1. 1 PRR #409 Voltage Support Service from Generating Resources Timeline Date Received 4/25/2003 Date Posted 4/28/2003 Comments Due 5/19/2003 PRS Review Date 5/22/2003 May 22 nd PRS Action: Remanded to WMS for further clarification of settlement treatment Status of PRR

2. 2 What the PRR Seeks to do with VSS-f-GR Establish a realistic payment methodology for VSS based on an easily captured telemetry point/calculated value in ERCOT EMS (MVarh) “as delivered” Maintain the existing proposed RCVC Standard requirement for unit testing and reactive capability (URL of.95) Set trigger point for settlement for reactive delivery at a point that recognizes values of losses in generator and GSU (.98)

3. 3 Existing Protocols Treatment Generator must maintain voltage profile [limited to MVars delivered at Max. MW @.95 Pf measured at MPT HV terminals] (6.5.7) Generators must maintain voltage regulation schedule without compensation to.95 Pf (6.8.4) Dispatch instructions that cause a reduction in MWs to produce more MVars paid at OOM-E Down price (6.8.4.(2)) PIP-102 boxed language: “Compensated Reactive Support” pays for reactive delivery that exceeds URL at avoided cost of reactive resources on transmission network. [PIP-102 is to be implemented on ERCOT systems this year; 2.1 Priority]

4. 4 What are the costs to producing Mvars? Installed Capability Costs what is the appropriate value for those components of the generator equipment that make MVar production possible? Lost Opportunity Costs what is the value of the next MVar vs. the next MW? Heating Losses what is the cost in fuel to produce MVars?

5. 5 Basis for these assertions Installed Capability Costs American Electric Power Service Corporation 88 FERC ¶ 61,141 (“AEP”) [basis for numerous FERC-approved rate filings on OATT Schedule 2] ERCOT Protocols 6.8.4.(2) [“avoided cost of reactive support Resources on the transmission network.”]

6. 6 Lost Opportunity Costs ERCOT Protocols 6.8.4.(2) Numerous FERC rulings re: OATT Schedule 2 Heating Losses Stray Loss Factor (per EPRI TR-107270-V3SI) accepted in numerous FERC rulings on OATT Schedule 2 filings Incremental heating loss = Stray LF * [3*Ra*[(I a pf.85 ) 2 -(I a pf=1 ) 2 ] + [R f *[(I f pf=.85 ) 2 -(I f pf=1 ) 2 ]] Basis for these assertions (cont’d)

7. 7 WMS task from PRS Determine a suitable settlement method for reactive delivered MVarh delivered beyond trigger (+-.98 Pf) can be calculated/integrated over an interval. Can Synchronous Condenser treatment in Protocols 6.8.3.4 be used as a proxy pricing mechanism? Can some portion of the MCPE/Zone of delivery be used as a suitable price proxy if Heating Losses principle is used? Can a “(MW losses from heating) X HSC Price for Gas X 10.5 HR (customary losses treatment in ERCOT)” approach be acceptable?