LMP-G Policy Issues Discussion Demand Side Working Group July 9 th,

TAC Motion on LMP-G On Oct 6 th, 2011, TAC voted “to affirm the WMS recommendation for the further development of the LMP minus G option” What does this TAC action mean? – Is this a directive to implement LMP-G? – Is this a mandate to enable direct access for 3 rd party DR providers? – Do we need to seek clarity from TAC? 2

LMP-G Policy Issues/Questions The principle of LMP-G asserts that customers should not receive financial benefit more than once for providing their demand response (i.e. double payments). Do PUCT rules need to be established to ensure that customers are receiving the appropriate incentives? Or does providing the wholesale market incentives to REPs/DR QSEs fulfill the principle of LMP-G? – Does LMP-Proxy $G ensure that customers never receive double payments? – Does LMP-volumetric G ensure that customers never receive double payments? Do concerns with the complexity and accuracy of LMP-G outweigh the policy concerns with Full LMP? Should TAC reconsider Full LMP as the solution to provide 3 rd Party DR Provider access? 3

LMP-G Policy Issues/Questions Some LMP-G issues may be outside of the authority of the ERCOT stakeholder process to decide – Can ERCOT bill an LSE/REP QSE for energy not consumed? – If so, the LSE/REP must have ability to pass those assessed charges through to the customer No provision in current PUC Rules to permit this pass- through. – Can an LSE/REP bill a customer for energy not consumed under PURA or PUCT rule? Could the billing take the form of a “DR Participation Charge” rather than bill for unused energy? 4

LMP-G Policy Issues/Questions Other LMP-G issues that may be outside of the authority of the ERCOT stakeholder process to decide – Tracking customer switches and notifying both REP of Record and DR QSE – Customers’ right of rescission and process for rectifying inadvertent switches – REP’s ability to charge an early termination fee, and/or change a customer’s rate plan when customer joins a 3 rd party aggregation, if the current rate plan includes an incentive tied to real-time prices 5

LMP-G Policy Issues/Questions LSEs/REPs and DR QSEs should operate with comparable, equitable and reasonable rules, requirements & regulations for customer recruitment, consumer protection, switch tracking, and information disclosure. – PUC Rule may be required to detail mechanics of switch administration. 3 rd Party DR Providers must be subject to comparable: – Regulations governing customer engagement and recruitment – Consumer protection, including right of rescission and privacy of proprietary customer information – Mechanisms to track, validate, and contest (if erroneous) customer switching (e.g. from a REP DR program to a 3 rd Party) – Requirements and Information Disclosures to Residential and Small Commercial Customers 6

LMP-G Policy Issues/Questions Loads should contribute to wholesale price formation Market uplift should be minimized Existing ORDC and Loads in SCED bid to buy structures should be maintained Cost of implementation should be weighed against potential participation and market benefits – Economics of DR expansion are challenging in the current era of tepid wholesale prices and low volatility – Third-party access to DR customers will not materially change this value proposition 7

LMP-G Policy Issues/Questions If LMP-G is required, should it be LMP-VG or LMP-Proxy $G? Or both? – Most if not all of existing LR-RRS fleet can be accurately baselined at customer level for LMP- VG; should LMP-VG be a priority? For both LMP-$G and LMP-VG, eligibility checks would be required to assure LSE/REPs and DR QSEs are not participating with the same customers 8

LMP-G Policy Issues/Questions Should certain retail rates disqualify a customer from Proxy $G treatment? What retail rates should disallow Proxy $G treatment? What mechanism should be used to enforce a retail rate disqualification? Does a REP have right to move customer to a rate that is consistent with Proxy $G? Or is the choice of DR programs and rates the customer’s? 9

LMP-G Policy Issues/Questions How should the value of Proxy $G be established? – Minimum POLR rate is not always indicative of actual hedging costs. Should there be a mechanism for notifying an LSE/REP that its customer has enrolled with a DR QSE? Should it be TX SET? Given the lack of participation in Loads in SCED v1, should the initial roll-out of LMP-G require TX SET changes? – Should a TX SET solution be contingent on a MW participation trigger? What should the appropriate MW level be? 10

LMP-G Policy Issues/Questions Should DR Provider become a new type of ERCOT Market Participant? Should customers have a DR Provider of Record, similar to REP of Record? – Can rules be adopted to prevent DR-blocker strategies by REPs? – Can rules be adopted to prevent REP offer blocker strategies by DR QSEs? – How should competing claims for DRPOR be resolved? How to manage REPs/LSEs that also have a DR QSE entity? – Can a REP be a DRPOR for another REPs customers? 11

LMP-G Policy Issues/Questions Under Loads in SCED v1, QSE must be the LSE/REP for all sites in ALR; should this concept be retained? – DR QSE ALR->LSE/REP allocation; Should all customers in a DR QSE ALR be required to have a single LSE/REP? Should an LSE/REP DRPOR (serves 100% of its ALR Load) have the option of participating with an Offer to Sell rather than Bid to Buy? – Should this be disallowed? Should DR Providers be afforded any protection against stranded cost issues for DR devices, other than customer contract terms? 12

LMP-G Policy Issues/Questions Snapback effect needs more attention – Potential for DR QSEs to shift costs onto LSEs/REPs; or could have large effect on DR QSEs, either in paying for it or designing strategies to minimize it. DR QSEs must obtain permission from a NOIE to solicit customers for Loads in SCED participation in NOIE territories – DR QSE ALRs can combine customers from NOIE and competitive territories so long as minimum portfolio threshold is met 13