Discussion on FGR Settlement Protocol Language David Maggio CMWG February 17, 2014

CMWG 2/17/14 2 In reviewing the Protocol language, it was noticed that the language around the settlement of FGRs in section 7 is not in line with other Protocol sections The language was specifically developed to consider the McCamey Area flowgate This FGR was removed from Protocol by NPRR 195 and no other FGRs are currently defined ERCOT wanted to discuss potential solutions for resolving the misalignment with CMWG to determine the best step forward Introduction

CMWG 2/17/14 3 Language for settling in DAM: Payments for FGRs Settled in DAM (1)If a Flowgate Right (FGR) is competitive, i.e., all directional network elements associated with the FGR are Competitive Constraints, ERCOT shall pay the owner of the FGR an amount equal to the sum of the Shadow Price of the hour for each directional network element associated with the FGR for each contingency (including the null contingency or base case) normalized to the impact of the principal network element of the FGR (the normal rating of which is used to determine the total MW amount for the flowgate). The payment to each CRR Owner for its FGRs determined by the principal network element of each flowgate for a given hour is calculated as follows: …………………………………………. (2)If an FGR is non-competitive, i.e., one or more directional network elements associated with the FGR are Non-Competitive Constraints, the FGR payment may be reduced due to Transmission Elements that are oversold in previous CRR Auctions. The payment for any FGR, when it is non-competitive, will be specified upon introduction of the FGR. The is also language addressing if DAM does not run (section ) Existing Protocol Language

CMWG 2/17/14 4 One option would be to develop new language to address the current misalignment –This would most likely require changes to ERCOT systems –The changes may not reflect the unique nature of any FGRs that may be later defined Another option would be to remove the existing FGR settlement language and develop the appropriate settlement language once and if an FGR is defined –This would also likely require changes to ERCOT systems, but it would defer that impact until such time that an FGR is again defined in Protocol Potential Steps Moving Forward