February 4, 2013 ERCOT Public ERCOT Update to CMWG NPRR463 and CARD Distribution Matt Mereness ERCOT Manager Day-Ahead Market and CRR Auction

2 Outline of CMWG Discussion CRR Rolling Auction update (risks and issues) –Reminder of TAC approved calendar and key dates –Reminder of rolling-auction mechanics for implementation –Potential over-subscription of Sequence 1 (60%) due to scaling changes –Transaction bid limits to be considered CARD Distribution consideration ERCOT PublicFebruary, 2013

3 ERCOT PublicFeb 2013 NPRR463 “CRR Auction Structure Enhancements” Board Approved June 2012 A.K.A. 6-month Rolling Auction or Long-Term Auction Sequence Milestones and Key Dates -Internal -September development of Nexant scope/requirements -Oct/Nov focus on Integration issues/scope -October FTE hired to support rolling auction started -December 19 project moved into Execution -Internal testing Jan/Feb/Mar (FAT and iTest) -External -Dec 31 ERCOT released draft CRR Calendar inclusive NPRR463 Long-Term Auction -WMS reviewed CRR Calendar (Jan 9 th )- unanimously approved two changes: -Deferral/Suspension of auction sequences during December holidays -Remove overlapping month/long-term bid windows with earlier monthly auction -TAC approval of CRR Calendar (today) -No market-facing trials are currently planned but will host Q&A webex/calls (late March) -Review of Bid Transaction Limits in February/March (CMWG/WMS) -TAC approval of Bid Transaction Limits (April 4 meeting) -Go-Live April (Models post April 2, Auction Notice post April 10, Credit Lock April 29) Reminder of Rolling Auction Transition

4 ERCOT PublicFeb 2013 Current Auction Structure - 1x/Year OnPeak WkDay OffPeak OnPeakWkEnd OnPeak WkDay OffPeak OnPeakWkEnd In 4 th Quarter of each year, sell next 2 years of CRRs at monthly granularity in an annual 12-month optimization - Year 1 on 55% Model - Year 2 on 15% Model - Optimize each time-of-use across multi-period months for annual - Monthly auction is 90% and optimize across 3 times of use

5 ERCOT PublicFeb Auction Structure - 2x/Year In 2 nd and 4 th Quarter of each year, sell next 2 years of CRRs at monthly granularity in an 6-month optimization - First 6-months at 60%, Second 6-months 45%, Third at 30%, Fourth at 15% - Optimize each time-of-use across multi-period months for annual - Monthly auction is 90% and optimize across 3 times of use

6 ERCOT PublicFeb 2013 Spring 2013 CRR Calendar- Long-term Auction Sequences Credit Lock and Run dates April29-May17, 2013 Credit Lock and Run dates May20-Jun7, 2013 Credit Lock and Run dates June10-28, 2013 Credit Lock and Run dates Jul1-19, 2013 MAYJUNEJULY

7 ERCOT PublicFeb 2013 Winter 2013 CRR Calendar- Long-term Auction Sequences Credit Lock and Run dates Oct28-Nov15, 2013 Credit Lock and Run dates Nov18-Dec6, 2013 Dec9-Dec27, 2013 Dec30-Jan17, 2013 WMS vote on Calendar Options: - Back-to-Back or - Defer after holiday NOVDECJAN Jan6-Jan24, 2014 Jan27-Feb14, 2014 FEB

8 ERCOT PublicFeb 2013 Format of Calendar has been changed From WMS Jan 28 th , ERCOT proposed final dates as well as format improvements and no comments received (good news). - Simplified format for the CRR Calendar (summary of dates rather than all days) Extension of the CRR activity calendar timeline through the end of Inclusion of additional worksheets separating and detailing NOIE PCRR nomination sequence as well as protocol references that drive the auction and nominations dates

9 ERCOT PublicFeb 2013 TAC Vote Requested later this week Motion to be considered from ERCOT: In accordance with Protocols (4) (b) (iii), and within the boxed language of NPRR463, TAC approves the ERCOT Proposed CRR Calendar for which includes monthly and Long-Term Auction Sequence dates. Protocols excerpt (4) (b) (iii) : A calendar of key milestone dates, specifically the weeks of bid and credit windows for each CRR Auction in the CRR Long-Term Auction Sequence, must be approved in final form by the Technical Advisory Committee (TAC) no later than the earliest of May 1 (for a CRR Long-Term Auction Sequence to be held in the second half of a year), November 1 (for one being held in the first half of the following year), or 120 days prior to the planned closure of the bid window for the first CRR Auction in the CRR Long-Term Auction Sequence. This timeline can be shortened to 60 days notice for implementation of the first CRR Long-Term Auction Sequence.

