Technical Advisory Committee Presentation to the ERCOT Board of Directors June 16, 2009

TAC Report Summary 3 PRRs for Board approval 3 PRRs for Board approval 3 NPRRs for Board approval 3 NPRRs for Board approval 2 OGRRs approved 2 OGRRs approved 3 RMGRRs approved 3 RMGRRs approved 1 COPMGRR approved 1 COPMGRR approved PUCT Quarterly Renewables Report PUCT Quarterly Renewables Report Draft Texas Renewables Integration Plan Draft Texas Renewables Integration Plan Update: ERCOT Planning Charter Update: ERCOT Planning Charter Preview: July, August, Sept. Board meetings Preview: July, August, Sept. Board meetings 2

Protocol Revision Requests PRR 796 Resource Plan Performance Metrics Revision PRR 802 Transmission Congestion Rights (TCR) to Congestion Revenue Rights (CRR) Refund Revision PRR 809 Out of Merit Capacity (OOMC) Startup Costs Clarification and Modification – URGENT 3

PRR 796 – Resource Plan Performance Metrics Revision Purpose (FPL Energy) Provides that ERCOT shall determine a QSEs Resource Plan Performance under normal operating conditions by removing periods of abnormal or unusual events and which does not have a passing score Benefit Allows scoring flexibility when metric violations are caused by Forced Outages Market Impact N/A System Change NoN/A AssumptionsN/A TAC Vote TAC unanimously recommended approval; all Market Segments were present Effective Date July 1, 2009

PRR 796 – Resource Plan Performance Metrics Revision Item Reviewed Description NoImpact Credit Monitoring/ Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact

PRR 802 – TCR Transition to CRR Refund Revision Purpose(ERCOT) Provides flexibility in the event monthly Transmission Congestion Rights (TCRs) are awarded and require refund for the subsequent month after Nodal Go-Live Benefit Transparency of TCR to CRR transition activities Market Impact N/A System Change NoN/A AssumptionsN/A TAC Vote TAC unanimously recommended approval; all Market Segments were present Effective Date July 1, 2009

PRR 802 – TCR Transition to CRR Refund Revision Item Reviewed Description NoImpact Credit Monitoring/ Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact

PRR 809 – OOMC Startup Costs Clarification and Modification - URGENT Purpose(ERCOT) Modifies Section to explicitly state the criteria currently used to determine eligibility for Out of Merit Capacity (OOMC) startup costs, as well as clawback of startup costs and also incorporates ‘max zero’ logic into the settlement formula that calculates the price for the startup costs Benefit Provides clarity of the settlement rules, and a reduction of settlement and billing disputes. Market Impact N/A System Change NoN/A AssumptionsN/A TAC Vote TAC unanimously recommended approval; all Market Segments were present Effective Date July 1, 2009

PRR 809 – OOMC Startup Costs Clarification and Modification - URGENT ERCOT often receives settlement and billing disputes regarding eligibility for OOMC startup costs and the associated clawback. These settlement and billing disputes are mainly a result of a lack of understanding of the criteria used to determine startup and clawback eligibility. The criteria are currently reflected in the Charge Matrix posted on ERCOT’s website, but not in the ERCOT Protocols. Updating the Protocols to reflect the criteria documented in the Charge Matrix as well as the settlement practice for the clawback will provide the clarity needed to avoid such future settlement and billing disputes. ERCOT often receives settlement and billing disputes regarding eligibility for OOMC startup costs and the associated clawback. These settlement and billing disputes are mainly a result of a lack of understanding of the criteria used to determine startup and clawback eligibility. The criteria are currently reflected in the Charge Matrix posted on ERCOT’s website, but not in the ERCOT Protocols. Updating the Protocols to reflect the criteria documented in the Charge Matrix as well as the settlement practice for the clawback will provide the clarity needed to avoid such future settlement and billing disputes.

