1. QSE Managers Working Group July 11, 2011 Base Point Deviation – NPRR377 ERCOT Settlement & Billing Group

2. Agenda 2 NPRR 377 History NPRR 377 Concept Overview NPRR 377 Example

3. NPRR 377 History 3 Original issue: exemption when SCED < 4-minutes in duration as a work-around to avoid inappropriate penalty (problematic AABP formula) Discussed at October QMWG and SEWG Couldn’t resolve without the work-around prior to Go-Live Currently seeing ~ 7% of Settlement Intervals exempted (Jan11 & May11) representing one-third to one-half of all exempted Settlement Intervals ERCOT recognizes that the NPRR as drafted has a flaw regarding use of a 15-min average price but aggregate of the 5-minute deviations This presentation aligns with the concepts as discussed in October ERCOT will file comments to modify the NPRR accordingly

4. NPRR 377 Concept Overview 4 Concepts Leverage linearly ramped GREDP data as input into Base Point Deviation GREDP base points, regulation, and output are already linearly ramped for a 5- minute period (see next slide) QSEs could get access to these specific GREDP data values in their shadow settlement extracts Use the 5-minute input data, but calculate for a 15-minute interval Average of the 5-min deviations over the 15-min period (new logic) Determine exemptions over the 15-min period (existing logic) Apply a 15-min SPP (existing logic) IRR tolerance changed from 10% to 5% Concepts Applied Changes required to derive the deviation quantity Modify the AABP calculation Modify the TWTG calculation New bill determinants for ease of analysis of deviations No changes required in price application TBD - QSE ability/desire to consume the GREDP 5-minute data inputs. NPRR language doesn’t require this; this is an implementation decision.

5. NPRR 377 Concept Overview 5 The linearly ramped Base Point is calculated every four seconds such that it ramps from its initial value to the SCED Base Point over a 5-minute period. The initial value of the linearly ramped Base Point will be the 4 second value of the previous linearly ramped Base Point at the time the new SCED Base Point is received into the ERCOTs EMS. This allows the value to correctly account for all Base Points, regardless of time between SCED executions.

6. NPRR 377 Concept Overview 6 The linearly ramped Base Point is then averaged for each 5 minute clock interval. The 5 minute average values will be used as inputs into the Base Point Deviation Charge calculation.

7. NPRR 377 Concept Overview 7 Revised AABP Calculation (15-minute) AABP = AVGBP + AVGREG AVGBP = (AVGBP5M y + AVGBP5M y1 + AVGBP5M y2 ) / 3 AVGREG = (AVGREG5M y + AVGREG5M y1 + AVGREG5M y2 ) / 3 AVGREG5M = AVGREGUP5M – AVGREGDN5M Where : AABP = Calculated 15-minute Adjusted Aggregated Base Point AVGBP = Calculated 15-minute Average Base Point AVGBP5M = GREDP 5-minute Average Base Point AVGREG = Calculated 15-minute Average Regulation Instruction AVGREG5M = Calculated 5-minute Net Average Regulation Instruction AVGREGUP5M = GREDP 5-minute Average Regulation Up Instruction AVGREGDN5M = GREDP 5-minute Average Regulation Down Instruction

8. NPRR 377 Concept Overview 8 Revised TWTG Calculation (15-minute) TWTG = (AVGTG5M)/3 * ¼ Where: TWTG = Calculated 15-minute Time-Weighted Telemetered Generation AVGTG5M = GREDP 5-Minute Average Net MW Output

9. NPRR 377 Concept Overview 9 Once you alter the AABP and TWTG calculations, the remainder of the formula is the same with the addition of an over generation (OGEN) and under generation (UGEN) volume that is tracked for each 15 minute settlement interval. Over Generation: BPDAMT q, r, p = Max (PR1, RTSPP p ) * OGEN q, r, p OGEN q, r, p = Max [0, (TWTG q, r, p – ¼ * Max (((1 + K1) * AABP q, r, p ), (AABP q, r, p + Q1)))] Where: BPDAMT = Base Point Deviation Charge OGEN = Over-generation Volume PR1 = $20 K1 = 5 % Q1 = 5 MW Under Generation: BPDAMT q, r, p = Min (PR2, RTSPP p ) * Min (1, KP) * UGEN q, r, p UGEN q, r, p = Max {0, {Min [((1 – K2) * ¼( AABP q, r, p )), ¼( AABP q, r, p – Q2 )] – TWTG q, r, p }} Where: UGEN = Under-generation Volume PR2 = -$20 KP = 1 (co-efficient applied to price) K2 = 5 % Q2 = 5 MW

10. NPRR 377 Example 5-Min Clock Interval Avg MW (AVGTG5M) Avg Base Point (AVGBP5M) Avg Reg Instruction ( AVGREGUP5M, AVGREGDN5M) 14:00:00192.013177.8250 14:05:00193.106176.3260 14:10:00194.973188.4890 Total580.09542.640.00 10 AABP =AVGBP + AVGREG AVGBP =(AVGBP5M y + AVGBP5M y1 + AVGBP5M y2 ) / 3 AVGBP =(177.83+176.33+188.49)/3 AVGBP =180.88 AABP =180.88 TWTG =sum( AVGTG5M )/3 * 1/4 TWTG =(192.01+193.11+194.97)/3 * 1/4 TWTG =48.34 OGEN =Max [0, (TWTG q, r, p – ¼ * Max (((1 + K1) * AABP q, r, p ), (AABP q, r, p + Q1)))] OGEN =Max [0, (48.17 – ¼ * Max ((1.05 * 180.88), (180.88 + 5)))] OGEN =Max[ 48.34 - 47.48] OGEN =0.860