1 TAC Report to the ERCOT Board October 18, 2005

2 TAC Summary 4 Unanimous PRRS 4 Unanimous PRRS 1 System Change Request 1 System Change Request Designation of Closely Related Elements & Boundary Generators Designation of Closely Related Elements & Boundary Generators 2005 Prioritization Review 2005 Prioritization Review Improvements to Cost Benefit Analysis Improvements to Cost Benefit Analysis Outstanding PRR System Change Review Outstanding PRR System Change Review Update Regarding Nodal Transition Plan Update Regarding Nodal Transition Plan

3 PRR 593 – Behind the “Fence” Reporting of Load PRR submitted by CenterPoint (IOU) on behalf of GATF addressing generation adequacy PRR submitted by CenterPoint (IOU) on behalf of GATF addressing generation adequacy This PRR provides information that is necessary for ERCOT and TDSPs to determine generation adequacy This PRR provides information that is necessary for ERCOT and TDSPs to determine generation adequacy PRS reviewed TIEC’s proposed language requiring reporting of net generation PRS reviewed TIEC’s proposed language requiring reporting of net generation TAC unanimously recommends approval TAC unanimously recommends approval All market segments were present All market segments were present Effective November 1, 2005 Effective November 1, 2005

4 PRR 593 – Behind the “Fence” Reporting of Load Impact Analysis Item Reviewed Description NoImpact Credit Monitoring/Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact

5 PRR 599 – Notification of Mismatched Inter-QSE Energy Schedule PRR submitted by TXU (IOU) PRR submitted by TXU (IOU) PRR requires mismatch communication be given to both QSEs if ERCOT remedies the mismatch according to PRR 548, Settlement for Mismatched Inter-QSE Energy Schedules PRR requires mismatch communication be given to both QSEs if ERCOT remedies the mismatch according to PRR 548, Settlement for Mismatched Inter-QSE Energy Schedules Benefit: Provides shadow settlement information to QSEs Benefit: Provides shadow settlement information to QSEs BOD remanded to TAC for development of Cost Benefit Analysis (CBA) BOD remanded to TAC for development of Cost Benefit Analysis (CBA) Commercial Operations Subcommittee developed CBA Commercial Operations Subcommittee developed CBA PRS incorporated the benefits of PRR 613, Replacement Reserve Under Scheduled Capacity Delineation into CBA because extracts are linked PRS incorporated the benefits of PRR 613, Replacement Reserve Under Scheduled Capacity Delineation into CBA because extracts are linked

6 PRR 599 – Notification of Mismatched Inter- QSE Energy Schedule (cont.) In October, TAC reviewed combined CBA for PRR 599 and PRR 613 In October, TAC reviewed combined CBA for PRR 599 and PRR 613 TAC unanimously recommends approval TAC unanimously recommends approval All market segments were present All market segments were present Effective upon implementation of PRR 548 Effective upon implementation of PRR 548

7 PRR 599 – Notification of Mismatched Inter-QSE Energy Schedule Impact Analysis Item Reviewed Description NoImpact Credit Monitoring/Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact Change settlement process < $100K Minor Lodestar coding

8 PRR 613 – Replacement Reserve Under Scheduled Capacity Delineation Submitted by ERCOT Submitted by ERCOT PRS approved “URGENT” status PRS approved “URGENT” status Updates calculation of RPRS obligation for under- scheduled capacity, including mismatched schedules Updates calculation of RPRS obligation for under- scheduled capacity, including mismatched schedules Benefit: Accuracy of Protocols and clarify RPRS cost assignment Benefit: Accuracy of Protocols and clarify RPRS cost assignment TAC reviewed combined CBA for 599 and 613 TAC reviewed combined CBA for 599 and 613 TAC unanimously recommends approval TAC unanimously recommends approval All market segments were present All market segments were present Effective upon Board approval Effective upon Board approval Priority 1.0; Rank 0.87 (Same as PRR 599 – PRR 613 & 599 are linked to PRR548) Priority 1.0; Rank 0.87 (Same as PRR 599 – PRR 613 & 599 are linked to PRR548)

