WMS 1/9/20131 Priority Power Management, LLC Proposed Changes to Holistic Solution WMS January 9, 2013 James Z. Brazell Law Office of James Z. Brazell 100 Congress Avenue, Suite 2000 Austin, Texas James Z. Brazell Law Office of James Z. Brazell 100 Congress Avenue, Suite 2000 Austin, Texas

WMS 1/9/20132 Priority’s Initial Proposal to WMS November 7, Change Shadow Price Caps to $1,000; 2.Change $95,000 net margin threshold: a. once margin passes $65,000, if constraint will continue and reach $95,000 margin, apply the Caps; b. once margin applied and Shadow Price Caps in effect, leave Caps in place until constraint is fixed—do not restart calculating margin at the beginning of the next year. 3. Apply Shadow Price Caps to closely related nodes after system changes applied that move constraint from its initial locus. 1.Change Shadow Price Caps to $1,000; 2.Change $95,000 net margin threshold: a. once margin passes $65,000, if constraint will continue and reach $95,000 margin, apply the Caps; b. once margin applied and Shadow Price Caps in effect, leave Caps in place until constraint is fixed—do not restart calculating margin at the beginning of the next year. 3. Apply Shadow Price Caps to closely related nodes after system changes applied that move constraint from its initial locus.

WMS 1/9/20133 Priority’s Revised Proposal to WMS December 7, Change Shadow Price Caps back to $2,000; 2.Change $95,000 net margin threshold to $80,000/MW/year; 3.Trigger for applying and terminating Shadow Price Caps is changed from calendar year calculation (currently used) to rolling 12-month calculation, recalculated daily. Price caps remain in place for next six calendar months. Price caps terminate on the last day of the fifth calendar month after the rolling 12-month net margin from rents falls below the $80,000/MW/year trigger; 4.maintain the November 7th proposal that Shadow Price Caps that originate with a constraint shall follow and be applied to closely-related nodes to which the constraint moves when ERCOT implements solutions, such as system changes, to address the constraint. However, drop the requirement that the constraint at the closely-related node must be non-competitive and irresolvable. 1.Change Shadow Price Caps back to $2,000; 2.Change $95,000 net margin threshold to $80,000/MW/year; 3.Trigger for applying and terminating Shadow Price Caps is changed from calendar year calculation (currently used) to rolling 12-month calculation, recalculated daily. Price caps remain in place for next six calendar months. Price caps terminate on the last day of the fifth calendar month after the rolling 12-month net margin from rents falls below the $80,000/MW/year trigger; 4.maintain the November 7th proposal that Shadow Price Caps that originate with a constraint shall follow and be applied to closely-related nodes to which the constraint moves when ERCOT implements solutions, such as system changes, to address the constraint. However, drop the requirement that the constraint at the closely-related node must be non-competitive and irresolvable.

WMS 1/9/20134 Discussion at CMWG December 14, Shadow Price Caps not constrained by $2,000 LCAP (could be $1,000, $500); 2.Rolling 12-month calculation of net margin threshold has merit; 3.Rolling 12-month calculation may coordinate with revised CRR Auction schedule; 4.$80,000 threshold reflects cost of 390 MW CT from IMM Report and that separate 390 MW turbines not needed for each constraint. 1.Shadow Price Caps not constrained by $2,000 LCAP (could be $1,000, $500); 2.Rolling 12-month calculation of net margin threshold has merit; 3.Rolling 12-month calculation may coordinate with revised CRR Auction schedule; 4.$80,000 threshold reflects cost of 390 MW CT from IMM Report and that separate 390 MW turbines not needed for each constraint.

WMS 1/9/20135 Conclusion  West Zone needs Interim Relief until transmission is adequate;  West Zone congestion results from unique West Zone conditions/Limitations (limited generation, small total load, limited transmission, more wind that other zones, large oil and gas load, less weather sensitive, different heat rate);  When Holistic Solution adopted, April to October 2012 West Zone Congestion Crisis had not occurred;  Holistic Solution changes will help provide Interim Relief;  Holistic Solution changes are reasonable, appropriate, and timely.  West Zone needs Interim Relief until transmission is adequate;  West Zone congestion results from unique West Zone conditions/Limitations (limited generation, small total load, limited transmission, more wind that other zones, large oil and gas load, less weather sensitive, different heat rate);  When Holistic Solution adopted, April to October 2012 West Zone Congestion Crisis had not occurred;  Holistic Solution changes will help provide Interim Relief;  Holistic Solution changes are reasonable, appropriate, and timely.

WMS 1/9/20136 Questions/Comments?