PRR 809 – OOMC Startup Costs Clarification and Modification - URGENT ERCOT also receives settlement and billing disputes and questions pertaining to the implementation of the “max zero” logic on the OOMC startup cost formula (PS ui ). PRR 676 (RPRS Solution with Nodal RUC-Type Procurement and Cost Allocation), which was approved by the ERCOT Board on 09/19/06, included this logic. However, Replacement Reserve Service (RPRS) settlement was the main focus of PRR 676 and following a market participant appeal the PUCT ruled the PRR should not be implemented. ERCOT reintroduced the “max zero” logic in PRR 809 since it was collateral damage in the PRR 676 decision and the market had previously reached agreement that Generation Resources should not be charged for providing OOMC Service. ERCOT also receives settlement and billing disputes and questions pertaining to the implementation of the “max zero” logic on the OOMC startup cost formula (PS ui ). PRR 676 (RPRS Solution with Nodal RUC-Type Procurement and Cost Allocation), which was approved by the ERCOT Board on 09/19/06, included this logic. However, Replacement Reserve Service (RPRS) settlement was the main focus of PRR 676 and following a market participant appeal the PUCT ruled the PRR should not be implemented. ERCOT reintroduced the “max zero” logic in PRR 809 since it was collateral damage in the PRR 676 decision and the market had previously reached agreement that Generation Resources should not be charged for providing OOMC Service.

PRR 809 – OOMC Startup Costs Clarification and Modification - URGENT Item Reviewed Description NoImpact Credit Monitoring/ Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact Credit Review is Pending

Nodal Protocol Revision Requests NPRR 141 Transmission Service Provider (TSP) Energy Storage for Reliability NPRR 172 Synchronization of Section 15 with PRR 782 Cleanup and Corrections to Terminology and Transaction Timings in Protocol Section 15, Customer Registration NPRR 173 Reduce the Minimum Quantity for Ancillary Services Offers 12

NPRR 141 – TSP Energy Storage for Reliability (formerly TSP and/or DSP Energy Storage for Reliability) Purpose(ERCOT) Clarifies that metering of energy flows from TSP owned battery storage technology is not required for Settlement. This is limited to the Presidio substation Facilities. Benefit Provides additional technology to address reliability needs. Provides near-term solutions to support Loads, while permanent solutions can be put in place. Market Impact N/A System Change NoN/A AssumptionsN/A TAC Vote TAC unanimously recommended approval; all Market Segments were present CEO Determination Necessary prior to the Texas Nodal Market Implementation Date

NPRR 141 – TSP Energy Storage for Reliability (formerly TSP and/or DSP Energy Storage for Reliability) Item Reviewed Description NoImpact Credit Monitoring/ Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact Credit Review is Pending

NPRR 172 – Synchronization of Section 15 with PRR782, Clean-Up and Corrections to Terminology and Transaction Timings in Protocol Section 15, Customer Registration Purpose (Texas SET) Corrects and clarifies the transaction timing descriptions to make them consistent with current processes outlined in Section 15 of the Zonal Protocols Benefit Clarifies market processes. Market Impact N/A System Change NoN/A AssumptionsN/A TAC Vote TAC unanimously recommended approval; all Market Segments were present CEO Determination Necessary prior to the Texas Nodal Market Implementation Date

NPRR 172 – Synchronization of Section 15 with PRR782, Clean-Up and Corrections to Terminology and Transaction Timings in Protocol Section 15, Customer Registration Item Reviewed Description NoImpact Credit Monitoring/ Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact Credit Review is Pending

NPRR173 – Reduce the Minimum Quantity for Ancillary Service Offers Purpose(DSWG) Allows Loads acting as Resources (LaaRs) with less than one MW that currently participate in the zonal Ancillary Service market to participate in the Nodal Ancillary Service market. Benefit Increased participation in the Ancillary Service markets Market Impact Potentially lowers overall prices for Ancillary Services System Change NoN/A AssumptionsN/A TAC Vote TAC recommended approval with one abstention from the Independent Generators; all Market Segments were present CEO Determination No Opinion on need for go-live

NPRR173 – Reduce the Minimum Quantity for Ancillary Service Offers Item Reviewed Description NoImpact Credit Monitoring/ Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact Credit Review is Pending

Operating Guide Revisions OGRR 218 Revise System Operator Training Requirements OGRR 222 Allow Frequency Control Data Through ICCP Infrastructure 19

Retail Market Guide Revisions RMGRR 072 Clarification that ESI ID Count is for Active REP of Record in the CBCI File RMGRR 073 Mass Transition of ESI ID Due to Acquisition RMGRR 074 Texas Data Transport Working Group and Market Metrics Working Group Merger 20

Commercial Operations Market Guide Revision COPMGRR 011 Updates to Include the Implementation of Project Website Enhancements for ERCOT outages. 21

