1. 2009 ERCOT CSCs and Congestion Zones (10/8/08) C. Richard Ross American Electric Power Service Corporation

2. 2 Background PURA & the Substantives rules hold EROCT to a standard of providing nondiscriminatory access to the transmission system. (§25.361(b)) “.. to ensure access to the transmission and distribution systems for all buyers and sellers of electricity on nondiscriminatory terms…” Rule: Prescribed guide for conduct or action Excuse: A defense of some offensive behavior or some failure to keep a promise etc.

3. 3 The Proper CSCs TAC and WMS have already both agreed the proper CSCs for 2009 are: N_H: Singleton-Obrien/ Singleton-TH Wharton 345-kV double circuit N_S & S_N: Lake Creek-Temple/ Tradinghouse-Temple Pecan Creek 345-kV double circuit W_N & N_W: Sweetwater-Long Creek/ Abilene Mulberry Creek-Long Creek 345-kV double circuit ERCOT has confirmed it can reliability operate the system under either Scenario 3h or 3i. The fact that ERCOT at one time preferred one option and subsequently changed its position is not relevant. As long as the change does not result in an unlawful, discriminatory or unreliable condition, ERCOT should be permitted to modify it’s thinking when provided with new information or perspective on a subject. Penalizing ERCOT staff for changing a position in this manner will only serve as a disincentive for active/robust communication between ERCOT and stakeholder groups. Recommendation: TAC should reaffirm the CSC selection approved earlier by both TAC & WMS.

4. 4 The Proper Clustering? Scenario 3h is consistent with historical procedures and treats all CSCs, units and loads in a nondiscriminatory manner. Scenario 3i is not consistent with historical practices and makes discriminatory assumptions to specifically and uniquely harm the Oklaunion generating station.

5. 5 Discriminatory Treatment CSC Clustering – Clustering under option 3i was performed on a post contingency basis in order to cause Oklaunion to be clustered in the West zone. Inconsistent with the rule/procedure that clustering is performed with the system intact. Excuse - this is the first time we have had a CSC that was the post contingency limiting element rather than the contingency itself. Is the excuse relevant? - No.

6. 6 Discriminatory Treatment Protocols 7.2.2(4) and 7.2.4 require ERCOT to identify coal & nuclear units and exclude them from Zonal Shift factor calculations. Historically for the CRE analysis utilized the same “Generation Resources likely to vary their output” assumptions as is used for the Zonal Shift factor calculations. This year, for the purposes of the CRE analysis Oklaunion was assumed movable. Excuse – “the protocols are actually silent with respect to the CRE analysis” and “pretty good evidence it (meaning Oklaunion) does move in response to price” Is the excuse relevant? – Maybe, if applied in a nondiscriminatory manner. There is pretty clear evidence that other coal units also move in response to price and therefore to apply this standard to Oklaunion exclusively is discriminatory.

7. 7 What are the relative impacts of 3h and 3i on the market? There are numerous impacts which are very difficult to quantify:  OOM/Uplift will be present in both scenarios  Zonal prices will be impacted  The value of PCRs  TCR revenues  Numerous others The net difference in the impact of 3h vs 3i is difficult to determine. The margin of error on any such assessment would likely be very large.

8. 8 What are the relative impacts of 3h and 3i on the market? Placing Oklaunion in the North (instead of the West) zone will not necessarily lead to additional OOME payments to Oklaunion or OOME cost to the market. Oklaunion is a base load plant which will normally be scheduled and operate at its rated capability. Congestion on the West to north CSC can be resolved zonal deployments for the units in the west zone. Placing Oklaunion in the North zone will significantly reduce the disparity between the value and price paid for PCRs associated with the unit.

9. 9 Scenario 3i Process and Analytical Issues It is the result of a last minute effort to justify the movement of Oklaunion from the North zone to the West zone. The stakeholder process is intended to provide all market participants the opportunity to review and participate on a nondiscriminatory basis. Scenario 3i failed the standard originally, but might(?) pass today. ERCOT’s practice should be transparent and applied on a consistent basis. Scenario 3i fails this standard Scenario 3i should not be approved since it fails to satisfy standards ERCOT is held to by PURA and the Substantive Rules. (§25.361(b)) “.. to ensure access to the transmission and distribution systems for all buyers and sellers of electricity on nondiscriminatory terms…”

10. 10 Recommendations Approve Scenario 3h clustering and associated CREs. Time is simply not available to develop and implement a new nondiscriminatory post-contingency clustering process for 2009. Given the risk the zonal market could still be in place in 2010, ERCOT and TAC should consider reviewing the procedures in preparation for the 2010 cycle: ERCOT should determine whether the clustering process should be based on a pre-contingency or post-contingency system topology. If a post-contingency system topology is preferred it should develop procedures to apply this standard to all CSCs on a nondiscriminatory basis.