1. Load Participation in Real-Time Market: LMP Minus G

2. Efforts to Allow More Load Participation in Energy Market State law calls for ERCOT to permit demand response to participate in markets Significant potential resource in residential and commercial air conditioning load REP and third-party demand response providers have sought broader opportunities – Third-party DR providers could bring focus and expertise, could invest in DR equipment at customers’ premises

3. TAC Deliberations TAC in 2011 voted to endorse “LMP-G” rather than “Full LMP” as settlement mechanism – TAC decision based on a conceptual discussion, rather than detailed examination of LMP-G Presentation to TAC emphasized avoiding double payment: LMP to DR provider plus customer’s avoided cost of energy TAC endorsed “volumetric” LMP-VG, in which energy curtailed would be added back to the LSE’s settlement at the individual customer (ESI ID) level

4. Recent Stakeholder Efforts DSWG’s Loads in SCED subgroup has worked on details of how LMP-G could be implemented Volumetric LMP-G is not workable for residential and small commercial, because ERCOT believes it cannot estimate load reductions for individual residential and small commercial sites with sufficient accuracy New approach, LMP-Proxy $G, can work for customers or aggregations of customers in all classes if capable of being accurately baselined by ERCOT This approach has broad support in DSWG

5. LMP-Proxy $G Settlement LMP-G would be implemented at the wholesale market (QSE settlement) level – ERCOT would pay DR QSEs for load reduction at LMP- Proxy $G – ERCOT would add each LSE’s portfolio-level load reduction to the LSE’s settlement – ERCOT would credit LSE at Proxy $G for the load reduction – Proxy $G would be based on POLR rates No new market uplifts under this approach

6. LiSCED Consensus Principles Loads should be permitted to actively participate in Real Time Market Loads participating in Real Time Market would contribute to wholesale price formation Loads should not receive financial benefit more than once for providing demand response The existing ORDC and Loads in SCED “bid to buy” market structures should be preserved There are other issues that will need to be resolved in stakeholder process

7. LiSCED Consensus Customer Policies Customer has the right to select or change a DR QSE REP would be notified if customer agrees to have his load response managed by a DR QSE Rules should preclude DR-blocker strategies by REPs Rules should ensure an adequate transition period for REPs to manage existing customer relationships – For the transition period, rules should define a REP’s rights with respect to a customer’s legacy rate plan when customer joins a DR QSE, if the current rate plan includes an incentive tied to DR capability Customer engagement rules will be needed, so that REPs and DR QSEs compete on equitable term

8. LiSCED Consensus Implementation Mechanisms New concept of demand response provider of record (DR-POR) System to notify ERCOT and current REP or DR provider of customer enrollment in DR program and other key events System needed to resolve competing claims to be customer’s DR-POR

9. Areas of Particular PUC Interest Can REP charge customer for energy not consumed or for risks related to customer’s participation in 3d party DR? What are REP’s options when customer joins a DR QSE, if the current rate plan includes an incentive tied to DR capability Transition period for REPs to manage existing customer relationships Prohibition of DR-blocker strategies by REPs Customer engagement rules: REPs and DR QSEs to compete on equitable term System to resolve competing claims to be customer’s DR-POR

10. Questions for TAC Should the PUC be brought into the deliberations on Loads in SCED? If so, when and how? DSWG recommendation is consistent with the LMP-G concept discussed at 2011 TAC meeting, but different in implementation approach. Is TAC OK with the approach outlined in this presentation?