1. Guidelines for Verification of Resource Specific Fuel Adders RCWG 6-28-2013 Paul Vinson

2. NPRR485 Overview …provide for consistent application of the fuel adder that is meant to compensate Resources for the actual cost of transporting and purchasing fuel on the spot market across MOCs and RUC instructions, as well as, allow for Resource-specific verifiable costs to be submitted and verified by ERCOT. The fuel adder ($/MMBtu) cost may be submitted for each Resource and verified by ERCOT. The current default value of $0.50/MMBtu will continue to be used by ERCOT when no specific fuel adder has been provided for a Resource. clean-up language is also needed to the Verifiable Cost Manual for methodology used to verify those costs, and to define the methodologies used to account for the fuel costs above the Houston Ship Channel price. ERCOT to implement system changes for NPRR485 in 2014

3. Guidelines for Verification of Resource Specific Fuel Adders Goal - Provide reasonable FIP and standard Fuel Adder to cover majority of resources in order to reduce need for resource specific fuel adders – ERCOT workload will be impacted by the number of resource specific adders that will need to be verified annually – Resources with complex fuel arrangements my have difficulty providing easily distinguishable fuel cost documentation.

4. Guidelines for Verification of Resource Specific Fuel Adders Guidance provided in grey-box language in the verifiable cost manual (p31) Filing Entities may elect to submit a fuel adder ($/MMBtu) as outlined in Appendix 6 in this manual for each Resource for verification by ERCOT. For any Filing Entity that does not submit verifiable data for establishing a fuel adder, the fuel adder will default to $0.50/mmBtu. On at least an annual basis, the Filing Entity must provide documentation that establishes the historical costs for fuel, including transportation, spot fuel, and any additional verifiable cost associated with fuel contracts that can be easily differentiated from the standard commodity cost of fuel. The fuel adder is the difference between the Filing Entity’s average fuel price paid (including all fees) and the FIP. The Filing Entity shall provide one year’s supporting data to verify total fuel costs and must be able to identify the historic transportation costs and spot fuel costs from historical accounting practices. Data to support these costs should include, but not be limited to, accounting ledger entries, invoices, and copies of fuel contracts.

5. Guidelines for Verification of Resource Specific Fuel Adders Summary of key points from grey-box language: Re-verify annually or revert to the standard adder Provide one year’s supporting data/documentation that establishes the historical costs for fuel, including transportation, spot fuel, and any additional verifiable costs associated with fuel contracts. Data to support these costs should include, but not be limited to, accounting ledger entries, invoices, and copies of fuel contracts. Must be easily differentiated from the standard commodity cost of fuel. The fuel adder is the difference between Filing Entity’s average fuel price paid (including all fees) and the FIP.

6. Resource Specific Fuel Adder Verification Issues Annual verifications performed after calendar year or any 12 month period? Should resources demonstrate that historical costs will continue for the future year? What level of ambiguity will fail the “easily differentiated” test? – Burden of proof on the Filing Entity? What is the standard commodity cost of fuel for gas, coal, etc.? – FIP for gas and FOP for oil. EIA923 data for Coal? The fuel adder is the difference between Filing Entity’s average fuel price paid (including all fees) and the FIP. – Including all fees? (hedging? affiliate transactions? PUCT rules? EIA-923 Instructions?) – For a gas resource, average daily fuel price and the daily FIP? – For a coal resource, monthly average fuel price and the simple monthly average FIP (gas)? Or volume weighted? – What other resources need to be addressed?

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8. Verifiable Startup Costs 5.6.1.1Verifiable Startup Costs The unit-specific verifiable costs for starting a Resource for each cold, intermediate, and hot start condition, as determined using the data submitted under Section 5.6.1, Verifiable Costs, and the Resource Parameters for the Resource are: (a) Actual fuel consumption rate per start (MMBtu/start) multiplied by a resource category generic fuel price plus consideration of a fuel adder that compensates for the transportation and purchasing of spot fuel (FIP * 1.X, FOP, or $1.50 per MMBtu, as applicable), where X = $0.50/fuel price. A new X is effective for the date(s) as described in the Verifiable Cost Manual; (b) Unit-specific verifiable or standard O&M expenses; and (c)NIS to operate the Resource from breaker close to its LSL, as described in the Verifiable Cost Manual.

9. Verifiable Minimum Energy Costs 5.6.1.2Verifiable Minimum-Energy Costs (1)The unit-specific verifiable minimum-energy costs for a Resource are: (a)Actual fuel cost to operate the unit at its LSL including a fuel adder that compensates for the transportation and purchasing of spot fuel as described in the Verifiable Cost Manual; plus (b)Verifiable or standard variable O&M expenses; plus (c)NIS to operate the unit at its LSL. (2)The QSE must submit the Resource’s cost information by Season if the Resource’s costs vary by Season. For gas-fired units, the actual fuel costs must be calculated using the actual Seasonal heat rate (which must be supplied to ERCOT with Seasonal heat-rate test data) multiplied by the FIP * 1.X, where X = $0.50/fuel price plus consideration of a fuel adder that compensates for the transportation and purchasing of spot fuel. A new X is effective for the date(s) as described in the Verifiable Cost Manual. For coal- and lignite-fired units, the actual fuel costs must be calculated using the actual Seasonal heat rate multiplied by a deemed fuel price of $1.50 per MMBtu. For fuel oil- fired operations, the number of gallons burned must be multiplied by the FOP.

10. Mitigated Offer cap 4.4.9.4.1Mitigated Offer Cap Energy Offer Curves may be subject to mitigation in Real-Time operations under Section 6.5.7.3, Security Constrained Economic Dispatch, using a Mitigated Offer Cap. The “Mitigated Offer Cap” is: (b)For a Generation Resource that commences commercial operation after January 1, 2004, ERCOT shall construct an incremental Mitigated Offer Cap curve (Section 6.5.7.3) such that each point on the Mitigated Offer Cap curve (cap vs. output level) is the greater of: (i) 14.5 MMBtu/MWh times the FIP; or (ii) The Resource’s verifiable incremental heat rate (MMBtu/MWh) plus consideration of a fuel adder that compensates for the transportation and purchasing of spot fuel as described in the Verifiable Cost Manual for the output level multiplied by ((Percentage of FIP * FIP) + (Percentage of FOP * FOP))/100, as specified in the Energy Offer Curve, plus verifiable variable O&M cost ($/MWh) times a multiplier described in paragraph (e) below.