1. QSE Managers Working Group October 12, 2010 Base Point Deviation Issues – Short Term and Long Term Solutions Nodal Settlement & Billing Group

2. Base Point Deviation – Overview of Issue  Overview  Proposal for Interim Solution  Proposed options for Post Go-Live 2

3. Base Point Deviation – Overview of Issue  During the Market Trials phase of the ERCOT Nodal Market, Market Participants and ERCOT personnel became aware that when SCED runs at shorter intervals than every five (5) minutes, it is possible for Resources to receive Base Point Deviation charges, although the Resource may have followed their instructed Base Points based on the Normal Ramp Rate.  Settlement issue only (not an operational issue / no change required to operations)  Within settlements, the protocol-defined AABP calculation assumes that every SCED Base Point is achievable and makes no accommodations for a shortened SCED interval.  The result is an AABP value that is skewed high, which can result in Base Pont Deviation penalties for under-generation. 3

4. Base Point Deviation – Example of Short SCED intervals SCED Int Base Point Y (Current SCED) Base Point Y-1 (Previous SCED)Telemetered Gen SCED Int (seconds)AABP TWTG (SCED weighted) 120 y1120 6088 y227012015060139 y3300270180601911 y4330300210602113 y53603302701204632 y6420360 1807863 y747042040412059.3333333350.93333333 y8470 430.412062.6666666755.62666667 y9470 446.2412062.6666666758.44266667 2570.64 900369.6666667301.0026667 92.4166666775.25066667 UnderOver ramp per minute =30 MW95%87.7958333397.03751.05% 5 MW91.1666666793.666666675 MW Min - TWTG12.54516667-21.7868333 12.545166670 4

5. Base Point Deviation –Proposed Interim Solution Interim solution for Base Point Deviation (non IRR) – include an exemption for shortened SCED intervals. Settlements would implement by setting the FQDEVFLAG to 3 in intervals with shortened SCED intervals which would exempt all resources. The question becomes: How short is too short? Two options: A defined percentage – if we find a SCED interval that has a duration of less than x% of 5 minutes in the 15-minute settlement interval, then the exemption would apply. A defined number – if the 15-minute settlement interval contains greater than x number of complete SCED intervals, then the exemption would apply. (Not including partial SCED intervals) 5

6. Base Point Deviation – Long Term Solutions Proposal A: The first alternative modifies the AABP calculation by incorporating a methodology to derive what the Base Point should have been for a shortened SCED interval. The derived Base Point is utilized in the AABP calculation rather than the 5-minute based SCED Base Point. Proposal B: The second alternative modifies the AABP calculation by using the data inputs calculated for the GREDP calculations. The GREDP data inputs are on a 5-minute clock basis and would not require the time-weighting and averaging that is currently part of the AABP calculation. Therefore, use of the GREDP data avoids the issue of shortened SCED intervals. Both options require system change for settlements. 6

7. Base Point Deviation – Proposal A: Derived Base Point Inputs AABP = [(BPSET y - TELGEN (y-1) ) / 300* TLMP y ] + TWAR BPSET y = TELGEN y-1 + ( (BP y - TELGEN y-1 )/300 * TLMP y ) Where: TWAR= ((ARI y * TLMP y ) / ( TLMP y ) {no proposed change} TELGEN y-1 = Telemetered Generation during the prior SCED interval TELGEN y = Telemetered Generation during the current SCED interval TLMP = Duration of SCED interval in seconds (BP y - TELGEN y-1 ) / 300 = Using SCED data (which is based on the Normal Ramp Rate for the Resource) this derives a MW/second ramp rate. This value is applied against the number of seconds in the shortened SCED interval to determine the “achievable” change in generation for that shortened SCED interval. 7

