1. PRR 525 Update Prepared by ERCOT Compliance December 2005

2. PRR525 Background  PRR525 Was Introduced to Apply “Regulation Like” Performance Monitoring Criteria to All QSEs for All Intervals  PRR525 is the Next Logical Step in the Effort to Improve Frequency Control PRR525 Was Considered a Viable Alternative to Doubling Regulation

3. PRR525 Stakeholder Process  Submitted – June 2004  Three Measuring Methods Analyzed  PRR525 Approved by WMS – December 2004  6.33 for, 1.17 opposed Approved by PRS – January 2005  2 abstentions Approved by TAC – March 2005  1 abstention Approved by BOD – April 2005  unanimous

4. April 2005 Board Action  Approved PRR525 PRR525 a good step; something ERCOT ought to do  Remove Compliance language regarding additional QSE Compliance requirements Return to the Board (upon signal implementation)

5. November 2005 Board Discussion  Discussion of potential disqualification of QSEs for non-performance  Staff to perform analysis on which QSEs might encounter difficulty complying with PRR525  Commission has concerns about SCE non- compliance  Board has approved PRR525 – no need to reconsider merits  Compliance Staff to report at December Board Meeting on QSE performance and potential impacts

6. Board Questions  Who Passes / Who Fails  Dynamic Schedule Impact  Disqualification Process  Disqualification Analysis (Backcast)

7. ERCOT’s CPS1 12 Mo. Rolling Average

8. QSE Regulation 10-Min Performance

9. Regulation 10-Minute Interval Trend

10. PRR525 Scoring  Simulated Scores & Data Have Been Provided to All QSEs Since September 2004  Signals For Independent Verification Provided in Late October to: Each QSE A Third Party Provider  The Third Party Provider Serves 8 QSEs

11. QSE PRR525 10-Minute Performance

12. PRR525 10-Min Interval Trend

13. Approved PRR525 Exemptions  2 Hours After A Unit Trip  Portfolio Balancing Ramp Rate Violations  Verbal Dispatch Instructions (VDI)  Non-Spin Ramping Periods  RRS Ramping Periods  Other Abnormal Periods

14. Compliance Enforcement Plan For PRR525  Patterned after NERC Enforcement Matrix Increasing Levels of Severity  All QSEs Receive Their Monthly Scores QSEs have 10 business days to respond

15. Levels of Non-Compliance  Level 1 First Violation Phone Call & Letter to QSE Representative of Record Copy to PUCT Staff Posting on NERC & ERCOT Public Web Sites

16. Levels of Non-Compliance (Cont)  Level 2 Second Violation within six (6) months  Or Inadequate Response to Level 1 Phone Call & Letter to QSE Sr. Management Copy to PUCT Staff Failing QSE Presentation (or report) to ROS Posting on NERC & ERCOT Public Web Sites

17. Levels of Non-Compliance (Cont)  Level 3 Third Violation Within Six (6) Months  Or Inadequate Response to Level 2 Phone Call & Letter to QSE Sr. Management Copy to PUCT Staff Failing QSE Presentation (or report) to TAC Posting on NERC & ERCOT Public Web Sites Compliance Notifies Board

18. Proposed Future Action Plan  If Satisfactory Results Have Not Been Achieved Within The First Six Months: Return to BOD in July 2006 With Recommendation on Next Steps  PRR586 is a Possible Alternative  Additional Performance Criteria