1. 1/07/2014 QMWG – RUC and AS update QMWG – ERCOT Update ERCOT Market Analysis

2. 2 Issues to discuss January 7, 2014 1.Reconfiguration SASM pricing 2.Deficient Ancillary Services Procedures Current procedures Proposed changes o NPRR589 – Proposed edits o Watch Language o Add language to RUC for AS in case of DAM and SASM failure 3.EOC RUC Resource o EOC compliance 4.RUC Buy Back Timing o Buy Back Limitations o NPRR585 EOC RUC CCT

3. 3 Reconfiguration SASM Pricing Issue: Market Participants have been reluctant to participate in the Reconfiguration SASM due to the risk of exposure to very high failed quantity prices. Current Language: 6.4.8.2 Supplemental Ancillary Services Market (5) For purpose of Settlement, the reduction to the Ancillary Service Supply Responsibility is considered a failure quantity and each QSE that has their Ancillary Service Supply Responsibility reduced by a reconfiguration SASM is charged in accordance with Sections 6.7.2, Charges for Ancillary Service Capacity Replaced Due to Failure to Provide, and 6.7.3, Adjustments to Cost Allocations for Ancillary Services Procurement. QSEs participating in reconfiguration SASMs are not subject to performance metrics for “failure to provide” amounts until the end of the Adjustment Period for each hour cleared in the reconfiguration SASM. From 6.7.2: Where m is all SASM prices January 7, 2014

4. 4 Reconfiguration SASM Pricing Proposed change: Insert new Settlement equations that would price Reconfiguration SASM at cleared price Insert new Protocol Section: The Failed Quantity associated with the Reconfiguration SASM would be charged to the QSE at the cleared price associated with the Reconfiguration MCPC Example Regulation Up Reconfiguration SASM Amount: RURSAMT q = MCPCRU r * RUFQ r Where r is the Reconfiguration SASM Decision : Does market want to go ahead with this proposal? January 7, 2014

5. 5 Deficient AS - Current ERCOT may RUC for AS if DAM aborted and SASM insufficient 5.2.2.2 RUC Process Timeline After an Aborted Day-Ahead Market 1.Watch issued and notification shall specify the time SASM will run to meet AS Plan. 2.QSE may cancel unexpired offers. 3.QSE may submit new offers after the watch but prior to SASM time for this SASM only (aborted DAM). 4.Paragraph (11) says ERCOT may commit Resource through HRUC if insufficient offers are received in the SASM to meet the AS Plan. ERCOT shall issue a Watch when there are insufficient AS Offers in SASM 6.5.9.3.3.2 Watch Paragraph (6) If ERCOT issues a Watch because insufficient Ancillary Service Offers were received in a SASM, and if the Watch does not result in sufficient offer and the SASM is executed with insufficient offers, then ERCOT shall acquire the insufficient amount of Ancillary Services in the next HRUC and shall issue Dispatch Instructions to the QSEs for Resources that were RUC-committed to provide Ancillary Services, informing them of the requirement that the Resources be prepared to provide those Ancillary Services. QSE may not submit AS Offers after notification of a SASM 6.4.8.2.1 Resubmitting Offers for Ancillary Services in the Adjustment Period Paragraph (b) If ERCOT notifies Market Participants that additional Ancillary Services are needed, only offers that were submitted before the notice are eligible to participate in the SASM; once the notice is given, no further offers are eligible for that SASM January 7, 2014

6. 6 Proposed change for Deficient AS NPRR589 Proposed change will notify QSE’s 30 minutes before every SASM (except Reconfiguration and aborted DAM). Additional changes are needed: Update 6.4.8.2.1 Resubmitting Offers for Ancillary Services in the Adjustment Period to allow changes to EOC following notification. Decisions: Is a watch needed if ERCOT has insufficient offers in SASM? –If yes, update 6.5.9.3.3.2 Watch language to give ERCOT flexibility to RUC in case of insufficient offers in SASM (“may” instead of “shall”) Need language for AS if DAM is aborted and SASM is unavailable. –Suggested solution : Add language that ERCOT shall set AS awards as last Operating Day’s responsibility and settle it as RUC if DAM is aborted and SASM is unavailable. Note: ERCOT has only used RUC to procure AS one time in March 2011 January 7, 2014