8. Base Point Deviation – Proposal A: Derived Base Point Once you alter the input AABP, the remainder of the formula is the same. TWTG becomes the incremental difference between the starting and ending Generation in the settlement interval. Over Generation: BPDAMT q, r, p = Max (0, RTSPP p ) * Max [0, (TWTG q, r, p – ¼ * Max (((1 + K1) * AABP q, r, p ), (AABP q, r, p + Q1)))] Where: TWTG = ( (TELGEN y - TELGEN (y-1) )) / 4 K1 = 5 % Q1 = 5 MW Under Generation: BPDAMT q, r, p = Max (0, RTSPP p ) * Min (1, KP) * Max {0, {Min [((1 – K2) * ¼( AABP q, r, p )), ¼( AABP q, r, p – Q2 )] – TWTG q, r, p }} Where: TWTG q, r, p =( (TELGEN y, q, r, p - TELGEN (y-1) q, r, p )) /4 K2 = 5 % Q2 = 5 MW 8

9. Base Point Deviation – Proposal A: Derived Base Point SCED Point BP y (30 MW/Min Ramp Rate) TELGEN y- 1 TLMP y MW Change (1) BPSET y TELGEN y TWTG (TELGENy - TELGENy-1 ) Y1120 60120 Y22701206030150 30 Y33001506030180 30 Y43301806030210 30 Y536021012060270 60 Y642027018090360 90 Y7470 (2) 36012044404 44 Y847040412026.4430.4 26.4 Y9470430.412015.84446.24 15.84 Total326.242450.64 326.24 9

10. Base Point Deviation – Proposal B: GREDP Inputs This option utilizes the following data which are inputs into GREDP : o AVGBP_5M o AVG_REG_INST_5M o AVG_REGUP_5M o AVG_REGDN_5M o AVGMW_5M 10

11. Base Point Deviation – Proposal B: GREDP Inputs AABP q, r, p, i =AVGBP q, r, p, i + TWAR q, r, p, i Where: AVGBP q, r, p, i = (AVGBP y + AVGBP y-1 + AVGBP y-2 )/3 TWAR q, r, p, i = (AVGREG y + AVGREG y-1 + AVGREG y-2 )/3 y = 5-minute clock interval i = 15-minute settlement interval Formula Variables to GREDP translation: AVGBP = AVGBP_5M AVGREG = AVG_REG_INST_5M = AVG_REGUP_5M - AVG_REGDN_5M 11

12. Base Point Deviation – Proposal B: GREDP Inputs Once you alter the input AABP, the remainder of the formula is the same. TWTG becomes the average telemetered generation for each 5-minute clock interval in the settlement interval. Over Generation: BPDAMT q, r, p = Max (0, RTSPP p ) * Max [0, (TWTG q, r, p – ¼ * Max (((1 + K1) * AABP q, r, p ), (AABP q, r, p + Q1)))] Where: TWTG = ( ( AVGTG q, r, p, i )/3)) * ¼ K1 = 5 % Q1 = 5 MW Under Generation: BPDAMT q, r, p = Max (0, RTSPP p ) * Min (1, KP) * Max {0, {Min [((1 – K2) * ¼( AABP q, r, p )), ¼( AABP q, r, p – Q2 )] – TWTG q, r, p }} Where: TWTG q, r, p = (( AVGTG q, r, p, i )/3)) * ¼ K2 = 5 % Q2 = 5 MW Formula Variables to GREDP translation: AVGTG = AVGMW_5M 12

13. Base Point Deviation – Proposal B: GREDP Inputs 5-Min Clock Interval Avg MW Avg Base Point (AVGBP) Avg Reg Instruction (AVGREG) 2:35:00336.81352.8915.13 2:40:00334.69352.8911.02 2:45:00336.40352.899.17 Total1007.901058.7035.32 Under 95%346.44 5MW359.67 Min(Under)-TWTG 2.61 Deviation MWh2.61 Over 1.05382.91 5MW369.67 TWTG-Max(Over) -11.73 Deviation MWh0 364.67 = Average BP + Average Regulation Instruction / 3 335.97 = Average MW output / 3 13