Generation Deliverability Criteria PLWG September 17, 2014 Jeff Billo, ERCOT 1

Review PLWG and ROS have identified a potential gap in the planning analysis related to generation deliverability – ROS directed PLWG to develop language to include criteria to address generation deliverability in peak Load conditions (July 2014) PLWG discussions have focused on the methodology to determine when transmission is constraining generation and what criteria should be employed to solve these constraints Criteria discussions have bogged down due to issue of not wanting to “spend $100M to get the last 1 MW out” – This seems to be pointing towards criteria that is more related to economics 2

What is the societal benefit of relieving generation constraints? Current economic criteria and processes may not fully capture the societal economic benefit of transmission additions that relieve generation constraints – When generation is constrained on peak more generation needs to be constructed to meet peak demand. This adds a societal cost for new units that is not accounted for in current economic transmission planning criteria – Generation is more valuable during hot summers than normal weather summers in Texas. Hence, transmission that relieves constrained generation is more valuable during hot summers. The current economic transmission planning process only considers 50/50 load conditions which will undervalue projects that relieve these constraints 3

Two conceptual economic planning criteria additions 1.Consider reduced generation investment needs due to relieving transmission bottlenecks that constrain generation at peak – In addition to the production cost savings of a project – Need to devlop a metric such as the Cost Of New Entry as the appropriate societal cost benefit – May need to discount for plants closer to retirement 2.Consider probability-weighted production cost savings for different load profiles – In the Brattle Group’s 2013 review of the ERCOT LTSA and economic planning processes they noted that “SPP’s Metrics Task Force recently suggested that SPP’s production simulations should be developed and tested for load profiles that represent 90/10 and 10/90 peak load conditions— rather than just for base case simulations (reflecting 50/50 peak load conditions)...” – May need to consider generation shortage conditions in outer years 4

Example 5 $1.0 M (10/90 Prod Cost Savings) X 20% (Probability) = $1.5 M (50/50 Prod Cost Savings) X 60% (Probability) = $5.0 M (90/10 Prod Cost Savings) X 20% (Probability) = $100,000 ($/MW-yr CONE NET ) X 50 MW = $0.2 M $0.9 M $1.0 M $5.0 M $7.1 M Total Annual Savings = Test transmission project that relieves 50 MW generator constraint

Tying Back to Generation Deliverability These additional metrics would ensure that transmission that is built to relieve constrained generation is economically beneficial for society – Does not change the reliability criteria, therefore preventing unchecked spending on transmission investment with little generation benefit Discussion 6