-G: the customer should not get the economic benefit of the curtailment more than once Loads in SCED Subgroup explored implementation of “LMP- Volumetric G”, but decided to not proceed – Unable to estimate customer level curtailment for majority of potential DR customers in ERCOT – Issues with billing customers for consumption that didn’t occur Loads in SCED Subgroup changed direction to explore implementation of “LMP-Proxy $G” – Simplifies implementation of LMP-G principle Loads in SCED Subgroup agreed Proxy $G could be calculated using POLR rate structure Loads in SCED Subgroup is currently trying to define a process to qualify and maintain a DR QSE ALR eligible for LMP-Proxy $G treatment 2

Why LMP-G in ERCOT is difficult ERCOT has a vibrant and highly competitive retail market REPs/LSEs offer customers rates which bundle DR capability with electric service DR QSEs offer customers products for DR capability only The value of DR is intricately connected with customer usage LMP-G requires splitting apart DR capability and electricity consumption to apply rules and billing adjustments 3

4 Loads in SCED Resource/ALR Request Can we accurately estimate discreet customer-level curtailment? Yes – VG is option No; Yes - $G is an option DR QSE LSE/ REP Offer to sell in SCED Bid to buy in SCED Does aggregation meet minimum customer count for baseline accuracy? Represented by LSE/REP or DR QSE? No ALR fails qualification (Bilateral only through REP/LSE) Yes Offer to sell in SCED Settled as LMP-VG Settled as LRISv1 Settled as LMP-$G Does the Resource/ALR contain customers with fixed price rates that are compatible with LMP-$G? Yes No LMP-G Road Map

Qualification of LMP-$G eligible DR QSE ALRs Evaluate the population of customers to determine if they are eligible for LMP-$G treatment If a customer is on a “DR retail rate” from their REP, they are already getting compensated for their DR capability Options to perform this evaluation: 1)Examine the rate of each customer in the ALR and determine if it is a pre-defined “DR retail rate” (i.e. RTP) 2)Assume residential customers are mostly hedged and accept inaccuracies for ones that aren’t 3)DR Provider of Record – identify DR benefit by customer 5

How to qualify LMP-$G eligible ALRs? Option 3) DR Provider of Record How would it work? DR QSE submits enrollment request for ALR using TXSET or similar formalized electronic transaction ERCOT maintains a DR Provider of Record for every ESIID which could be a customer’s REP or a DR QSE Transactions update with REP switches, movement to a DR rate, or enrollment with different DRPOR – Customer rates would become part of switch transactions to determine if ESIID is LMP-$G eligible OR – REPs populate a flag to indicate a DR rate ERCOT disqualifies ALR sites if the ESIIDs are not affiliated with the submitting DRPOR 6

How to qualify LMP-$G eligible ALRs? Option 3) DR Provider of Record Pros Precisely identifies customers that would receive DR double payment Most accurate settlement for REP Cons Highly complex implementation (TXSET or similar) – If TX SET, system expands to include new type of Market Participant PUCT rules required – DR blocking – DR slamming – Transaction priority – Default electric service rates for customers with DR QSE? Potential to block customers from retail switching to certain rates and inhibits REP product innovation DR QSE wears risk of unknown ALR composition Difficult to manage evolving rate structures of the retail market 7

LMP-G Design Tradeoffs Is it allowable for some customers to get the benefit of curtailment twice? (i.e. LMP-G for most but not all) Inappropriate incentives? Identification of DR capability Rules to prevent duplication of DR benefits to a customer Transaction-based precision or leave it to REPs to enforce? 8 Accuracy Impacts to the retail market

DSWG Discussion Is it allowable for some customers to get the benefit of curtailment twice? (i.e. LMP-G for most but not all) DR Provider of Record Is there support to proceed with a concept paper for LMP-G which outlines the DRPOR idea and other key decision points? Next steps 9