1. Temperature Assumptions for Dynamic Ratings in ERCOT CRR Auctions Proposal to differentiate between Day (PeakWD & PeakWE) and Night (Off-peak) October 23, 2015

2. Contents  Current Methodology  Temperature Difference between Peak (Day) and Off-peak (Night)  Benefits  Is over-selling in the auction a risk? A look into nodal history  Proposed Changes  Appendix 1

3. Current Methodology According to ERCOT Nodal Protocols Section 7.5.5.4.3: (f) Thermal operating limits (including estimates for Dynamic Ratings) for transmission lines; (i) For a CRR Long-Term Auction Sequence, ERCOT shall use Dynamic Ratings based on a historical analysis of the maximum peak-hour temperatures for the previous ten years; and (ii) For the CRR Monthly Auction, ERCOT shall use Dynamic Ratings for the maximum peak-hour temperature forecast for the month; 2

4. Peak vs. Off-Peak Temperatures WZMoD*N** CurrentD vs. N COAST Jan76.567.9758.6 Feb7869.1808.9 Mar81.971.88010.1 Apr85.876.4859.4 May90.679.89010.8 Jun96.284.99511.3 Jul96.284.99511.3 Aug98.285.810012.4 Sep94.483.59510.9 Oct90.179.89010.3 Nov83.573.7859.8 Dec78.270.9807.3 3 Coastal Weather Zone Example * Day Hours defined as HE 700-2200 ** Night Hours defined as HE 100-600 and 2300-2400 Additional data for all other Weather Zones is in the Appendix A

5. Benefits o Representing the Off-peak system closer to Day-Ahead market expectation would better correlate CRRs as a hedging instrument for Loads and Generators in the Market for Off-peak hours o Historical congestion in monthly auctions and Day-Ahead market show congestion during peak hours is ~16% more in the auctions than in Day- Ahead. However, the congestion in Off-peak hours is 49% higher in the auctions than in the Day-Ahead market. This causes an over valuation of Off- peak congestions risks, and therefore effectively increasing hedging costs in the Off-peak hours o If we were to assume that the Day (PeakWD and PeakWE) “hedging premium” of 16% is correct, then the implied Off-peak congestion in the auctions should only be $2.34B, which is $65M less than what it is now for four years of history, that is roughly ~$16M per year for the market 4 * Data used is Jun 21st 2011 to September 28th 2015 for Day-Ahead ** July 2011 to September 2015 CRR auction results CONGESTION RENTS ($M) MARKETDAYNIGHTTOTAL DAY-AHEAD *1,8241952,019 MONTHLY AUCTION **2,1142912,405 16%49%19% Better value expected Day-Ahead market in the Rolling/Monthly Auctions:

6. Benefits 5 * Data used is Jun 21st 2011 to September 28th 2015 for Day-Ahead ** July 2011 to September 2015 CRR auction results Better value expected Day-Ahead market in the Rolling/Monthly Auctions: o Even though overvaluation of Off-peak for all history is ~49%, for given months it can reach up to 600% and most recent 12-month moving average shows it to be ~77%. Much higher than the trend observed for the “Day” (WD and WE) group

7. Benefits o This would allow to better represent the available capacity of the system given a forecasted (DAM) or telemetered (RTM) temperatures The Day-Ahead Market uses a temperature forecast for every weather zone and every hour to determine the expected dynamic rating of all dynamically rated equipment In Real-Time operations, ERCOT telemeters temperatures in the system every 15-minutes for every weather zone 6 Align the CRR models Day-Ahead and Real-Time Markets:

8. Benefits 7 * Weather Assumptions (MIS Report ID 12325) ** Forecasted Temperature Adjusted Dynamic Ratings (MIS Report ID: 12346) *** Real Time Dynamic Rating Data (MIS Report ID: 11024) **** Seq1 rolling and Monthly auction for Sep 2015 used the same temperature (and rating) assumption Dynamic Ratings in Day-Ahead, Real-Time and Auction (With New Methodology)

9. HISTORICAL DAM CONGESTION RENTS BY EQUIPMENT TYPE ($M)* EQUIPMENTDAYNIGHTTOTAL INTERFACE583190 XF42650476 LINE (STATIC)64281723 LINE (DYNAMIC)69832730 TOTAL:1,8241952,019 8 * Data used is Jun 21st 2011 to September 28th 2015  Only $32M (~1.6%) of Historical Day-Ahead Market Congestion was on Dynamically Rated Lines during Off-peak hours A look into DA Congestion in ERCOT for the last four years: Is over-selling in the auction a risk?

10. 9 * Summation of Rating B for equipment in CIM SEP ML4  According to table below, dynamically rated lines would have in average 5% more capacity in the Off-peak auction for the entire year. The highest change would be in the summer months with ~5.7% increase  As for the entire system, the additional capacity is ~2.2% for the annual average, with its peak in the summer of about 2.6% Percentage increase in System Capacity* for the Off-peak (Night) Cases with this new methodology: PCNT INCREASE CAPACITY FOR OFF-PEAK COMPARED TO PEAK RATINGS (%) SCENARIO INCLUDED IN CALCULATION? JanFebMarAprMayJunJulAugSepOctNovDecAvg XFMR LINE STATICDYNAMIC ALL SYSTEMYES 1.92.12.3 2.4 2.72.52.22.01.92.2 TRANS. LINES ONLYNOYES 2.32.62.8 3.0 3.33.02.62.52.32.7 DYNAMIC LINES ONLYNO YES4.14.75.1 5.25.5 6.25.64.84.54.15.0 Is over-selling in the auction a risk?