7. 7 Energy Offer Curves RUC Resources Jan 2012-Nov 2012 EOC priced correctly @ SWCAP – 25.5% EOC not correct but < 1 hour to update – 10.8% EOC priced below SWCAP – 63.7% Dec 2012 – Dec 2013 EOC priced correctly @ SWCAP – 70.7% EOC priced within 1 MW (e.g. LSL at 80.1 instead of 80.0) on their curve or <$1 of SWCAP (e.g. 4,999.99 instead of 5,000) – 10.9% EOC not correct but < 1 hour to update – 13.1% EOC priced below SWCAP – 5.3% January 7, 2014

8. 8 Energy Offer Curves RUC Resources Issue: In 2013, 13.1% of QSE’s did not have time to change EOC before the end of the Adjustment period (previous slide) when they received a RUC commitment. Current language: 6.4.3.1 Energy Offer Curve for RUC-Committed Resources (1) Prior to the end of the Adjustment Period for an Operating Hour during which a Generation Resource has been committed by ERCOT as part of a Reliability Unit Commitment (RUC) process, the QSE shall ensure that an Energy Offer Curve that prices all energy from LSL to HSL at the SWCAP* for the Operating Hours in the RUC commitment period, has been submitted and accepted by ERCOT. The Technical Advisory Committee (TAC) shall review the market impacts of the dollar value for energy for Generation Resources committed by the RUC process for RUC- Committed Intervals every January. Proposed change to insert following language: Any Energy Offer Curve that does not price the energy from LSL to HSL after the last SCED run before the Operating Hour of the RUC commitment, ERCOT shall create a proxy Energy Offer Curve that prices the energy at the SWCAP*. * Post NPRR568 language changed to $1,000 per MWh January 7, 2014

9. 9 RUC Buy Back Limitations Market Participants are not able to Buy Back the VDI RUC commitments since the end of adjustment period of first hour of a contiguous block of RUC-Committed hours is already closed. Market Participants are not able to Buy Back the RUC commitment that are added as contiguous block to previous RUC-Committed hours since the end of adjustment period of first hour of whole contiguous block is already closed. Issue raised by NPRR585 - Market Participant are not able to buy back the additional MWs that they are able to add to the RUC commitment Resource. Decision: Is change needed to allow Market Participants to Buy Back the RUC commitment after the end of adjustment period of first hour of a contiguous block of RUC-Committed hours? February 10, 2009

10. 10 RUC Buy Back Current Language Current language: 5.5.2Reliability Unit Commitment (RUC) Process (11) A QSE with a Resource that is not a Reliability Must-Run (RMR) Unit that has been committed in a RUC process or by a RUC Verbal Dispatch Instruction (VDI) may choose, at its sole discretion, to self-commit that Resource in lieu of the RUC instruction. The QSE must notify ERCOT of the intent to self-commit the Resource by either: (a) Setting the COP Resource Status to ONOPTOUT before the end of the Adjustment Period for the first hour of a contiguous block of RUC-Committed Hours that includes the RUC Buy- Back Hour. If an existing RUC instruction is extended by a later RUC instruction, all contiguous RUC-Committed Hours shall be treated as one block; Language proposed by NPRR585 Clarification of Administrative Pricing Requirements for Self-Committed Combined Cycle Combustion Turbines on a Resource Committed by RUC Proposes to allow Combined Cycle Trains to price capacity in non-RUC configurations at a price below the SWCAP. January 7, 2014

11. 11 RUC Buy Back Discussion Allow QSEs to change COP up until the beginning of the ONRUC operating hour in case of VDI RUC Allow QSEs to change COP for a group of contiguous RUC hours to ONOPTOUT even after the end of Adjustment Period of first RUC hour. For settlement purposes those hours would not be considered as RUC hours but QSE Q-Claw hours (revenue would be considered to offset the Guarantee) and no Start up would be paid for those hours that remain ONRUC. Allow QSEs to change COP at any hour to ONOPTOUT and entire RUC commitment would be considered Buy Back hours. This solution would be completely risk free for the QSE. January 7, 2014