LMP-G Update to DSWG LRISv2 Subgroup Aug. 20,

DSWG Discussion Items Review LMP-G options 1.LMP-Proxy $G (No Customer Level Validation) DRPOR Notification to all parties No enforcement of duplicate DR benefit for customers 2.LMP-Proxy $G (Customer Level Validation) DRPOR Notification to all parties Enforcement of duplicate DR benefit for customers 3.LMP-VG 4.Self Scheduled Curtailment Settlement (3 rd Party DR Provider) Review LMP-G policy issues Review and discuss consensus items Path forward – Concept Paper – NPRR – How to resolve PUCT items? LRISv2 Subgroup Leadership 2

LMP-G Policy Issues Matrix I. Design PrinciplesComment ERCOT Stakeholders should strive to implement market policies which allow loads active participation in the Real Time Market. Consensus ERCOT Stakeholders should strive to implement market policies which allow loads to contribute to wholesale price formation via participation in the Real Time Market. Consensus The principle of LMP-G asserts that Load should not receive financial benefit more than once for providing demand response (i.e. double payments). Consensus The existing ORDC and Loads in SCED “bid to buy” market structures should be preserved. Consensus 3

LMP-G Policy Issues Matrix II. Economic ConsiderationsComment LMP-G cannot practically be enforced at the customer level. Rather, incentives should be provided at the wholesale market level at LMP- Proxy $G with the understanding that competitive retail market forces will tend to push the incentives to customers and fulfill the principle of LMP-G. Consensus ERCOT can settle an LSE/REP QSE by paying for the measured load reduction at a Proxy $G value for that energy reduction (UFE and T&D Loss methodologies may be precedent) or by adding back the load to the LSE/REP’s load responsibility. Consensus; may require PUCT Action Implementation of new market uplifts should be minimized.Consensus Rules need to be established to manage snapback effect issues and mitigate snapback risk borne by REPs. Potential for DR QSEs to shift costs onto LSEs/REPs; or could have large effect on DR QSEs, either in paying for it or designing strategies to minimize it. Consensus 4

LMP-G Policy Issues Matrix III. Load participation rules must be practicalComment LMP-G cannot practically be enforced at the customer level. Rather, incentives should be provided at the wholesale market level with the understanding that competitive retail market forces will tend to push the incentives to customers and fulfill the principle of LMP-G. Consensus Rules need to be established to ensure different DR QSEs are not participating with the same customers, in the same manner switching rules prohibit REPs from participating with the same customers. Consensus ESI ID (or NOIE unique meter ID) may have a single DR Provider of Record (DRPOR), similar to REP of Record. [Is this the same as above?] Consensus Retail rate structures should not disqualify a customer from enrolling with a third-party DRPOR via Proxy $G. Consensus Rules must be established to manage DR QSE ALRs which contain customers from numerous LSEs/REPs, including maintaining minimum LSE/REP portfolio sizes within ALRs Consensus 5

LMP-G Policy Issues Matrix IV. Customer-related issuesComment Customer has the right to select or change a DR QSEImplied REPs must have ability to charge an early termination fee if customer switches to DR QSE. Requires PUCT Action Rules must be established to define what will happen to a customer’s rate plan when customer joins a DR QSE, if the current retail service plan with the REP includes an incentive tied to DR capability. [Is this the same as above?] Requires PUCT Action Rules must be adopted to prevent DR-blocker strategies by REPs. Consensus Market rules should ensure an adequate transition period to provide REPs ample time to manage existing customer relationships. Consensus 6

LMP-G Policy Issues Matrix IV. Customer-related issuesComment LSEs/REPs and DR QSEs should operate with comparable, equitable, and reasonable rules. Consensus To put 3 rd Party DR PORs on a level playing field with REPs PUC should establish a process for registration of 3 rd Party DR Providers of Record participating in the market, and requiring contractual agreement to market rules and customer protection rules, including: Rules must be established to detail the mechanics of switch administration Rules must be established to govern customer engagement and recruitment. Rules must be established to define consumer protection, including right of rescission and privacy of proprietary customer information. Rules must be established to track, validate, and contest (if erroneous) customer switching (e.g. from a REP DR program to a 3 rd Party). Rules must be established to define requirements and information disclosures to residential and small commercial customers (similar to Electricity Facts Label). Consensus: PUCT action required 7

LMP-G Policy Issues Matrix V. Implementation issues—customer trackingComment Rules must be established to track customer switches, rectify inadvertent switches, and notify both REP of Record and DR QSE. Requires PUCT Action A secure transaction system (possibly similar to TX SET) will be necessary for high volumes of DR-related market transactions and notifications Consensus TX SET transactions/notifications may include: Request to enroll a customer with a DRPOR Enrollment request response (accepted/rejected) DRPOR request to discontinue a customer enrollment (and response) Notifying LSE/REP that its customer has enrolled with a DRPOR Notifying LSE/REP that its customer has discontinued enrollment with a DRPOR Notifying DRPOR that its customer has switched REPs Notifying DRPOR that its customer has had a profile change (e.g. from RES to BUS, BUS to RES), meter type change (IDR to NIDR), Load Zone change, status change (de-energized/inactive) Others Consensus 8

LMP-G Policy Issues Matrix V. Implementation issuesComment Rules must be established to resolve competing claims for DRPOR.Consensus Enabling 3 rd Party DR QSE access, by itself, will not assure broad Load participation in SCED. LMP-G should be considered in parallel with additional market enhancements that address DR operational concerns with the real-time market. Enhancements may include: MIRTM Luminant recommendations for NPRR rd Party Self-Scheduled DR w/Settlement Consensus A mechanism does not need to be designed to enforce retail rate disqualification. Consensus DR Provider could fit into the current ERCOT Market structure as a new type of Entity (requiring QSE relationship) or as a QSE with DRPOR attribute. QSE could be same QSE affiliated with an LSE. Consensus A LSE/REP can be a DRPOR for another LSE/REP’s customers.Consensus 9

LMP-G Policy Issues Matrix V. Implementation issuesComment DR QSEs must obtain permission from a NOIE to solicit customers for Loads in SCED participation in NOIE territories. Consensus DR QSE ALRs can combine customers from NOIE and competitive territories so long as minimum portfolio threshold is met and the customers are all within a single Load Zone. Consensus A LSE/REP DRPOR (serving only ALR from its own customer base) should have the option of participating with either an Offer to Sell or a Bid to Buy. (Settlement outcomes will be the same.) Consensus 10

LMP-G Policy Issues Matrix VI.Consequences of policy and implementation decisionsComment Neither Bid-to-Buy, LMP-VG nor LMP-Proxy $G can guarantee that every DR customer will not some receive over payments. Consensus 11 VII. Unresolved issuesComment LSE/REP cannot bill a customer for energy not consumed without changes to PURA or PUCT Substantive Rules. Requires Leg/PUCT Action LMP-Volumetric G should be implemented simultaneously with LMP-Proxy $G. (Prioritizing Proxy $G implies preference for enabling residential participation over C&I). No Consensus Cost and complexity of implementation should be weighed against potential participation and market benefits. Consensus