1. ENSURING THE SUCCESS OF A VIBRANT EILS PROGRAM ERCOT STEEL COMPANIES MARK W. SMITH SMITH TROSTLE LLP AUSTIN, TEXAS

2. EILS CAN SUCCEED IF ALLOWED TO  EILS has been found worthwhile by both the PUC and the ERCOT staff and should be fostered  EILS is currently hampered by both structural and non-structural impediments  Non-structural improvements can be made that will greatly improve EILS’ chances of success  Structural improvements are also needed in order to ensure the success of a vibrant EILS program

3. IDENTIFICATION OF NEEDED IMPROVEMENTS  The issues discussed herein were identified in conversations with clients, non-client loads, QSEs, aggregators, municipal loads and energy consultants  No formal market survey undertaken  Problems identified herein not intended to be exclusive

4. NO SINGLE REASON WHY THRESHOLD NOT YET MET  12 readily identifiable reasons why the 500 MW threshold has not been reached to date  2/3 of the problems are resolvable without modification of program parameters  1/3 would require modification of the EILS Protocols and/or underlying PUC Rule to remedy

5. PROBLEMS THAT CAN BE AMELIORATED WITHOUT STRUCTURAL EILS CHANGE  Lack of public awareness of program  Lack of education re participation parameters and requirements  Uncertainty as to program availability and participation process in NOIE areas  Inadequate time for management buy-in decision on program participation

6. PROBLEMS NOT REQUIRING STRUCTURAL CHANGE (CONT.)  Uncertainty as to which baseline applies to which load  Uncertainty as to the baseline quantity that can be safely bid  Unfamiliarity with bid submission forms and instructions  No experiential context with which to judge compensation/risk trade-off

7. PROBLEMS THAT MAY REQUIRE PROGRAM MODIFICATIONS TO RESOLVE  Required capital investment and training without assurance of adequate payback opportunity  Insufficient compensation to justify aggressive program marketing by energy consultants  Conflicting summer enrollment period re TXU standard offer demand response program  Lack of market-driven pricing

8. SOLUTIONS THAT CAN BE IMPLEMENTED WITHOUT STRUCTURAL CHANGE  Development of an aggressive EILS public education program/marketing materials for non-NOIE and NOIE loads  Refinement and simplification of bid submission forms and instructions  Establish a process for ERCOT determination of individual baselines in advance of the bid submission process  Reassurance that alternative baseline provides a safe-harbor in event average actual monthly demand for contract period is lower

9. NEEDED IMPROVEMENTS REQUIRING STRUCTURAL CHANGES  Reduce 500 MW threshold (i.e., 100MW)  Remove and/or increase the annual program cost cap  Establish a minimum program duration requirement (i.e., 2 years)  Convert to a market-clearing price structure  Incentivize third parties to market EILS