1. This slide deck contains animations. Please open this deck in slide show mode (“View” menu, then click on “Slide Show”). To move through the animations, left-click your mouse. Clicking too quickly will cause you to jump ahead. NOTES: – The following examples assume there are no congestion costs – The LSE is fully hedged – “G” is a negotiated price between the LSE and the customer

2. DR QSE DR Service Provider LSE QSE LSE Customer ERCOT Wholesale Counterparty / DAM All RTM Customers $700 (“G” = $70/MW) 10 MWs $30,000 $30,000 - Fee 10 MWs $650 (WhlsleP=$65/MW) 10 MWs $30,000 LRIS Settlement Examples “LMP – G” The LSE sells power to a retail customer. In this example, this is for a block of 10 MWs at a retail price of $70/MW. The LSE hedges that power in the bilateral market or Day Ahead market, locking in a profit of $5/MW. The customer contracts with a DR Service Provider to curtail 10 MWs when LMPs hit $3,000 and pays a fee for the enabling technology and services. The LMP hits $3,000. The DR Service Provider curtails 10 MWs of usage from the retail customer and provides to ERCOT. ERCOT pays the DR Service Provider LMP. The 10 MWs are consumed by all customers taking power in the Real Time Market and pay ERCOT the LMP. ERCOT is revenue- neutral. At this point, absent the LMP-G adjustment, the LSE would not bill the retail Customer for the 10 MWs as the usage is not measured by the TDSP meter. To ensure the LSE is kept whole, usage for the curtailed volumes will be sent to the LSE to bill the customer. (If this had been a RT index- based contract, the customer avoids the LMP for a small fee). To facilitate contracting options and provide information to the LSE and customer, this curtailed usage (representing energy that would have been consumed) will be sent to the LSE QSE. Benefits of this approach: 1.Avoids double payment to Customer (collecting both DR payment and avoiding energy cost) 2.LSE is not impacted; they are made whole 3.ERCOT not involved in retail pricing (volumetric flow)

3. DR QSE DR Service Provider LSE QSE LSE Customer ERCOT Wholesale Counterparty / DAM All RTM Customers $700 (“G” = $70/MW) 10 MWs $30,000 $30,000 - Fee 10 MWs $650 (WhlsleP=$65/MW) 10 MWs $30,000 LRIS Settlement Examples “Full LMP” The LSE sells power to a retail customer. In this example, this is for 10 MWs at a retail price of $70/MW. The LSE hedges that power in the bilateral market or Day Ahead market, locking in a profit of $5/MW. The customer contracts with a DR Service Provider to curtail 10 MWs when LMPs hit $3,000 and pays a fee for the enabling technology and services. The LMP hits $3,000. The DR Service Provider curtails 10 MWs of usage from the retail customer and provides to ERCOT. ERCOT pays the DR Service Provider LMP. The 10 MWs are consumed by all customers taking power in the Real Time Market and pay ERCOT the LMP. ERCOT is revenue- neutral. At this point, the LSE would not bill the retail Customer for the 10 MWs as the usage is not measured by the TDSP meter. The LSE still pays for the wholesale power, but delivers to ERCOT instead. In this case, the LSE is rewarded with high LMP (which doesn’t always have to be the case), but the market sees an uplift to Revenue Neutrality to cover the payment. 10 MWs $30,000 All Customers (Revenue Neutrality Adj.) 10 MWs $30,000 Benefits to this approach: 1.Encourage more DR 2.Customer not billed for MWs not used 3.ERCOT is not involved in retail pricing