11. Proposed Changes 10  Utilize different temperature assumptions between Day (PeakWD and PeakWE) and Night (Off-peak) CRR cases  The methodology to derive the Day** and Night** temperature assumptions uses the same analysis as the current methodology, except that it uses two datasets, one for Day (HE 700 to 2200) and another one for Night (HE 100-600 and 2300-2400) Methodology to choose Temperatures for Auction Models CurrentlyProposed AuctionPeakWDPeakWEOff-peakPeakWDPeakWEOff-peak Rolling10Y Historical Analysis (No day/night distinction)*10Y Historical Analysis (DAY**) 10Y Historical Analysis (NIGHT***) MonthlyERCOT Fcst*ERCOT On-Peak Fcst 1.ERCOT Off-Peak Fcst? 2.Same method as rolling? 3.A combination between ERCOT Peak Fcst and 10Y Historical DAY to derive a NIGHT “multiplier” or “adder” *ERCOT Nodal Protocols Section 7.5.5.4.3 **Day Hours defined as HE 700-2200 *** Night Hours defined as HE 100-600 and 2300-2400

12. Appendix A 11

13. Appendix A – Weather Zone Temperature Day vs. Night WZMoDN CurrentD vs. N COAST Jan76.567.9758.6 Feb7869.1808.9 Mar81.971.88010.1 Apr85.876.4859.4 May90.679.89010.8 Jun96.284.99511.3 Jul96.284.99511.3 Aug98.285.810012.4 Sep94.483.59510.9 Oct90.179.89010.3 Nov83.573.7859.8 Dec78.270.9807.3 12 Coastal:

14. WZMoDN CurrentD vs. N EAST Jan7767.3759.7 Feb78.468.38010.1 Mar8471.38512.7 Apr87.875.59012.3 May92.279.89512.4 Jun97.88510012.8 Jul99.686.510013.1 Aug101.187.210013.9 Sep96.682.99513.7 Oct90.477.79012.7 Nov82.771.48511.3 Dec7769.9807.1 13 Eastern: Appendix A – Weather Zone Temperature Day vs. Night

15. WZMoDN CurrentD vs. N FWEST Jan78.859.68019.2 Feb82.664.48518.2 Mar90.272.49017.8 Apr95.878.39517.5 May102.185.710516.4 Jun106.790.810515.9 Jul103.190.610512.5 Aug102.99010512.9 Sep99.184.910014.2 Oct93.6789515.6 Nov84.766.38518.4 Dec79.459.38020.1 14 Far West: Appendix A – Weather Zone Temperature Day vs. Night

16. WZMoDN CurrentD vs. N NCENT Jan77.565.88011.7 Feb80.967.88013.1 Mar85.772.98512.8 Apr89.877.79012.1 May9482.49511.6 Jun99.587.910011.6 Jul102.190.410011.7 Aug10491.110512.9 Sep99.286.910012.3 Oct91.580.59011 Nov84.172.48511.7 Dec79.366.58012.8 15 North Central: Appendix A – Weather Zone Temperature Day vs. Night

17. WZMoDN CurrentD vs. N NORTH Jan74.962.87512.1 Feb77.764.78013 Mar84.571.18513.4 Apr88.175.29012.9 May93.380.49512.9 Jun99.685.210014.4 Jul102.387.610014.7 Aug103.588.810514.7 Sep98.18410014.1 Oct89.776.59013.2 Nov82708012 Dec74.563.47511.1 16 Northern: Appendix A – Weather Zone Temperature Day vs. Night

18. WZMoDN CurrentD vs. N SCENT Jan79.567.88011.7 Feb84.269.38514.9 Mar87.772.19015.6 Apr91.777.49014.3 May94.380.99513.4 Jun99.587.410012.1 Jul99.687.510012.1 Aug102.589.110013.4 Sep99.386.510012.8 Oct9280.19011.9 Nov85.273.48511.8 Dec80.169.88010.3 17 South Central: Appendix A – Weather Zone Temperature Day vs. Night

19. WZMoDN CurrentD vs. N SOUTH Jan82.5718511.5 Feb8671.98514.1 Mar90.874.59016.3 Apr93.879.59514.3 May94.782.19512.6 Jun97.885.110012.7 Jul97.284.99512.3 Aug99.785.910013.8 Sep97.684.710012.9 Oct93.582.19511.4 Nov87.276.28511 Dec82.771.78511 18 Southern: Appendix A – Weather Zone Temperature Day vs. Night

20. WZMoDN CurrentD vs. N WEST Jan80.562.28018.3 Feb83.766.88516.9 Mar89.472.39017.1 Apr94.278.89515.4 May98.483.610014.8 Jun100.687.410013.2 Jul101.588.910012.6 Aug102.389.110013.2 Sep98.484.610013.8 Oct9277.89014.2 Nov84.268.98515.3 Dec80.462.78017.7 19 Western: Appendix A – Weather Zone Temperature Day vs. Night