1 Oil and Gas Profile For Discussion with ERCOT Staff June 10, 2003

2 ERCOT Concerns Size of population –Needs more documentation/evidence Identification method –Needs to be more “unambiguous” Load research –Need more random sample –Need more representative sample

3 Size of population What is required to define “size”? –Requestors’ tally of 2008 ESI Ids from 19 independents –Oncor’s query of 8500 ESI IDs –Requestors’ estimate with more RRC data How big is “sufficient”? –Requestors’ expert estimate of 900,000 MWh/month –U.S. Census Bureau 1997 estimate of 874,000 MWh/month –Corresponding $4M / year misallocated

4 Identification Method What does “unambiguous” mean? ERCOT’s Direct Load Control standard –Self-report by REPs per account –Verification/deterrent: annual & bi-annual audit of work orders / none [lagged dynamic sample will capture] State Comptroller’s sales tax exemption standard –Self-reported to (by) REPs per account –Verification/deterrent: Spot audits / penalties apply –Similar $ to profile change

5 Identification Method - DLC Load Profiling Guide : “The CR is responsible for notifying the TDSP of ESI IDs entering or leaving the DLC population in accordance with rules established by the TDSP for communicating changes to an ESI IDs Load Profiling ID.” “The CR shall notify ERCOT of changes to any of the information that has been provided regarding … [s] ignificant changes in the composition of the DLC population.” Load Profiling Guide : Addresses only “sample” validation: “An audit of the CR’s DLC Program maintenance records and work orders is the basic procedure for verifying that the sample is representative of the population… Expanded verification may be implemented by ERCOT if the basic procedure suggests a reasonable concern that improper activities have occurred… Audits shall be conducted after one (1) year of installation of the full sample and every two (2) years thereafter.” Deterrent/Penalty Language: None.

6 Identification Method – O&G Proposed “unambiguous” identification for oil and gas –Sales tax exemption certificate filed with REP [see Exh. A] –Additional certificate of profile assignment filed with REP including corresponding well ID [see Exh. B] –Verification/deterrent: Automated audit for seasonal fluctuation (highlights suspects) Automated audit with tax-exempt status (REP and TDSP records) Manual audit with well ID cross-reference (public records) Possible audit vs. TOU data [may be useful as double sample for load research] Encourage penalty provisions

7 Identification Method How “practical and reliable” is the proposed method? Compared to ERCOT DLC methodology –Automated audit vs. manual audit –Sales tax records and RRC well ID lists vs. REP work orders –Penalty suggested as deterrent vs. no penalty provision Compared to standard profile review by load factor –Seasonal fluctuation would act as first indicator –Could require supporting TOU data for extreme reliability Compared to State Comptroller’s sales tax exemptions –Automated audits vs. spot audits –Seasonal fluctuation and/or TOU checks also available –Similar $ at stake (6-8%)

8 Load Research Original profile sampling standards –Homogeneity –Randomness –Representation Provisional approval option