1 TAC Report to the ERCOT Board November 14, 2006

2 TAC Summary 3 Protocol Revision Requests (673, 675, and 682) for approval 3 Protocol Revision Requests (673, 675, and 682) for approval Board consented PRR 673 and 675Board consented PRR 673 and 675 PRR 682 is urgentPRR 682 is urgent Recommend approval of Closely Related Elements and Boundary Generators Recommend approval of Closely Related Elements and Boundary Generators TAC Rejection of PRR 692 Appeal TAC Rejection of PRR 692 Appeal Guide Revisions Guide Revisions Other High Interest Issues: Other High Interest Issues: PRR/SCR System Change MoratoriumPRR/SCR System Change Moratorium Emergency Interruptible Load Program Task ForceEmergency Interruptible Load Program Task Force

3 PRR 682 – Emergency Electric Curtailment Plan (EECP) Event Realignment -- URGENT Purpose (Garland P&L for ROS, Muni) These revisions set forth the necessary sequence for ERCOT to process EECP related items, thereby allowing ERCOT to be more proactive in communicating system conditions during certain events. Benefit This revision would allow earlier communication of reliability concerns by ERCOT to Market Participants (MPs) and concerned Entities. Market Impact N/A System Change NoN/A AssumptionsN/A TAC Vote 28 in favor and 2 abstentions (Consumer and Independent Generator segment); all market segments present Effective Date December 1, 2006

4 PRR 682 – Emergency Electric Curtailment Plan (EECP) Event Realignment -- URGENT Item Reviewed Description NoImpact Credit Monitoring/ Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact

5 PRR 682 – Emergency Electric Curtailment Plan (EECP) Event Realignment TAC unanimously recommended approval at September TAC meeting with all market segments present At September Board meeting, ERCOT Board remanded PRR 682 to TAC for purpose of considering ERCOT Staff comments related to timing of the public media appeal At October TAC meeting, TAC remanded PRR 682 to Reliability Operations Subcommittee for consideration of ERCOT Staff comments Reliability Operations Subcommittee accepted ERCOT staff comments and recommended TAC approval of PRR 682 with ERCOT revisions regarding timing of the public media appeal At November TAC meeting, TAC approved PRR 682 with ERCOT revisions regarding timing of the public media appeal –Public media appeal is now discretionary during Step 1 and mandatory during Step 2

6 Approval of Closely Related Elements (CREs) and Boundary Generators for 2007 Related to Board approval of 2007 Congestion Management Zones and Commercially Significant Constraints CREs are defined in the Protocols as “those transmission facilities that have shift factor impacts similar to those associated with a particular Commercially Significant Constraint (CSC), and for which there exists a limited amount of Boundary Generation Resources between it and the particular CSC, so that the zonal deployment of Balancing Energy Service is effective in mitigating Zonal Congestion” When facility outages prevent the normal method for monitoring CSCs for zonal congestion management CREs are used instead of CSCs Pursuant to the ERCOT Protocols, ERCOT Staff has identified the appropriate CREs and presented the results to the Wholesale Market Subcommittee and TAC TAC recommends approval of the 2007 CREs as presented by ERCOT Staff (there was one abstention from the Independent Power Market Segment)

7 Appeal of PRR 692 – Corrections to Replacement Reserve Service and directed ERCOT Staff to implement as soon as possible In September, the Board approved PRR 676 – RPRS Solution with Nodal RUC-Type Procurement and Cost Allocation and directed ERCOT Staff to implement as soon as possible In September, the Board also approved the appeal of PRR 674 – Temporary Alteration of Settlement Equations Related to the RPRS Under- scheduled Charge (sunset date of Feb. 07 or upon implementation of PRR 676) Board decision in September was culmination of several months of discussion regarding Replacement Reserves service including the creation of a separate Replacement Reserve Service Task Force In September, Constellation NewEnergy submitted PRR 692 In October, the Protocol Revision Subcommittee rejected PRR 692 Constellation NewEnergy appealed PRS’ rejection of PRR 692 to the TAC In October, the TAC rejected the Appeal of PRR in favor of rejection with 3 abstentions (Independent REP, IOU, and Consumer Segment)

8 Appeal of PRR 692 – Corrections to Replacement Reserve Service (cont.) TAC rejection of PRR 692 appeal was based upon procedural concerns and substantive concerns Procedural Concerns: –Market has fully discussed Replacement Reserve Service modifications and this process culminated in Board approval of PRR 676 –PRR 676 resolves issues related to Replacement Reserve Service –Implementation of PRR 692 would nullify efforts to implement PRR 676 and could compromise implementation of PRR 666 related to Replacement Reserve Service –ERCOT Staff has not fully reviewed PRR 692 and the Reliability Operations Subcommittee has not reviewed this PRR –Implementation of PRR 692 likely would take several months, if not longer, and PRR 692 would not be part of the nodal market Substantive Concerns: –Implementation of this PRR will financially benefit some market participants –This PRR could create an incentive to over-schedule –Requirements in this PRR requiring certain units to bid in the RPRS market would be difficult to monitor

9 Guide Revisions Notice Operating Guide Revisions: RMGRR041, Safety-Net Revisions Necessary for PUC Project OGRR187, Conforming Emergency Electric Curtailment Plan (EECP) Operating Guide Language with Protocol Language

10 High Interest Issues PRR/SCR System Change Moratorium –TPTF asked PRS to consider date certain moratorium on PRR/SCR changes related to zonal market –PRS discussed and concluded it is uncomfortable with a PRR/SCR moratorium –PRS would rather rely on existing tools such as a decision tree that considers the impact on nodal resources and schedule to conduct a more disciplined review of PRRs that require system changes

11 High Interest Issues (cont.) Emergency Interruptible Load Program Task Force Update –ERCOT proposed a new Emergency Interruptible Load (EIL) program to be implemented by Spring 2007 –Participating loads would be interrupted during an EECP event after LaaRs are deployed but before firm load shed WMS formed the EIL Task Force on 10/18 to develop one or more PRRs / NPRRs to create an EIL Ancillary Service –The EILTF met on 10/31 and 11/8 with significant stakeholder participation from all market segments. Seven proposals were presented on 10/31. These were cut and/or consolidated into three main proposals on 11/8 – two are short-term capacity market products, one is a flexible demand curve, energy-only product. –Work groups will meet to convert the three main proposals into draft PRR language over the next two weeks. The EILTF will meet again on 11/27 to finalize the draft PRRs for stakeholder review. Next Steps –The EILTF will present the EILS concepts and draft PRRs at the December ROS and WMS meetings. –The PRRs likely will be granted Urgent status and heard at the January PRS meeting, possibly reaching the Board as early as Feb