EILS Update DSWG ERCOT Staff October 9, 2009

2 2 EILS Update to DSWGOctober 9, 2009 Contents Procurement results: Current & historical Price comparison: EILS to Ancillary Services Recap of VOLL discussion Procurement schedule for Feb.-May 2010 Contract Period Process flow improvements (Carl & Diana) Procurement & settlement issues: –Load & unique meter identification –Meter data submittal –Dispute process New issues –All or nothing bid options –Re-constitution of aggregations within a Contract Period –Substitutions Compliance issues

3 3 EILS Update to DSWGOctober 9, 2009 Current Bid Cycle Time Period Business Hours 1 Business Hours 2 Business Hours 3 Non-Business Hours Definition 8 AM to 1 PM Mon-Fri except Holidays 1 PM to 4 PM Mon-Fri except Holidays 4PM to 8 PM Mon-Fri except Holidays All other hours EILS Procured360.9 MW353.3 MW268.0 MW334.5 MW # of EILS Resources 61 (includes 37 aggregations) 59 (includes 35 aggregations) 75 (includes 46 aggregations) 55 (includes 35 aggregations) Avg. Cost per MW per Hour $ 8.02$ 8.12$ 8.87$ 7.77 Oct – Jan Contract Period Procurement Results Projected cost for this Contract Period:$ 7.79 million Max. cost for 2009 program year:$18.35 million

4 4 EILS Update to DSWGOctober 9, 2009 EILS Procurement Trends (Business Hours 1)

5 5 EILS Update to DSWGOctober 9, 2009 EILS Procurement Trends (Business Hours 2)

6 6 EILS Update to DSWGOctober 9, 2009 EILS Procurement Trends (Business Hours 3)

7 7 EILS Update to DSWGOctober 9, 2009 EILS Procurement Trends (Non-Business Hours)

8 8 EILS Update to DSWGOctober 9, 2009 EILS Procurement Trends (Number of Resources) EILS Resources include individual Loads and aggregations

9 9 EILS Update to DSWGOctober 9, 2009 EILS Procurement Trends Cumulative unique ESI IDs offered into EILS

10 EILS Update to DSWGOctober 9, 2009 A/S Price Comparison: Business Hours 1

11 EILS Update to DSWGOctober 9, 2009 A/S Price Comparison: Business Hours 2

12 EILS Update to DSWGOctober 9, 2009 A/S Price Comparison: Business Hours 3

13 EILS Update to DSWGOctober 9, 2009 A/S Price Comparison: Non-Business Hours

14 EILS Update to DSWGOctober 9, 2009 Natural gas price trend

EILS Costs & Benefits (Value of Lost Load discussion)

16 EILS Update to DSWGOctober 9, 2009 EILS Costs & Benefits In August, VP of System Operations Kent Saathoff briefed the ERCOT Board responding to questions raised earlier about EILS costs and benefits The same issue had been raised in early 2007 when EILS Protocols were being considered ERCOT Staff’s response to a series of questions posed by PRS included a discussion of EILS in the context of Value of Lost Load (VOLL) –Response is summarized here

17 EILS Update to DSWGOctober 9, 2009 Value of Lost Load ERCOT Staff analyzed several VOLL studies from other markets VOLL estimates range from $2,240 / MWh to $20,000/ MWh Based on methodologies from the 2003 Northeast Blackout, direct VOLL for the April 17, 2006, ERCOT load shedding event can be estimated at between $14.8 million and $22.4 million VOLL is a mathematically-calculated estimation of direct economic loss due to loss of electric service VOLL does not capture broader, intangible societal costs associated with firm load shedding that are very difficult to quantify in monetary terms, such as: –Potential risk to human health and safety posed by blackouts –Effect on consumer confidence in the electric grid and market –Negative national publicity to the region –Financial and business communities’ outlook with potential impacts to future economic development and gross domestic product

18 EILS Update to DSWGOctober 9, 2009 Cost of EILS In its first two program years EILS has incurred a total maximum cost of $34.9 million, under a two-year cost cap of $100 million Assuming EILS would only be used in potential loss of load events that statistically could occur approximately once in ten years, it would not be justified based on VOLL alone. However, since VOLL does not quantify all the intangible costs of a loss of load event, EILS can be viewed in a broader context as an additional hedge against firm load shedding