9 PRR 613 – Replacement Reserve Under Scheduled Capacity Delineation Impact Analysis Item Reviewed Description NoImpact Credit Monitoring/Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact Less than 100K Additional workload for settlement Minor impact to EMMS & Lodestar Identify appropriate mismatch

10 Cost Benefit Analysis for PRR 599 and 613 Cost Benefit Analysis (PRRs 599/613) Cost Benefit Analysis (PRRs 599/613) Benefits -- $540KBenefits -- $540K Implementation Cost -- $140KImplementation Cost -- $140K CB Ratio – 3.79CB Ratio – 3.79 Benefits include reduced overall market credit exposure by reducing settlement amounts and potential to reduce number of settlement disputesBenefits include reduced overall market credit exposure by reducing settlement amounts and potential to reduce number of settlement disputes

11 PRR 612 – Replacement Reserve Service Bid Cap PRR submitted by Tenaska (IPM) on behalf of the QSEMWG PRR submitted by Tenaska (IPM) on behalf of the QSEMWG Allows for the update of AS bids after notice of ERCOT’s intent to procure AS in the adjustment period Allows for the update of AS bids after notice of ERCOT’s intent to procure AS in the adjustment period Benefit: AS stack likely to be more sufficient Benefit: AS stack likely to be more sufficient Amended by ERCOT Amended by ERCOT TAC unanimously recommends approval TAC unanimously recommends approval All market segments were present All market segments were present Effective November 1, 2005 Effective November 1, 2005

12 PRR 612 – Replacement Reserve Service Bid Cap Impact Analysis Item Reviewed Description NoImpact Credit Monitoring/Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact Revises procedures/training

13 Recommended Board Actions Approval Approval PRR 593 – Reporting of Net Generation & Load (unanimous)PRR 593 – Reporting of Net Generation & Load (unanimous) PRR 599 – Notification for Mismatched Inter-QSE Energy Schedules (unanimous)PRR 599 – Notification for Mismatched Inter-QSE Energy Schedules (unanimous) PRR 612 – AS Procurement During the Adjustment Period (unanimous)PRR 612 – AS Procurement During the Adjustment Period (unanimous) Urgent PRR 613 – Replacement Reserve Under Scheduled Capacity Delineation (unanimous)Urgent PRR 613 – Replacement Reserve Under Scheduled Capacity Delineation (unanimous)

14 SCR 745 Recommended Solutions for ERCOT Unplanned System Outages and Failures to the Retail Market System SCR 745 will allow ERCOT to implement a high-availability solution to retail market outages that provides active system fail-over and redundancy. In the event of system outages, retail systems would continue to operate and data integrity would be maintained. ERCOT IT performed a full system evaluation to determine the root causes for unplanned retail system outages. Based on this evaluation, ERCOT IT recommended solution options to address single points of failure within the ERCOT Retail Market infrastructure. TAC recommends approval with one opposing vote from IOU segment and 8 abstentions from the Municipal (2), Consumer (4) and Independent Power Products (2) All market segments were present Effective upon system implementation Priority 1.1/Rank 30

15 PROXIES OUTBOUND Solaris SCR 745 Paperfree Process Servers Key: INTERNET NAESB TCH EAI TCH Database Single Retail Database Server (Multiple Oracle Databases) PAPERFREE SIEBEL Bi-Directional Data Flow Siebel DatabaseNAESB DatabasePaperfree Database Outbound Data Flow Inbound Data Flow INBOUND Paperfree File Server F I R E W A L L W2K W2K HP W2K W2K IN/OUT D M Z S W I T C H Single Point of Failure ERCOT Retail System Architecture Single Points of Failure

