Texas Nodal © Electric Reliability Council of Texas, Inc. All rights reserved. 1 Verifiable Costs Process TPTF Meeting Nov 28, 2007 Ino Gonzalez ERCOT

Texas Nodal © Electric Reliability Council of Texas, Inc. All rights reserved. 2 Verifiable Cost Manual Background: 1. What has been accomplished so far?  ERCOT created a Verifiable Cost (VC) Process Manual  Began discussions with SDAWG {Oct 12 and 15, 2007}

Texas Nodal © Electric Reliability Council of Texas, Inc. All rights reserved. 3 Verifiable Cost Manual Background: 2. What inputs were used by ERCOT to develop the Manual?  Nodal Protocols  Discussions with Market Participants  Input from ERCOT’s Independent Market Monitor  Input from PUCT staff  Discussion with PJM and CA ISO staff  Research and market reports

Texas Nodal © Electric Reliability Council of Texas, Inc. All rights reserved. 4 Verifiable Cost Manual Manual: 3. What is included in the Manual? Section 1: An Introduction to Verifiable Costs Section 2: General Rules of Verifiable Costs Section 3: Verifiable Startup Costs Section 4: Verifiable Minimum Energy Costs Section 5: Mitigated Offers and Verifiable Costs Section 6: Verifiable Heat Rates Section 7: Forced Outages of a RUC-Committed Resource Section 8: Operating and Maintenance Cost Guidelines Section 9: Timeline Applicable to the Submission and Review of Verifiable Costs Section 10: Timeline for Rescinding Approval of Verifiable Costs Section 11: Appealing Rejected Verifiable Costs Appendix 1A: Methodology for Determining Maintenance Costs of Nuclear and Fossil Steam Units Appendix 1B: Methodology for Determining Maintenance the Costs of CT and CCP Units Appendix 2: Typical Variable O&M Values Appendix 3: Operating and Maintenance Cost Categories

Texas Nodal © Electric Reliability Council of Texas, Inc. All rights reserved. 5 Verifiable Cost Manual Manual: 4. What is not included in the Manual?  Processes and rules for appealing to the PUCT ERCOT’s rejection of a Verifiable Cost submission  Approved document detailing the interfaces and templates that ERCOT and market participants will use to communicate Verifiable Cost information

Texas Nodal © Electric Reliability Council of Texas, Inc. All rights reserved. 6 Verifiable Cost Manual Questions: 5.Issues that were addressed by ERCOT and SDAWG but are not within the scope of the current Nodal Protocols.  Should the additional fuel costs incurred while ramping up from breaker close to LSL be accounted for (e.g., by increasing startup fuel consumption)?  Should the decreased fuel costs incurred while ramping down from LSL to breaker open be accounted for (e.g., by reducing startup fuel consumption)?  Should shutdown costs be paid? If so, should they be paid in all circumstances and without regard to when a commitment terminates?  How should ERCOT address the possibility that RUC instructions will will be canceled prior to breaker close?

Texas Nodal © Electric Reliability Council of Texas, Inc. All rights reserved. 7 Verifiable Cost Manual 5. (cont.)  Should ERCOT pay for a resource’s actual fuel costs when they exceed FIP/FOP? Should such price disparities be addressed upfront through the use of a multiplier/buffer in SUO cap and MEO cap calculations (as is done when calculating Mitigated Offer Caps)?  Should ERCOT calculate a clawback charge when a resource’s actual fuel cost is less than FIP/FOP?  Should Verifiable Costs become effective on the day they are submitted (applied retroactively in resettlement)?  Should Verifiable Costs for startup and minimum energy be individually approved?  If a RUC committed resource alters its fuel type of fuel consumption ratios, should any associated changes to fuel costs be accounted for in resettlement?

Texas Nodal © Electric Reliability Council of Texas, Inc. All rights reserved. 8 Verifiable Cost Manual 5. (cont.)  Is it appropriate to apply the logic of RUC-decommitments to SPS actuation events? Specifically: 1. Should cost recovery be capped at startup costs? 2. Should recovery be unavailable to resources that planned to be offline during the operating day? 3. Would it be more appropriate to allow recovery of all costs incurred as a direct result of the SPS actuation and then uplift those costs on the basis of Load Ratio Share?