Texas Regional Entity ROS Presentation January 15, 2009 T EXAS RE ROS P RESENTATION J ANUARY 2009

Page 2 of 20 Topics 1.Load Serving Entity Update Compliance Overview 3.Compliance Monitoring Methods 4.Events 5.FERC Audit Texas RE ROS Presentation January 2009

Page 3 of 20 SAR-005, 006, 007: Remove LSE Applicability-- Background  FERC Order requiring LSE registration: October 16, 2008 Order in the Direct/Sempra/Strategic registration cases (Docket Nos. RC07-4, 6 and 7).  NERC’s short term solution was to register DPs as LSEs.  Because Texas State Law requires: “transmission and distribution utility shall not provide competitive energy services”; certain LSE requirements cannot be performed by competitive/independent DPs.  LSE requirements are fulfilled for these standards by other entities who are already registered and have committed to and take complete responsibility for fulfilling these requirements – e.g. ERCOT as single BA for region. Texas RE ROS Presentation January 2009

Page 4 of 20 SAR-005, 006, and 007 Remove LSE Applicability ●Therefore, Texas RE Regional Variance is proposed to remove LSE Applicability from six NERC standards, MOD and EOP-002. ●MOD ERCOT as the single Planning Authority (PA) and Resource Planner (RP) provides the data required by MOD-017 and 018 to NERC and the Texas RE for the entire ERCOT Interconnection. The process for ERCOT to obtain the data from the market participants is in the ERCOT Protocols and Operating Guides. ERCOT has accepted responsibility for all requirements in these standards except for the TPs continued responsibility under MOD-018 to provide the metered data to ERCOT. Texas RE ROS Presentation January 2009

Page 5 of 20 SAR-005, 006, and 007 Remove LSE Applicability ●MOD ERCOT is the only TOP and PA for the ERCOT Interconnection, and as such, receives information directly from the TPs through their meters, because the DPs do not own meters in ERCOT. TPs in the ERCOT Interconnection are already registered for this standard and are currently performing the requirements of these standards, and ERCOT and the TPs accept responsibility for these requirements. ●EOP-002--Only ERCOT has the information available to it to initiate EEAs for the region and accepts responsibility for these requirements. ERCOT is already registered for this standard as the single BA and RC for the region. Texas RE ROS Presentation January 2009

Page 6 of Compliance Overview ●Organization  2008 transitional year – Texas RE grew from 9 to 25  Completed reorganization of Compliance group Auditing, Enforcement, Stakeholder Management  Five new compliance positions in 2009 (one already hired)  One new legal position in 2009 (2 total)  One new IT position in 2009 (2 total) Texas RE ROS Presentation January 2009

Page 7 of Compliance Overview ●Environment  Shift in relationship with NERC and other Regional Entities  Evolution of program and processes  Participation in multiple NERC committees (AOT, CIP, etc.)  Texas RE chaired the RCIG – national consistency  Improvement in communications with registered entities Texas RE ROS Presentation January 2009

Page 8 of Compliance Overview ●Work  Audit schedule completed 100% on time  Enforcement efficiency improved  Registration work load continued unabated  Statutory and non-statutory responsibilities continued to create synergies  Processes and quality improved Texas RE ROS Presentation January 2009

Page 9 of Compliance Overview ●Opportunities for Improvement in 2009  Automation Portal Document management Web site  Inter-region consistency  NERC leadership & guidance Texas RE ROS Presentation January 2009

Page 10 of Compliance Monitoring Methods ●Methods by which violations are identified:  Audits (on-site and off-site/table top)  Self Certifications  Data Submittals  Spot Checks  Self Reports  Complaints and Incident Reports  Events (System Disturbances)  Exception Reporting Texas RE ROS Presentation January 2009

Page 11 of Compliance Monitoring Methods (cont.) ●Audit  Performed per the Function requirements (most every 3 or 6 years; ERCOT ISO every year) Protocol audits coordinated with NERC Standards audits, but maintained distinctly separate ( ERCOT ISO, Qualified Scheduling Entities “ QSEs” with Resources, and Transmission Distribution Providers “TDSPs” with control centers audited every 3 years) ●Self certification  Each registered entity must annually self certify compliance (or non- compliance) with every actively monitored requirement of its applicable Function(s) each year in which an audit is not performed  May also be required at the request of Texas RE ●Periodic data submittal  Data is requested and reviewed by Texas RE, per NERC Standard requirements Texas RE ROS Presentation January 2009

Page 12 of Compliance Monitoring Methods (cont.) ●Spot Check  May be initiated at any time to verify or confirm self- certifications, self reporting, or data submittals  May also be initiated at random or in response to events, complaints, operating problems, or system disturbance ●Self Reports  Self reporting of violations is strongly encouraged  Self reporting of violations is a positive adjustment factor in the consideration of penalties or sanctions Texas RE ROS Presentation January 2009

Page 13 of Compliance Monitoring Methods (cont.) ●Compliance Violation Investigation (CVI)  Detailed investigation and review of possible Standard(s) violation(s) initiated in response to a system disturbance, event, complaint, or any other indication of a possible Standards violation  Generally led by Texas RE (except if involving ERCOT), but NERC may choose to lead any CVI  Confidential unless FERC directs otherwise (confirmed violations are public) ●Exception Reporting  Report provided indicating a Standard violation (e.g., a system operating limit exceeded). Some Reliability Standards require Exception Reporting Texas RE ROS Presentation January 2009

Page 14 of 20 Texas RE ROS Presentation January Events ●Events  Reliability Coordinator (ERCOT ISO) Responsibilities Operators provide “TRE Event Analysis Form” within 1 hour. ♦Single Page ♦Standard Form ♦Very Preliminary If additional information necessary (as determined by Texas RE), ERCOT ISO or other entity has 10 business days to produce an operations report. ♦More Detailed Respond to RFI’s and supply data related to other entities. File appropriate forms with NERC, DOE and Texas RE.

Page 15 of FERC Audit ●FERC Audit of Texas RE  First RFI completed in December 2008  First round of interviews completed January  Expected to last one year  Focus on processes and governance Texas RE ROS Presentation January 2009