December 2010 Wholesale Market Subcommittee Report to Technical Advisory Committee

2 TAC Action Items TAC Voting Items –ERCOT Procedure for Developing Mitigated Offer Cap ERCOT staff presented a Business Practice document on “Developing Mitigated-Offer Cap”, requires that a Resource-specific Mitigated-Offer Cap curve be calculated, based on a Resource’s verifiable Incremental Heat Rate (IHR) Curve and verifiable variable O&M cost, for use in SCED and RUC mitigation. WMS approved the document, with several revisions, and agreed to ask ERCOT staff to address an issue related to the Fuel Index Price (FIP) and Fuel Oil Price (FOP).

3 TAC Action Items TAC Voting Items –… for Developing Mitigated Offer Cap (cont’) WMS revisions, p. 9 (in red): (b) Mitigated Offer Cap Curve (Cap vs output level, i.e., $/MWh vs MW) Each point on the Mitigated-Offer Cap Curve is the greater of (i)For dual-fuel units: K * min (FIP, FOP); for single-fuel units: K * (FIP or FOP, as applicable) If the Mitigated Offer Cap curve calculated based on the above formulation is not monotonically non-decreasing, it should be adjusted to monotonically non-decreasing. Starting from the first Mitigated Offer Cap Curve segment to the last segment, if the Mitigated Offer Cap of the current segment is less than the previous segment, the Mitigated Offer Cap of the current segment shall be set to be the same as the previous segment.

4 TAC Action Items TAC Voting Items –… for Developing Mitigated Offer Cap (cont’) ERCOT Response to WMS Revisions to ERCOT Business Practice Document: Mitigated Offer Cap (11/24) –This new language differentiates the use of Fuel Index Price (FIP) or Fuel Oil Price (FOP) for “dual-fuel units” and “single-fuel units.” This change is contrary to the Protocol requirement that ERCOT construct an incremental Mitigated Offer Cap curve such that each point on the Mitigated Offer Cap curve is created from the minimum of FIP or FOP for all Generation Resources if greater than the verifiable costs. See Nodal Protocol Section (a) and (b). The Protocol requirement was developed in Nodal Protocol Revision Request (NPRR) 090, Corrections of FIP-FOP in Energy Offers, which was approved by the ERCOT Board of Directors on February 19, ERCOT designed the Market Management System (MMS) based upon NPRR090 which does not differentiate between “dual-fuel” or “single-fuel” Generation Resources. Any changes to incorporate this distinction would need to go through the Protocol revision request process. ERCOT looks forward to discussing this matter at the December 2010 TAC meeting. –

5 TAC Action Items TAC Voting Items –… for Developing Mitigated Offer Cap (cont’) Recommendation of the WMS Chair –TAC vote to endorse the WMS recommendation for the Business Procedures and request that a NPRR be submitted/endorsed by WMS at the earliest possible date for TAC and Board Approval and that the NPRR is treated as URGENT so that system changes can be made ASAP.

6 TAC Action Items Upcoming TAC Agenda Items WMS briefly discussed NPRR264 (Clarification of Nodal Protocol Requirements for Generators with Multiple Points of Interconnection), but decided to table it for another month. WMS considered NPRR275 (Clarify QSE’s Ability to Make Changes to Ancillary Service (AS) Resource Responsibility in Real Time), and endorsed it, as revised by the comments (111610) of the Nodal Advisory Task Force (NATF). Allow a QSE with multiple resources to move responsibility for delivering AS from one resource to another within a specified, short window.

7 TAC Action Items Upcoming TAC Agenda Items WMS considered NPRR283 (Clarification of Pre-Assigned Congestion Revenue Rights (PCRRs) Allocation Eligibility). After discussing the NPRR with a representative of Tex-La, WMS voted to request that ERCOT and PUCT legal staff work together regarding the process for determining the eligibility for, amount of, and duration of PCRRs. They would provide feedback to WMS in December.

8 TAC Action Items Other Notable WMS Items Verifiable Cost (VC) Manual v016. The revisions relate to: (a) updating the calculation of the Proxy Heat Rate, emissions, and Value of X; and (b) VC Manual posting requirements (i.e., to post changes within two business days, not one). The WMS members accepted proposed revisions, but changed the two-day notice back to one. Power Storage Working Group (PSWG) reported that the group addressed four issues, including Regulation Test, High Sustainable Limit (HSL) Test, Regulation Signal, and Nodal Settlement. Discussions have been heated and attendance has been good. The group will continue to work towards some consensus on the PS issues under the new Emerging Technologies Working Group, which will be officially formed upon endorsment of goals and charter recommendations.

9 TAC Action Items Other Notable WMS Items Demand Side Working Group (DSWG) reported that the group is developing white papers on the Advance Notice of Real-Time Prices and Load Participation in SCED. Interested market participants (MPs) should review and submit comments on both. Congestion Management Working Group (CMWG) will explore possible solutions to the issue of derating CRRs (including not derating CRRs).

10 WMS GOALS ItemsWMS input/direction needed by Nodal Market TransitionOn-going Market Participant Readiness TCR to CRR Transition Nodal Protocol Tracebility Nodal Parking Deck Nodal Test Evaluation Nodal Verifiable Cost MethodologyOn-going (VCWG) Consideration of necessary Zonal Market changesBefore Q2 Review of Generation Adequacy in ERCOTQ1 (GATF) Market Issues Related to: Credit issuesOn-going (MCWG) EILSOn-going (DSWG) Reliability & A/S Dispatch Impacts on Energy MarketsOn-going Market Event EvaluationOn-going Adv. meters & other demand response in A/S and Energy MarketsOn-going (DSWG) Wind & related renewable technology integrationOn-going (various WG) Criteria in Nodal for supplying A/S, Energy and Capacity MarketsOn-going (WMS) Integration of Quick Start Resources into NodalQSTF Power Storage DevicesOn-going (TBD) LaaR Responsive Reserve Performance Penalty On-going (DSWG)

11 QUESTIONS