PUCT Quarterly Renewables Report Second Quarterly Report ready to file at PUCT Second Quarterly Report ready to file at PUCT Covers 3 months ending April 30 Covers 3 months ending April MW new wind added during this period 70 MW new wind added during this period Wind generation provided 8.2% of all energy in ERCOT from Jan. 1 to April 30 Wind generation provided 8.2% of all energy in ERCOT from Jan. 1 to April 30 48,677 MW of additional wind generation in the interconnection study process 48,677 MW of additional wind generation in the interconnection study process 1,150 MW new renewables with signed IAs (wind and biomass) 1,150 MW new renewables with signed IAs (wind and biomass) 5 new issues identified and added to tracking sheet 5 new issues identified and added to tracking sheet 7 issues completed on tracking sheet 7 issues completed on tracking sheet 5 PRRs approved or implemented during reporting period 5 PRRs approved or implemented during reporting period Wind Workshop III scheduled for June 26 – focus on telemetry requirements and nodal issues Wind Workshop III scheduled for June 26 – focus on telemetry requirements and nodal issues 22

Texas Renewables Integration Plan Policy Drivers Policy Drivers ERCOT-specific implementation activities (CREZ, AMI, etc.) ERCOT-specific implementation activities (CREZ, AMI, etc.) policy impacts on market expectations / planning needs policy impacts on market expectations / planning needs Market Drivers Market Drivers market impacts on market expectations / planning needs market impacts on market expectations / planning needs chicken and egg: market rules and new technologies chicken and egg: market rules and new technologies Technology Drivers Technology Drivers understanding capabilities and limitations understanding capabilities and limitations understanding interrelated nature of various technological applications with operational requirements understanding interrelated nature of various technological applications with operational requirements Resource Constraints Resource Constraints budget / Staff availability budget / Staff availability EERM / Nodal EERM / Nodal 23

Texas Renewables Integration Plan Issues Identification Issues Identification operational experience operational experience industry engagement industry engagement Issues Development Issues Development workshops, presentations workshops, presentations white papers white papers Issues Solutions Issues Solutions solutions implementation (NPRRs, etc.) solutions implementation (NPRRs, etc.) updating ERCOT systems, models, operational practices updating ERCOT systems, models, operational practices accompanying measurements (performance metrics, etc.) accompanying measurements (performance metrics, etc.) follow-up activities follow-up activities Issues Tracking Issues Tracking transparency transparency institutional knowledge institutional knowledge 24

Texas Renewables Integration Plan 25 Issues Identification Data Gathering Technical Education Solutions Execution Issues Refinement and Solutions Development Study Development and Execution

Texas Renewables Integration Plan Next Steps Next Steps July work session with Board for substantive discussion July work session with Board for substantive discussion Further TRIP development through 3Q09 Further TRIP development through 3Q09 add substantial detail to issues list add substantial detail to issues list develop quarterly summaries for Board and PUCT develop quarterly summaries for Board and PUCT scheduling each required activity / project scheduling each required activity / project Version 1 of TRIP presented to Board for approval 4Q09 Version 1 of TRIP presented to Board for approval 4Q09 26

Update: ERCOT Planning Charter In January, ERCOT Staff presented recommended changes to the ERCOT Planning Charter. TAC endorsed the proposed changes. In January, ERCOT Staff presented recommended changes to the ERCOT Planning Charter. TAC endorsed the proposed changes. The Board approved the revisions except the proposal to exempt transmission projects relating to generation interconnection from ERCOT and RPG review. Treatment of such facilities was remanded to TAC for further discussion and recommendation. The Board approved the revisions except the proposal to exempt transmission projects relating to generation interconnection from ERCOT and RPG review. Treatment of such facilities was remanded to TAC for further discussion and recommendation. The current Planning Charter language requires generation interconnection projects costing more than $15 million or requiring CCNs be reviewed by the RPG (including ERCOT independent review and Board approval as appropriate). The current Planning Charter language requires generation interconnection projects costing more than $15 million or requiring CCNs be reviewed by the RPG (including ERCOT independent review and Board approval as appropriate). 27

Current Review Process 28

Summary of stakeholder discussion Consensus on 2 procedural changes for TSPs to raise visibility of large generation interconnection projects Consensus on 2 procedural changes for TSPs to raise visibility of large generation interconnection projects Require in Generation Interconnection (GI) Procedure that the Lead TSP for the Full Interconnection Study (FIS) communicates to other TSPs when the FIS indicates that the direct interconnection facilities will cost >$50 million so that the other TSPs will know to particularly focus on the FIS Require in Generation Interconnection (GI) Procedure that the Lead TSP for the Full Interconnection Study (FIS) communicates to other TSPs when the FIS indicates that the direct interconnection facilities will cost >$50 million so that the other TSPs will know to particularly focus on the FIS The Lead TSP for GI FIS will communicate direct generation interconnection projects >$50 million out to full RPG (no review by RPG) once generation Interconnection Agreement is signed The Lead TSP for GI FIS will communicate direct generation interconnection projects >$50 million out to full RPG (no review by RPG) once generation Interconnection Agreement is signed 29