10 ERCOT PublicFeb 2013 Oversold Risk? 55% System previously sold in Year1 15% System previously sold in Year2 First auction Potential issue beyond only having 5% incremental capacity in Seq 1 Scenario of oversell on 100MW line: Sold Y as 15% model -> 15MW award cleared in Y2 Sold Y as 55% model Y2 inventory was scaled to 55% of 15MW = 8.25MW reserve Y1 clears remaining 46.75MW (55MW-8.25MW reserved) Sequence 1 Inventory = 15MW MW = 61.75MW reserved In sequence 1, no longer scaled with NPRR463 60% Model = 60MW, but already sold 61.75MW Potentially no new sales unless counterflow

11 ERCOT PublicFeb 2013 Oversold Risk continued ERCOT received NPRR463 code this week to see how significant this issue may be based on current inventory and historical bidding ERCOT will run scenarios and consider any significant updates at Feb WMS If significant (eg,Load Zones do not clear any MW), potential considerations: 1- Do nothing, proceed as planned 2- For transitional purposes make first Sequence 65-70% 3- For Sequence 1 auction use scaling of existing inventory 4- Skip first sequence for 2013

12 ERCOT PublicFeb 2013 Transaction Bid Limits For Year 1 annual auction ran in Nov 2012 (which has 2500 bid limit): Total number of Transactions (bids and offers) entered by market into the auction 133k Total number of Awards 39k Number of Transactions that were 12-month strips 29k Number of Awards that were 12-month strips 5.5k Number of Transaction that were more multi-month (including the 12-month) 75k Number of Awards that were multi-month 17k Number of CRRAH that bid more than 2,400 bids 21 of 118 Repeat for Year 2 annual auction ran in Dec 2012 (which had 3500 limit) Total number of Transactions (bids and offers) entered by market into the auction121k Total number of Awards 23k Number of Transactions that were 12-month strips 31k Number of Awards that were 12-month strips 3k Number of Transaction that were more multi-month (including the 12-month) 71k Number of Awards that were multi-month 8k Number of CRRAH that bid more than 3,400 bids 5 For monthly auctions in 2012 Total average number of transactions submitted120k Average number of awards 15k Number of CRRAH that bid more than 7,400 bids5 to10

13 Protocol expiration of CRR Auction Revenue Distribution Methodology Method for Distributing CRR Auction Revenues (2) Prior to December 1, 2013, ERCOT shall credit the net CRR Auction revenue (including PCRR revenue) produced from CRRs cleared in each CRR Auction that source from a Settlement Point located within a 2003 ERCOT Congestion Management Zone (CMZ) and sink at a Settlement Point located within the same 2003 ERCOT CMZ to Qualified Scheduling Entities (QSEs) in the 2003 ERCOT CMZ on a zonal Load Ratio Share (LRS) basis. All other net CRR Auction revenues must be allocated to QSEs on an ERCOT-wide LRS basis. For these allocation purposes, any Non-Opt-In Entity (NOIE) Load Zone is considered to be located entirely within the 2003 ERCOT CMZ that represented the largest Load for that NOIE or group of NOIEs in Before the end of the three-year period described above, the ERCOT Board shall consider whether to extend the policy or ratify some other alternative. ERCOT asks that stakeholders consider if any policy changes are needed: o Recommend stakeholder review for policy consideration o Board review and approval due in late 2013 o If NPRR and system changes are needed then timing becomes an issue o ERCOT can support analysis if necessary in the decision process o If no significant ideas/progress, ERCOT will sponsor NPRR to maintain as is. Feb. 2013ERCOT Public

14 ERCOT PublicOct, 2012 Potomac summary reflecting 2011 CARD distribution

15 ERCOT PublicFeb, 2013 APPENDIX

16 ERCOT PublicFeb 2013 CRR Roadmap Q3Q4 Q2Q3Q1Q4 NPRR 357/430 Credit Q3 NPRR 453 Yr 1 / Yr 2 Execution Q3/4 CRR Upgrade to Linux Hardware Q3/ work in parallel on: Stress testing 200,000 bid limit on Linux Potential Future Changes: NPRR407 Phase 2 – CRR Credit (initiate 1Q?) SCR769 - Read-only Role (initiate 1Q?) NPRR455 - CRR Shift Factors NPRR484- CRR Credit Calculations CRR API - Leverage new Nexant functionality PhaseShiftTxfrmr Optimization Refine Hub calculation for outage redistribution NPRR463 – 6 month / Rolling Auction Break-up scaling PCRR/CRR Integration fixes and improvements ERCOT configuration / testing Requirements – Oct 2012, Test - Jan, Prod – April