1. Is Reactive Power Worth Anything? The sun sets on a lightless New York City – August 14th Reactive & Voltage Maintenance Joint Proposal by TexGenCo/Calpine

2. GenReaTF Directive from WMS 1) Develop a method similar to the one found in the EPRI study that compensates for heating losses in generator equipment and GSU 2) Develop a method and Protocols language to pay for “as delivered” Mvarhs under PIP 102 for reactive beyond a machine’s URL 3) Determine if the trigger point for settlements of reactive power delivered can be different from what’s in the Interim Standard and if so, what should it be?

3. TF’s Areas of Focus 1)“Heating Loss” type component, 2)PIP 102 method for payment for Mvars beyond unit’s URL 3)“Opportunity Cost” component (solved problem - OOM-E Down paid for reduction in MWs)

4. Key Issues That Lead to This Proposal The Task Force Learned the Following: 1) The number and complexity of facility metering scenarios are enormous making individual Mvar flow calculations impossible if gaming possibilities are to be avoided, 2) The calculations for equipment heating loss are very involved and the assumed variables are hard to defend or refute; subject to site-specific gaming opportunities 3) Voltage at the transmission injection point metering is the objective function in assigning criteria for reactive delivery; whatever method is used for compensation must be shaped by voltage maintenance performance

5. 4) From anecdotal comments there appear to be significant inequities in some areas of ERCOT in the dispatch of Mvars and the alignment of a financial incentive with voltage support is needed to compensate the true providers and keep score so that “loafers” don’t go unnoticed.

6. ERCOT Summer Base Case 2004 15,954 MVars Needed from 399 Gens. turned on 527 total Units in case  Each of the 527 units has a prorated 30 Mvar “compensation component” assigned.  Next slide provides assumptions for this assignment. Conceptual Layout of This Proposal

7. Compensation Component (“CC”) Assumptions All units in base case have a “CC” whether turned on or not because of uncertainty between planning case and actual operations that can arise during peak season (unit outages of “turned on” units causing “turned off” units to operate, etc.) Units that go COD during the year and were not in the base case are not eligible for a “CC” assignment until subsequent year The base case provides the pool of dynamic Mvars that the system expects resources to provide at peak

8. Calculating Each Interval’s Possible Compensation Amount (based on given assumptions) $20/Kvar Installed Capital Cost assumed for a transmission level shunt device chosen as a ‘proxy device cost’ (as noted in PIP 102) 20 years term assumed for capital expense payout $1K/year assumed for 20 years as O&M costs for device 30 Mvar Compensation Component per Resource as per 2004 Base Case results ((30 Mvar * $20/Kvar) + $20K) / 35,040 intervals/year)) = $0.88 / 15 minute interval

9. Criteria for an Interval’s Payment 1)Unit must be on line with AVR in Automatic (unless dispatched otherwise by ISO) 2)Injection Point voltage must be within +- 2% of ERCOT-posted voltage profile value 3)Payment amount is conditioned on whether Mvar flow is helping or hurting voltage relative to posted profile value

10. Dispatch Becomes Simpler Under this Proposal a)Entire range of machine’s reactive capability in lead and lag directions are available to the system with no additional payment calculated b) No payment necessary for dispatch beyond URL; URL is only used as a transmission planning and compliance threshold

11. The “D” Curve and the URL Area

12. Determining the URL  The Resource owner should determine the machine’s URL  The Resource owner would provide the “Area within the Unit’s URL” to the ISO for approval  The ISO would advise the TDSPs of the current URLs for resources in their footprint

13. Helping or Hurting Voltage Harry Holloway of TexGenCo Voltage Maintenance Performance Spreadsheet

14. Compelling Features of this Proposal Bus voltage maintenance is the objective and the performance criteria in proposal aligns incentives with that, Per interval payment based on fixed base case value sets an annual cap of potential payments, Method is not complex with a minimum of variables for ISO to manage/collect from telemetry Full range of machine’s capability is available without additional payments Gaming opportunities are virtually nonexistent, Potential compensation is nominal compared to OOM-C and RMR payments with similar objectives

15. Questions Issue to Consider for Motion/s: If this combined proposal is accepted as the direction WMS wants the TF to proceed, then the work on PIP 102 can be stopped.

16. These Guys Would Say……YES! The “Pucker Factor” sets in – Aug. 14th

17. Answers the TF Expects from WMS 1)Does WMS approve of this joint proposal’s methodology in order that the TF can proceed to develop Protocol language around it? [Motion] (If YES, disregard Item #2) 2) If the answer to Item #1 is NO, then does WMS approve of the Protocol language proposed for PIP 102’s treatment of Mvars beyond the URL so that language can be crafted into a PRR for submission to PRS? [Motion] (If NO, then how does WMS want the TF to proceed? And who will the new Chair be? )