RMR Task Force Decision Points for ERCOT Technical Advisory Committee April 3, 2003

Six Issues to be Resolved Criteria/Process RMR Categories Compensation Level Cost Allocation Transmission Planning Process Economic Trade-Offs

Process RMR TF provided options for the six concerns to PRS PRS reviewed and made recommendations TAC considers PRS recommendations and decides on high level options for the open issues (Decision Points) TAC decisions guide language finalization PRR returns for TAC/BOD approval in May

Decision Point Criteria/Process – Allows for multi-year contracts if significant capital expenditures required – CCGTs treated as a single unit unless separate operation possible – Qualification for RMR Applicant Applicant attestation that resource is uneconomic to remain in service Unavailable at least 180 days

Decision Point Criteria/Process – Treatment of RMR Applicant Non-selected applicant prohibited from future use unless reinstated during suspension period –ERCOT not accept schedules or bids during suspension period –ERCOT may reinstate under certain circumstances –Owner may petition PUC for reinstatement

Decision Point Criteria/Process – RMR Replacement Options ERCOT to report on cost-effective replacement options 90 days after execution If a cost-effective replacement option exists, ERCOT will establish an implementation timeline

PRS Recommendation Non-selected RMR applicant would not be prohibited from operating in the market after ERCOT rejects the application – Fits with the “Cost Plus” methodology Accept other provisions

Decision Point RMR Categories – Short-term RMR Need (180 days during off- peak season only) – Annual RMR Need

PRS Recommendation Accept both seasonal and annual RMR concepts and reflect in pricing

Decision Point Compensation Level Proposals – Short- Term Contract – Owner compensated for costs avoided by seasonal mothballing – Owner provides cost information to ERCOT

Decision Point Compensation Level Proposals – Annual Contract – Proxy Price Uses existing structure with lower payment components (Standby Price at 55% of SCGT; Change in fuel heat rate calculation)

Decision Point Compensation Level Proposals – “Cost Plus” Initial monthly payments based on estimate of eligible costs then adjusted to actual 10% Incentive Factor applied to non-fuel eligible costs Eligible Costs include labor, materials and supplies to operate the unit Eligible Costs do not include return on equity, G&A, allocated general plant, taxes, interest expense, etc. Fuel also based on estimate of cost with true-up Eliminates start-up payment

PRS Recommendation Adopt short-term pricing at cost Adopt “cost plus” methodology

Decision Points Cost Allocation – Options Available Proposal to allocate local congestion costs, including RMR, on a more local basis Continue ERCOT-wide uplift of all congestion costs, except for CSC congestion

PRS Recommendation RMR TF not to address the cost allocation issue

Resolved Issue Transmission Planning Process – Reviewed the developing ERCOT transmission planning process – Provided input concerning openness and communication – Reported to TAC ERCOT already implementing with announcement of transmission planning meetings

Issue Being Addressed Economic Trade-Offs – Reviewed RMR/OOM Pricing – Goal is to align incentives between market and OOM/RMR RMR should not be an economic alternative to OOM or the market ERCOT should not have an incentive to overly rely on RMR – RMR TF concluded OOMC needs to be addressed Evaluating proposals