19 EILS Update to DSWGOctober 9, 2009 EILS Additional Value The PUCT expanded the EILS mission in the 2007 rule amendments: ‘The commission … finds value in having resources that have not participated in demand response programs being enabled to do so by this program. The commission encourages ERCOT to make an effort to attract such customers to the program.’ ‘The commission … agrees … that it is in the public interest for the commission to expand the scope of demand-response through the implementation of EILS.’ -- Preamble to the Order adopting amendments to Subst. Rule § , Nov. 1, 2007 (Project 34706)

20 EILS Update to DSWGOctober 9, 2009 Future of EILS Kent concluded: –Any significant changes to or discontinuation of EILS will require revision of PUC Subst. Rule § –ERCOT Staff is open to any suggestions to modify or improve the program within the parameters of the PUCT Rule –There is a Demand Side Working Group of the WMS that is another appropriate stakeholder forum to have such discussions

EILS Administration

22 EILS Update to DSWGOctober 9, 2009 Procurement Schedule: Feb-May 2010 Contract Period DateAction MonNov DRAFT Technical Requirements & Scope of Work posted to EILS web page. Market Participant comments accepted through Nov. 16. FriNov Request for Proposal (RFP) Issued. FINAL Technical Requirements & Scope of Work posted to EILS web page. WedNov Last date for QSEs to request preliminary baseline reviews. MonNov Resource ID process begins — submittal of Resources for baseline assignment & capacity pre-screening. WedDec Resource IDs due by 3:00 pm in order to get a Default Baseline assignment. Submittals received after 3:00 pm will be eligible for Alternate Baseline only. ThuDec Last date to submit EILS Resource IDs. FriDec QSEs receive baseline assignment & capacity pre-screening information for prospective EILS Resources. ThuJan 72010BIDS & Self Provision Offers Due WedJan EILS Award Notifications and contract materials distributed to awarded QSEs. Market Notice with summary of EILS awards released ThuJan Signed contracts must be returned to ERCOT MonFeb 12010First day of Contract Period. MonMay Last day of Contract Period. MonJuly 52010Deadline for submitting NOIE or non-TDSP interval meter data to ERCOT. ThuJuly ERCOT provides unofficial availability and event performance data to QSEs. MonJuly Deadline for QSEs to identify any discrepancies with ERCOT’s unofficial data. MonAug 92010Settlement date for this Contract Period. Key dates only. Full draft schedule is posted to the web page for this DSWG meeting.

23 EILS Update to DSWGOctober 9, 2009 Process flow improvements Carl & Diana slides

24 EILS Update to DSWGOctober 9, 2009 Procurement & settlement issues Load identification –Need naming conventions, especially for Loads in NOIE territories Unique meter identification –Need naming convention to assure continuity –Applies to submetered Loads, NOIE Loads, and PUN Loads Meter data submittal –Starting now, ERCOT staff will require monthly submittal of submeter data Settlement issues –10-day window to notify ERCOT informally of any disagreement with availability and performance results –Also the deadline for identifying mitigating factors –Formal settlement disputes must be filed within 10 Business Days after the settlement is posted

25 EILS Update to DSWGOctober 9, 2009 New issues All-or-nothing bid options –Some participants have requested ability to opt out if not selected for all Time Periods –Numerous possible permutations could complicate administration Re-constitution of aggregations within a Contract Period –Should ESI IDs be allowed to float among aggregations for different Time Periods? –Many implications for administration and testing Substitution provisions –Current provisions were written to accommodate unplanned outages

26 EILS Update to DSWGOctober 9, 2009 Compliance Subst. R (e) –(e) Compliance. QSEs representing EILS resources are subject to penalties for failure to meet their obligations under this section. ERCOT shall withhold all or part of an EILS resource’s capacity payment for a contract period and suspend participation in EILS for six months if the EILS resource fails to make its committed load available during its committed hours, or fails to meet its load reduction obligations in an EILS deployment event. In order to be reinstated after the suspension the load must demonstrate its capability of performing the service by satisfactorily performing a test conducted by ERCOT. Suspensions apply to all Time Periods, not just those in which the EILS Resource failed Suspensions apply to all Loads within an aggregation –ERCOT does not have tools to determine which Loads caused an aggregation to fail

27 EILS Update to DSWGOctober 9, 2009 Compliance (cont.) 12 EILS Resources totalling ~38 MW are currently suspended due to availability factors of <95% for Feb.-May ’09 Contract Period –ERCOT considers availability to be the responsibility of the Load, not the QSE PUC Oversight & Enforcement division has requested that ERCOT file a Complaint with the TRE for any availability or performance failures

28 EILS Update to DSWGOctober 9, 2009 ON OFF Questions?