1. 2004 Congestion Costs

2. 2 Transmission Congestion Occurs when analysis shows a given outage of a transmission element (contingency) will result in the overload of another transmission facility or unacceptable voltage levels Insufficient transmission infrastructure for load to be served (load pocket) or generation to get to load (generation pocket) without violating transmission security criteria

3. 3 Current Congestion Management Actions Available to ERCOT Real time Unit Specific OOME Up and Down (Local / Non-CSC) Zonal Balancing Energy (Zonal / CSC) Day Ahead RMR Delivery Plan Unit Specific OOMC Replacement Reserve - future Long Term RMR contract Build transmission infrastructure

4. 4 Allocation of Congestion Costs Non-CSC congestion –Costs of all actions uplifted to all load based upon their ERCOT-wide load ratio share CSC congestion –Cost of Real Time actions (Zonal Balancing) and Replacement Reserve procured for CSC congestion assigned to QSEs scheduling over the CSCs (between zones) –Cost of other Day Ahead and Long Term actions uplifted to all load

5. 5 2004 Local Congestion Cost by Zonal Location of Generators ($000) Congestion Zone OOME Up OOME DownOOMCRMRTOTAL Northeast$ 59$ 6,392$ 423$ 0$ 6,874 North$ 6,346$20,115$60,727$ 8,181$ 95,369 Houston$ 305$ 2,351$ 407$ 0$ 3,063 West$ 4,605$ 4,903$ 6,552$22,339$ 38,399 South$ 7,676$21,622$ 8,660$89,019$126,977 TOTAL$18,991$55,383$76,769$119,539$270,682

6. 6 Primary Causes of Congestion Northeast Zone - $6.9M –Primarily due to planned transmission outages North Zone - $95.4 M –DFW load pocket –OOMC 64% of cost – uneconomical units in DFW area –OOME down 21% of cost – Planned outages restricted getaway from “lignite belt” Houston - $3.0 M –Very little congestion - mainly due to planned outages –Relatively small area with robust transmission system

7. 7 Primary Causes of Congestion (cont.) West - $38.4M –58% due to RMR: Exited 10/04 and 12/04 –Much of remainder due to planned outages South - $127.0 M –70% due to RMR – Uneconomical units in Corpus Christi, Rio Grande Valley and Laredo load pockets –17% due to OOME Down – Central Texas generation load pocket and planned transmission outages in area, West to East Rio Grande Valley transfer exceeded limits

8. 8 Load Pockets Costs of OOME –Up, OOMC and RMR can generally be attributed to load in area not having access to to either adequate economic local generation or adequate transmission infrastructure (e.g. Rio Grande Valley, DFW) In many cases vertically integrated utilities serving the area before current market decided uneconomic generation dispatch was less expensive than transmission improvements – both costs paid for by their customers Cost of transmission improvements to mitigate uneconomic generation dispatch costs for load pockets would be uplifted to all ERCOT load (SB 7)

9. 9 Generation Pockets Cost of OOME down generally can be attributed to generation in area not having access to sufficient transmission infrastructure or load in area (e.g. Wind, Central Texas) To the extent load in zone is responsible, cost is related to absence of load in area, not existence of load Arguably, cost is due to load outside area that is buying the generation Cost of transmission improvements to allow full economic generation dispatch in generation pockets would be uplifted to all ERCOT load (SB 7)

10. 10 Planned Transmission Outages Even areas which normally have sufficient transmission infrastructure to avoid congestion costs are vulnerable to congestion and related costs during planned transmission outages Planned transmission outages are often necessary to install new transmission facilities which is likely to reduce future congestion costs

11. 11 PUC Docket No. 23220 Mandate The ERCOT stakeholder process had not resolved how to directly assign local congestion to generators. (PUCT Order, Docket No. 23220) ERCOT informed the Commission at a Board meeting and at an Open Meeting at the Commission in the summer of 2002. On July 30, 2002, Commission Staff instituted Docket No. 26376 to as forum to address various transmission congestion issues, including assignment of local congestion costs. PUC Subst. R. 25.501 resulted.