ERCOT CSC – Vote “Yes” to 3b Jan A. Bagnall Sr. Director Transmission, Reliability & Compliance October 2008

2 WMS –Staff recommends 3b TAC –ERCOT staff flips support to a new scenario 3i two business days before vote ERCOT Board of Directors –Remands matter back to TAC to study 3i, 3h and 3b Review of CSC Designation ERCOT staff position has evolved on the appropriate CSC designation 9/23/ Proprietary & Confidential Information CSC Chronology

3 Lets review the basic overview of Scenarios CSC Options 3b, 3h, 3i

4 Unclear Reliability Benefits –Relies on Graham shift factor analysis that shows little impact on West Zone constraints Relies on Result Driven Analysis –Flawed post contingency approach arbitrarily keeps Oklaunion in the West zone where shift factors show that if Graham changes zones Oklaunion should as well More Uplift…More Often –Recognizes more frequent local congestion uplift, but provides no analysis to quantify consumer impact Higher Costs –Provides no forward looking analyses and assessing the impact to market Analysis is lacking for switch to CSC Scenario 3i 9/23/ Proprietary & Confidential Information Principal Flaws with 3i

5 Shift factor analysis shows 3b effectively relieves constraints – 48.3% –Graham in West has ability to control congestion Shift factor analysis shows 3i or 3h does not relieve constraints – (8.6%) –Graham in North has limited or no impact on congestion 3i was premised on reliability benefits it does not deliver The rationale for moving Graham to North Zone is weak 9/23/ Proprietary & Confidential Information Minimal Impact on Constraints

6 Graham in North shuts off 750 MW of zero cost wind –600 MW of Graham generation offsets 750 MW of wind generation for constraint east of Graham –Graham to North Zone change means Graham will run a lot more in 2009 $200+ Million potential increased costs to consumers –Increased dispatch costs for Graham - $74 Million –Incremental North Zone dispatch costs - $29 Million –Potential additional local area congestion costs $50 - $100 million –Existing West to North CSC congestion will be converted to local uplift under Scenario 3i under the recently released CRE study 3i ensures higher costs to electric consumers 3i is a potential $ 200 Million financial hit for Texas consumers 9/23/ Proprietary & Confidential Information Potential increased costs are significant

7 Short Story for Graham Dispatch MW (750) MW Graham West Wind Additional North Unit MW Scenario 3i is potentially a big mistake in the waiting Scenario 3i means $ 200 Million of increased costs to Texans ~ $100 MM $ 74 MM $ 29 MM

8 Limited technical analysis and lack of financial impact analysis Graham unit to North impact could potentially increase costs to consumers by $200 Million Local area congestion between $50 - $100 Million Movement of 20% West Zone load to North will impact price 3i is bad for ERCOT market and for consumers Vote “Yes” for 3b 9/23/ Proprietary & Confidential Information Vote “No” for 3i

9 We can operate under 3b…proven history Financial impacts to consumers are manageable Graham is not the issue and there are other ways to manage congestion in the area One unit (Graham) controls all the dispatch of West Zone wind 3b is the right technical and market decision Vote Yes for 3b 9/23/ Proprietary & Confidential Information Vote “Yes” for 3b