1. Texas Nodal © 2005 - 2006 Electric Reliability Council of Texas, Inc. All rights reserved. 1 Split Generation Resources (SGRs) (Also known as Jointly Owned Units) and Verifiable Costs TPTF Verifiable Cost Task Force January 24, 2008 Ino Gonzalez ERCOT

2. Texas Nodal © 2005 - 2006 Electric Reliability Council of Texas, Inc. All rights reserved. 2 Objectives Discuss :  Registration of SGRs  SGRs and Three-Part Supply Offers  Submission of VC for SGRs as Described in the VC Manual  Sample Start-Up and Minimum Energy Calculations  Alternate Methodology for Submitting VC  Advantages  Disadvantages  How to treat Incremental Heat Rates for SGRs

3. Texas Nodal © 2005 - 2006 Electric Reliability Council of Texas, Inc. All rights reserved. 3 Registering SGRs Registration 10.3.2.1Generation Meter Splitting (2) When the Generation Resource unit is registered with ERCOT, the Entities representing virtual generator units shall be required to submit a percentage allocation of the Resource to be used to determine the capacity available at each virtual generator unit. (Note: This is done via the RARF) 10.3.2.1.1 Generator Metering Real-Time Splitting Signal (1) When the split-metered generating unit is registered at ERCOT, the Entities representing the virtual generator units shall select one master QSE to provide ERCOT with a Real-Time signal of the MW of generation per virtual generator unit. The signal must be sent from the master QSE’s EMS system to ERCOT via the appropriate telemetry. The signal must be revised every scan cycle and must represent each virtual generator unit in positive MW. The signal must contain the Resource ID (RID) and the MW assigned to that RID.

4. Texas Nodal © 2005 - 2006 Electric Reliability Council of Texas, Inc. All rights reserved. 4 Three-Part Supply Offers for SGRs Three-Part Supply Offers Each QSE representing an individual Split Generation Resource may independently submit Energy Offer Curves and Three Part Supply Offers. ERCOT shall treat each Split Generation Resource offer as a separate offer, except that all individual Split Generation Resources in a generation facility must be committed or de-committed together.

5. Texas Nodal © 2005 - 2006 Electric Reliability Council of Texas, Inc. All rights reserved. 5 Verifiable Costs Process for SGRs Current Proposal for Submitting Verifiable Costs 1. A Resource may not register as both an SGR and a CCP; therefore, ERCOT will not accept Verifiable Cost data from an SGR that is also a CCP. 2. Entities representing Split Generation Resources (“SGRs”) must select a Master QSE to provide ERCOT with the facility’s total Verifiable Costs. 3. The Master QSE must submit each unit’s individual costs that were aggregated into the facility’s total costs. 4. The Master QSE must be chosen from one of the QSEs representing the SGR. 5. The Master QSE must notify ERCOT in writing that it will act as representative for the other SGR owners. 6. Individual SGR costs must be consistent with the total Verifiable Costs of the generation facility. 7. Each QSE representing an SGR must determine their individual Verifiable Costs and must ensure that they are appropriately included in Verifiable Cost submissions made by the master QSE. 8. ERCOT will not separately approve Verifiable Costs for individual owners. 9. Individual owners of an SGR may utilize different methodologies to determine their individual costs. 10. VC Costs must not be included in the Master QSE’s submission more than once. 11. Only the Master QSE may submit the percentages of each type of fuel consumed during startup and operation at LSL.

6. Texas Nodal © 2005 - 2006 Electric Reliability Council of Texas, Inc. All rights reserved. 6 SGR: Start-UP Cost Calculation Example: SGR- StartUp Costs using Verifiable Costs Data: a. One Unit (Resource) b. 3 owners c. 500MW - 100% Gas-Fired d. 10,000MMBtu to reach LSL e. $8,000 O&M to start f. FIP = $6/MMBtu Owner Percentage Ownership (%) (1) StartUp Fuel (MMBtu) FIP ($/MMBtu) StartUp Fuel Cost ($)O&M ($) Total StartUp (2) Costs ($) 130%3,000$6$18,000$2,400$20,400 220%2,000$6$12,000$1,600$13,600 350%5,000$6$30,000$4,000$34,000 100%10,000 $60,000$8,000$68,000 (1) Percent Ownership as Provided in the Resource Asset Registration Form (RARF) (2) Start-Up Offer CAP

7. Texas Nodal © 2005 - 2006 Electric Reliability Council of Texas, Inc. All rights reserved. 7 SGR: Minimum Energy Calculation Example: SGR- Minimum Energy Costs using Verifiable Costs Data: a. One Unit (Resource) b. 3 owners c. 200MW - 100% Gas-Fired d. 800 MMBtu/hr Operating at LSL e. LSL = 40 MW f. $6/MWh O&M at LSL g. FIP = $7/MMBtu Owner Percentage Ownership (%) (1) Fuel Consumed at LSL (MMBtu/MWhr) FIP ($/MMBtu) Minimum Energy Fuel Price ($/MWh) O&M ($/MWh) Minimum Energy (2) Price ($/MWh) 130%207$140$6$146 220%207$140$6$146 350%207$140$6$146 100% (1) Percent Ownership as provided in the Resource Asset Registration Form (RARF) (2) Minimum Energy Offer CAP

8. Texas Nodal © 2005 - 2006 Electric Reliability Council of Texas, Inc. All rights reserved. 8 Verifiable Costs Process for SGR Alternate Methodology for Submitting VC Individual SGR Owners submit Verifiable Costs for their ownership portion of the generation facility. Potential Advantages for Resources  Control the VC submission process  Protect VC data from potential competitors  Reduces work and duplication Potential Advantages for QSE  Reduce work flow  May reduce risk Disadvantages to ERCOT  Cannot force all owners to submit VC  Without all owners submitting VC no way to ensure accuracy of costs  All VC may not be submitted at the same time  VC may contain duplicate costs  Costs may not match ownership percentages as described in RARF  Not clear on how to split resource costs if one or more owner does not submit VC

9. Texas Nodal © 2005 - 2006 Electric Reliability Council of Texas, Inc. All rights reserved. 9 Real Time Mitigation Assumptions  The IHR curve will apply equally to all owners of an SGR  The Fuel, O&M, and Emission costs should not be split because these are rates Nodal Verifiable Cost - Mitigated Offer: Emission Costs plus O&M Points along the IHR Curve (1) (MMBtu/MWh,MW) Fuel (MMBtu/MWh) SOx (lbs/MMBtu)SOx Price ($/lb) Emission Costs ($/MWh) O&M (2) ($/MWh) Total Emission and O&M Costs ($/MWh) Point 1 $0.00 Point 2 $0.00 Point 3 $0.00 Point 4 $0.00 Point 5 $0.00 Point 6 $0.00 Point 7 $0.00 Point 8 $0.00 Point 9 $0.00 Point 10 $0.00