Summary of stakeholder discussion Support for ERCOT/RPG Review of interconnection facilities Support for ERCOT/RPG Review of interconnection facilities Commission Staff testimony in Kelson CCN docket expressed need for ERCOT review of these types of CCNs Commission Staff testimony in Kelson CCN docket expressed need for ERCOT review of these types of CCNs Increase transparency / awareness of significant projects Increase transparency / awareness of significant projects Concerns with ERCOT/RPG Review of interconnection facilities Concerns with ERCOT/RPG Review of interconnection facilities Reliability impacts are already considered in generation interconnection study process Reliability impacts are already considered in generation interconnection study process ERCOT and RPG review of these projects results in stakeholder judgment on the economic merits of the proposed generation ERCOT and RPG review of these projects results in stakeholder judgment on the economic merits of the proposed generation Potential for RPG review to delay generation interconnection Potential for RPG review to delay generation interconnection Additional considerations Additional considerations Open access regime should be preserved in whatever process is adopted Open access regime should be preserved in whatever process is adopted Appropriateness of ERCOT role / recognition of ERCOT work load Appropriateness of ERCOT role / recognition of ERCOT work load 30

Planning Charter options considered Regional Planning Group: no consensus Regional Planning Group: no consensus Reliability and Operations Subcommittee: recommended Planning Charter language proposed to the Board in January with the 2 procedural changes Reliability and Operations Subcommittee: recommended Planning Charter language proposed to the Board in January with the 2 procedural changes Wholesale Market Subcommittee: Agreed with 2 procedural changes and agreed to revert to January Planning Charter proposal but evenly split whether to add language requiring ERCOT and/or RPG review for informational purposes when proposed direct interconnection facilities >$25 million or >$50 million Wholesale Market Subcommittee: Agreed with 2 procedural changes and agreed to revert to January Planning Charter proposal but evenly split whether to add language requiring ERCOT and/or RPG review for informational purposes when proposed direct interconnection facilities >$25 million or >$50 million 31

Status of TAC deliberations In addition to other identified issues, TAC discussed whether this is a policy determination best made by the PUCT rather than stakeholders and whether TAC and the Board might receive policy guidance from the PUCT soon through a final order in the Kelson CCN docket In addition to other identified issues, TAC discussed whether this is a policy determination best made by the PUCT rather than stakeholders and whether TAC and the Board might receive policy guidance from the PUCT soon through a final order in the Kelson CCN docket Motion to recommend the January Planning Charter proposal with a requirement ERCOT perform economic analysis for facilities >$50 million failed: 17 Yes, 11 No, 2 Abstain Motion to recommend the January Planning Charter proposal with a requirement ERCOT perform economic analysis for facilities >$50 million failed: 17 Yes, 11 No, 2 Abstain Motion to recommend the January Planning Charter proposal with requirement ERCOT perform economic analysis for facilities >$25 million when requested by PUCT Staff failed: 5 Yes, 21 No, 3 Abstain Motion to recommend the January Planning Charter proposal with requirement ERCOT perform economic analysis for facilities >$25 million when requested by PUCT Staff failed: 5 Yes, 21 No, 3 Abstain Motion to Table passed on voice vote with 3 abstentions Motion to Table passed on voice vote with 3 abstentions 32

Preview: Future Board meetings July: PRR 815 CSC Process Clarification July: PRR 815 CSC Process Clarification Result of PUCT Order in AEP appeal of 2009 CSC selection Result of PUCT Order in AEP appeal of 2009 CSC selection Address methodology by which potential CSCs/CREs are studied Address methodology by which potential CSCs/CREs are studied Address procedure by which CSCs/CREs are recommended and approved Address procedure by which CSCs/CREs are recommended and approved August: Progress Report - NOGRR 025 Monitoring Program for QSEs, TSPs, and ERCOT August: Progress Report - NOGRR 025 Monitoring Program for QSEs, TSPs, and ERCOT Identify performance metrics, monitoring, and compliance program necessary for Nodal Go-Live Identify performance metrics, monitoring, and compliance program necessary for Nodal Go-Live Identify impacts to Nodal implementation project Identify impacts to Nodal implementation project September: 2010 CSC Recommendation September: 2010 CSC Recommendation 33