16 Cost Benefit Analysis for SCR 745 Cost Benefit Analysis Cost Benefit Analysis Benefits -- $28,649,493Benefits -- $28,649,493 Implementation Cost -- $3,479,489Implementation Cost -- $3,479,489 CB Ratio – 8.23CB Ratio – 8.23 Benefit – Improve market performance and reliability

17 Recommended Board Actions Approval Approval SCR 745 – Retail Market Outage Evaluation and ResolutionSCR 745 – Retail Market Outage Evaluation and Resolution

18 Designation of Closely Related Elements (CRE) & Boundary Generators Protocol Section 7.2.3, requires that, for each year, ERCOT Staff identify potential CREs Protocol Section 7.2.3, requires that, for each year, ERCOT Staff identify potential CREs CREs are defined as “ those transmission facilities that have shift factor impacts similar to those associated with a particular Commercially Significant Constraint, and for which there exists a limited amount of Boundary Generation Resources between it and the particular CSC, so that the zonal deployment of Balancing Energy Service is effective in mitigating Zonal Congestion.” CREs are defined as “ those transmission facilities that have shift factor impacts similar to those associated with a particular Commercially Significant Constraint, and for which there exists a limited amount of Boundary Generation Resources between it and the particular CSC, so that the zonal deployment of Balancing Energy Service is effective in mitigating Zonal Congestion.” When facility outages prevent the normal method for monitoring CSCs for Zonal Congestion, CREs are used as the reference transmission facilities When facility outages prevent the normal method for monitoring CSCs for Zonal Congestion, CREs are used as the reference transmission facilities The WMS and TAC support the CREs identified by ERCOT Staff The WMS and TAC support the CREs identified by ERCOT Staff Most of the 2005 CREs are recommended as 2006 CREs, with several transmission elements added to the 2006 recommendation Most of the 2005 CREs are recommended as 2006 CREs, with several transmission elements added to the 2006 recommendation

Prioritization Process Review Reviewed 2005 project prioritization process and reached the following conclusions/action items: Reviewed 2005 project prioritization process and reached the following conclusions/action items: Need to initiate process earlier to ensure adequate time to review ERCOT projects, including background project explanationsNeed to initiate process earlier to ensure adequate time to review ERCOT projects, including background project explanations Need to revisit/revise priority definitions (e.g., 1.1, 1.2, etc.)Need to revisit/revise priority definitions (e.g., 1.1, 1.2, etc.) Unclear how PUCT projects are incorporated onto the project list (i.e., who approves putting projects on list and who reviews priority)Unclear how PUCT projects are incorporated onto the project list (i.e., who approves putting projects on list and who reviews priority) Need to work on process to ensure necessary commercial projects (e.g., extracts) are done when compared to reliability-related projectsNeed to work on process to ensure necessary commercial projects (e.g., extracts) are done when compared to reliability-related projects Need posting of CBAs showing primary benefit driver assumptionsNeed posting of CBAs showing primary benefit driver assumptions Need to incorporate CBAs into protocol revision request processNeed to incorporate CBAs into protocol revision request process Should use significant digits in CBA reportingShould use significant digits in CBA reporting Acknowledgement that CBA process and overall prioritization process is evolutionaryAcknowledgement that CBA process and overall prioritization process is evolutionary

20 PRR Submission Requirement Changes PRR Submission Form is being changed to reflect existence of nodal protocols and greater emphasis on CBA PRR Submission Form is being changed to reflect existence of nodal protocols and greater emphasis on CBA Does PRR apply to nodal protocols? If so, what sections?Does PRR apply to nodal protocols? If so, what sections? Provide sponsor’s estimate of market cost and benefitsProvide sponsor’s estimate of market cost and benefits ERCOT will begin building CBA based on the submitted data ERCOT will begin building CBA based on the submitted data Market Participants may comment on CBA estimates from sponsor Market Participants may comment on CBA estimates from sponsor PRS will discuss comments to sponsor’s CBA estimate and adjust as needed PRS will discuss comments to sponsor’s CBA estimate and adjust as needed PRR sponsor must fill out all portions of the form PRR sponsor must fill out all portions of the form ERCOT will reject PRR submission if items left blank are not cured after ERCOT notice to submitter of deficiencyERCOT will reject PRR submission if items left blank are not cured after ERCOT notice to submitter of deficiency

