John Dumas Director of Wholesale Market Operations Jeff Billo Manager of Mid Term Planning Dan Jones Director with Potomac Economics, the ERCOT IMM Board of Directors Meeting ERCOT Public September 18, 2012 Tab 6: ERCOT West Texas Congestion Management

Top 10 Constraints by Total RT Congestion Rent ERCOT PublicTab 6 2 Source: Potomac Economics, the Independent Market Monitor for the ERCOT Region

YTD Top 10 Constraints by Total RT Congestion Rent Source: Potomac Economics, the Independent Market Monitor for the ERCOT Region ERCOT PublicTab 6 3

4 Frequency of Odessa-area Constraints ERCOT PublicTab 6 4 Jan – Aug 2012 (Binding: At Limit and Binding: Limit Violated) Source: Potomac Economics, the Independent Market Monitor for the ERCOT Region

5 West Texas Congestion Source: July 2012 ERCOT System Planning Report presented at the August Reliability and Operations Subcommittee Meeting. The Estimated Congestion Rent is 2012 year-to-date through the end of July. ERCOT PublicTab 6 5 ContingencyBinding Element Estimated Congestion Rent $ (Shadow Price*Limit) Amoco North Cowden Tap - Moss 138kVOdessa North 138/69 kV Autotransformer73,038,421 Sacroc - Sun Switch 138 kV; or Golden Switch - Sun Switch 138 kV China Grove - Bluff Creek 138 kV27,183,561 BASE CASEWest to North Stability Limit26,831,248 Twin Buttes 345/138 kV Autotransformer San Angelo Red Creek 345/138 kV Autotransformer 2 18,360,051 Lewisville - Carrollton Northwest 345 kVLewisville - Jones Street TNP 138 kV16,918,023 Batesville 138/69 kV Autotransformer; or Batesville Switching Station - Paloduro Substation 138 kV Moore Switching Station - Downie Switching Station 138 kV 14,934,701 Midland East - Odessa EHV 345 kVOdessa - Odessa North 138 kV14,524,826 *Highlighted cells represent West Texas-related congestion

6 Load Growth in Far West Texas is the Primary Driver of the Increased Congestion Costs Load in the Far West Load Area increased by approximately 6.7% for the month of June between 2011 and 2012 –For the month of July, the increase is approximately 7.3% ERCOT PublicTab 6 6

7 Price Spread Between West Load Zone and West Hub The table below shows the average real-time price difference between the LZ_WEST and HB_WEST comparing June and July of 2012 with June and July of 2011 Month Avg. Real-Time SPP Difference Between LZ and HB CRR Monthly Auction HUB-LZ PeakWD 2012 Annual CRR Auction HUB-LZ PeakWD HB_WESTLZ_WEST Jun.' N/A Jul. ' N/A Jun.' Jul. ' /11/12 6/25/12 7/12/12- 7/15/12 ERCOT PublicTab 6 7

8 Real-time Price Comparison Between Load Zones The table below shows the average real-time SPPs for the major Load Zones comparing June and July of 2012 with June and July of 2011 West Load Zone prices in 2012 remain relatively unchanged from last year while other Load Zone prices have decreased Month Avg. Real-Time SPP LZ_HOUSTONLZ_NORTHLZ_SOUTHLZ_WEST Jun.' Jul. ' Jun.' Jul. ' /26/12 ERCOT PublicTab 6 8

9 History of Shadow Price Caps for West Congestion The shadow price cap was changed for the Odessa North 138/69 kV Autotransformer constraint on 1/1/12 to $2, –This constraint was changed with the approval of the new methodology for setting the caps –The limit was lowered starting 8/6/12 to $2,000 after the net margin of $95,000 was met The shadow price cap was also changed for Bluff Creek Switch – China Grove Switch 138 kV on 5/3/12 to $2,000 ERCOT PublicTab 6 9

10 ERCOT PublicTab 6 10 Odessa North Area History 391 MW 480 MW 453 MW 465 MW Five-Year Transmission Plan (5YTP) Peak Load for 2012Actual Peak Load YTP first identifies Odessa North- North Cowden upgrade (superseded in YTP) ERCOT 5YTP recommends convert part of Odessa 69 kV system to 138 kV service Oncor plans project Oncor modifies plan to rebuild line as double circuit (2013, 2014: see next slide) Oil = $53.48/ bbl Oil = $71.21/ bbl Oil = $87.04/ bbl Oil = $93.02/ bbl Permian Basin Units 5 and 6 RMR Permian Basin Units 5 and 6 Mothball 375 MW

11 Odessa North Area Planned Improvements Fall 2012 – Convert ~10-12 MW load from 69 kV to 138 kV service December 2013 – Rebuild Holt to Goldsmith South 69 kV line as double circuit 138/ 69 kV line; transfer MW of load from 69 kV to 138 kV system (plan initiated in 2010) November 2014 – Rebuild Goldsmith South to Odessa North 69 kV line as double circuit 138/ 69 kV line (plan initiated in 2010) November 2014 – Rebuild Odessa to Odessa North 138 kV line (plan initiated in 2010) ~$20.3M cost estimate for above upgrades Planned improvements solve Odessa North area reliability problems in near term ERCOT and Oncor are continuing to evaluate with latest load projections ERCOT PublicTab 6 11

12 Other West Texas Planned Improvements China Grove-Bluff Creek Planned Improvements –Located northeast of Midland Similar load growth to Odessa North Area –June Faraday/ Willow Valley Switch Station with 345/138 kV autotransformer will solve reliability issue Connects CREZ 345 kV line to existing 138 kV system Planned in 2011 as economic project ~$14.5M cost estimate San Angelo Red Creek Improvements –2012 Congestion caused by forced outage of San Angelo Red Creek Autotransformer 1 –Autotransformer 1 placed back in service in July Solves reliability and congestion problem for 2012 –2011 Five-Year Transmission Plan identified need for additional autotransformer capacity at San Angelo Red Creek by 2014 –December 2014 – Replace both San Angelo Red Creek 345/138 kV autotransformers; ~$18.2M cost estimate ERCOT PublicTab 6 12

13 Moore-Downie Area Planned Improvements Located southwest of San Antonio New Uvalde to Castroville 138 kV line will solve reliability problem Approved by ERCOT Board of Directors in August 2006 Original planned in-service date was June 2010 Current in-service date projection is December 2012 ~$76.8M cost estimate ERCOT PublicTab 6 13

14 Reliability – Congestion Cost Relationship ERCOT PublicTab 6 14 Production cost impact of congestion Price of congestion Reliability Limit Constraint Loading $ *Note: Curves are hypothetical and cost/price curves of a given constraint may differ Reliability Economic

15 Summary West Load Zone prices in 2012 remain relatively unchanged from last year while other Load Zone prices have decreased –Load in West Texas has increased due to oil field activity –Prices in the rest of the system reflect lower loads due to lower temperatures The average real-time price difference between the LZ_WEST and HB_WEST has increased in 2012 versus 2011 due to the management of overloaded elements. ERCOT has applied the “Holistic Solution” that was adopted by TAC & the Board in 2011 for the following Irresolvable by SCED constraints –Odessa North 138/69 kV Autotransformer –Bluff Creek Switch – China Grove Switch 138kV There are a number of Transmission upgrade initiatives that should improve the West Texas area ERCOT PublicTab 6 15