Matt Tozer ERCOT Manager, Settlements & Billing 9/4/2013 ERCOT Update Management of the Balancing Account CMWG

2 Agenda Why are we considering alternative methodologies for management of the Balancing Account? Concepts for an alternative methodology Next Steps

3 Why? Large CRR Shortfall in May 2013 prompted questions about the cause of the scenario and how to remedy it going forward Questions of equity in the current methodology We are NOT talking about CRR Auction Revenue that is always a revenue stream to QSEs with load We ARE talking about the Balancing Account Distribution that varies month to month Month Monthly Balancing Account Distribution to Loads CRR Auction Revenue Distribution to Loads Jan-13 $ - $ (20,873,624.18) Feb-13 $ (404,949.97) $ (17,789,806.60) Mar-13 $ (2,929,383.01)$ (18,703,659.74) Apr-13 $ - $ (24,792,087.01) May-13 $ - $ (31,871,950.28) Jun-13 $ (7,215,541.84)$ (36,261,389.44)

4 Why? In 10 of 31 months, CRRs were not fully funded –~$30M not funded, in total Percentage of CRR Payments not funded –Worst case March 2011: ~29% –Dec 2010 through June 2012: ~ 3% Excess funds distributed to QSEs representing load in the other 21 months –~$164M distributed, in total

5 Concepts for Proposed Methodology 1)Daily CRR Shortfall Current: apply excess congestion rent funds to shortfalls on a monthly basis Alternative: apply excess congestion rent funds to shortfalls on a daily basis and on a monthly basis 2) Establish a Rolling Balancing Account Fund Current: after refunds for CRR shortfalls, distribute any excess funds to load (“close out” the balancing account for the month) Current: CRRs remain short-paid if not enough funds to cover the shortfall Alternative: on a monthly basis, after refunds for CRR shortfalls, deposit any excess into a “Rolling Balancing Account Fund” to be used to cover shortfalls in future months. Distribute to load when the funds exceeds a specified threshold.

6 Daily CRR Shortfall Current Day Ahead Process calculates CRR Shortfalls every hour – DAM Congestion Rent – Credit to CRR Balancing Account – Shortfall Charges to CRR Owners Proposal would accumulate the Congestion Rent for all hours of the day and calculate a final Daily Shortfall. –Excess funds for the day? Fully fund CRRs in that day –Still have excess funds? Deposit into the Balancing Account –Net short for the day? CRRs remain short-paid, with potential of payment through the monthly closure of the Balancing Account By moving to a Daily CRR Shortfall determination –More CRRs will be fully funded through DAM Settlements for the day –Less leftover funds accumulated in the Balancing Account

7 Daily CRR Shortfall – Avoided Shortfall Charges Current Method Total CRR Shortfall Charges Proposed Method Total CRR Shortfall Charges Avoided CRR Shortfall Charges 2011 (incl. 12/10) $ 24,552, $ 21,080, $ (3,471,307.66) 2012 $ 12,343, $ 10,062, $ (2,281,093.05) 2013 (through June) $ 23,907, $ 18,948, $ (4,959,157.06) Total $ 60,802, $ 50,091, $ (10,711,557.77)

8 Establish a Rolling Balancing Account Fund Rolling Balancing Account Fund concepts –Continue to execute the monthly Balancing Account closure process to try to pay CRRs that were not fully funded through DAM Settlements –Remaining funds accumulate in the Rolling Balancing Account Fund –This Fund can be used to supplement refunds of shortfall charges in subsequent months. In a month where additional funds are available in the Balancing Account and shortfalls are fully refunded, the Rolling Balancing Account Fund is refilled before allocating to QSEs with load. If the “refill” activity brings the Rolling Balancing Account Fund over the designated Fund Cap, allocate the overage to QSEs with Load Each month, maintain a Rolling Balancing Account Fund balance <= to the designated Fund Cap

9 Daily CRR Shortfall & Rolling Balancing Account Fund Conceptual Flow Money still flows to CRRAHs and QSEs with Load Greater certainty of fully funding CRRs Opportunity to fully fund CRRs sooner QSEs with Load retain opportunity to receive excess Congestion Rent

10 Defining the Fund Cap Feedback and analysis is needed –Based on historical data, do we aim to maintain a balance that would fund CRRs 100% of the time, or something less? Statistics for consideration: Total Calculated CRR Shortfall, before refunds, current method (all months 12/10 - 6/13) Min $ 5K Max $ 12M Average $ 2M Total Calculated CRR Shortfall, before refunds, Daily Shortfall method (all months 12/10 - 6/13) Min $ 0 Max $ 11M Average $ 2M

11 Next Steps Collect feedback –Concepts –Fund Cap ERCOT to incorporate feedback ERCOT to file the NPRR

12 APPENDIX

13 Settlement Data – Current Methodology *Data included in spreadsheet posted with meeting materials

14 Example Data – Proposed Methodology *Estimated datasets included in spreadsheet posted with meeting materials

15 Distribution to Loads – Nodal Go-Live through June 2013