/2006 System Project Status 2005/2006 Project Priority List now available 2005/2006 Project Priority List now available Priority 1.0aPriority 1.0a Projects that had been planned to run past 10/31/05 Priority 1.0bPriority 1.0b Projects that were not planned to run past 10/31/05 Priority 1.1aPriority 1.1a Projects ranked above the projected 2006 cut-line Priority 1.1bPriority 1.1b Projects ranked below the projected 2006 cut-line Projects ranked below the projected 2006 cut-line Project accelerations due to mid-year cash flow analysis also shown Project accelerations due to mid-year cash flow analysis also shown

/2006 System Project Status ERCOT $12.4 MM Market $5.3 MM Carryovers PUCT $2.6 MM Projected 2006 Cut-Line -- $25.6 MM

/2006 System Project Status Projects immediately above the projected 2006 cut- line accomplish the following: Projects immediately above the projected 2006 cut- line accomplish the following: Improve State Estimator accuracyImprove State Estimator accuracy Improve accuracy of congestion management solutions by reducing the delay in updating the network topologyImprove accuracy of congestion management solutions by reducing the delay in updating the network topology Upgrade ERCOT Digital Certificate technologyUpgrade ERCOT Digital Certificate technology Expand Taylor Data Center to maintain necessary redundancy and increased storage capabilityExpand Taylor Data Center to maintain necessary redundancy and increased storage capability Automate manual processes for DC-tie schedulingAutomate manual processes for DC-tie scheduling Continue IT service oriented architecture improvement using TIBCOContinue IT service oriented architecture improvement using TIBCO

24 Outstanding PRR System Change Review PRS initiating review of outstanding PRRs awaiting system implementation PRS initiating review of outstanding PRRs awaiting system implementation Special PRS meeting held on October 7, 2005Special PRS meeting held on October 7, 2005 Goals Goals Develop criteria to apply to current market design system change proposals for appropriate prioritizationDevelop criteria to apply to current market design system change proposals for appropriate prioritization Apply criteria to existing protocols on the project list and determine if priority is appropriateApply criteria to existing protocols on the project list and determine if priority is appropriate

25 Outstanding PRR System Change Review (cont.) Prioritization Criteria Prioritization Criteria 1.Projects required by Statute, PUCT order, NERC compliance, or critical reliability of grid operations, IT infrastructure, or commercial settlement 1.Projects required by Statute, PUCT order, NERC compliance, or critical reliability of grid operations, IT infrastructure, or commercial settlement 2.High "value" to all market segments 2.High "value" to all market segments 3.High "value" to one or two segments, or ERCOT 3.High "value" to one or two segments, or ERCOT 4.Medium "value" for all segments 4.Medium "value" for all segments 5.Medium "value" for only one segment or ERCOT 5.Medium "value" for only one segment or ERCOT "value" as determined by CBA, longevity (e.g. modification is long term or short term), and qualitative considerations as shown below: "value" as determined by CBA, longevity (e.g. modification is long term or short term), and qualitative considerations as shown below:   Potential to conflict with ERCOT resources devoted to other projects   Subcategory (IT infrastructure, grid operations, commercial settlement) and level of criticality (critical/high/medium/low) for reliability projects   Straw vote information on priority   Direct benefit to Customers   Impact on existing approved and prioritized projects   Risk exposure as defined by risk management program

26 Nodal Transition Plan TAC continued discussions regarding Nodal Transition Plan at October TAC Meeting TAC and ERCOT will continue to discuss Nodal Transition Plan Goal is for TAC to approve Nodal Transition Plan at November TAC Meeting