1. Market Solution 1 Definitions Market Solution A Market Solution exists when at least three unaffiliated Resources, with capacity available, submit bids to ERCOT that can solve a circumstance of local Congestion and no one bidder is essential to solving the Congestion. ERCOT Protocols Section 2 Resource Entity A Market Participant that owns or controls a Resource. ERCOT Protocols Section 2 Resource Entity Affiliation (REA) A code used by the ERCOT systems to identify a group of affiliated resources.

2. Market Solution 2 Definition Component Software Implementation ConstraintZonal Power Balancing 1)Bids submitted to ERCOT sufficient to solve a circumstance of local Congestion Constraint is solved with submitted bids (no remaining violation) 2)>= 3 unaffiliated resources with available capacity Number of unaffiliated resources with available capacity with non- zero shift factor is at least 3. Number of unaffiliated resources with available capacity with zero shift factor to all binding/overloaded constraints is at least 3. 3)No one bidder is essential to solving the congestion For all REA: MW contribution from a single REA can be met by remaining available MW from other REAs. For all REA: Awarded UBES (DBES) MW in Step 2 for a single REA can be met by remaining available zonal UBES (DBES) MW from other REAs. Resource with non-zero shift factor to binding/overloaded constraint: If the constraint(s) has a market solution and the zone in which the resource is located has a market solution, the resource is part of a market solution and will be paid as bid. Resource with zero shift factor to all binding/overloaded constraints: If the zone in which the resource is located has a market solution, the resource is part of a market solution and will be paid as bid. Implementation

3. Market Solution 3 Decision Tree Local Constraint? Market Solution for Local Constraint? Market Solution for Zonal Balance Constraint? Local: Pay-As-Bid Zonal: Pay-As-Bid Stop Market Solution for Zonal Balance Constraint? Local: OOM Zonal: OOM Local: OOM Zonal: Pay-As-Bid N N N N Y Y Y Y Local: shift factor <> 0 Zonal: shift factor = 0

4. Market Solution 4 Example Scenario 1 1)Constraint solvable. 2)>= 3 unaffiliated resources 3)Constraint: No one bidder is essential to solving the congestion. MW contribution from a single REA <= ∑ Additional Available MW from other REAs 4)Zone: No one bidder is essential to solving the congestion. Awarded UBES (DBES) MW in Step 2 for a single REA <= ∑ Additional Available Zonal UBES (DBES) MW from other REAs Unit A (Shift Factor = 0.5) If constraint has market solution and zone has market solution, resource part of a market solution. Unit Z (Shift Factor = 0) If zone has market solution, resource part of a market solution. OC: Market Solution! Zone: Market Solution!

5. Market Solution 5 Example Scenario 2 1)Constraint solvable. 2)>= 3 unaffiliated resources 3)Constraint: Bidder is essential to solving the congestion. MW contribution from a single REA > ∑ Additional Available MW from other REAs 4)Zone: No one bidder is essential to solving the congestion. Awarded UBES (DBES) MW in Step 2 for a single REA <= ∑ Additional Available Zonal UBES (DBES) MW from other REAs Unit A (Shift Factor = 0.5) If constraint has market solution and zone has market solution, resource part of a market solution. Unit Z (Shift Factor = 0) If zone has market solution, resource part of a market solution. OC: NO Market Solution! Zone: Market Solution!

6. Market Solution 6 Example Scenario 3 1)Constraint solvable. 2)>= 3 unaffiliated resources 3)Constraint: No one bidder is essential to solving the congestion. MW contribution from a single REA <= ∑ Additional Available MW from other REAs 4)Zone: Bidder is essential to solving the congestion. Awarded UBES (DBES) MW in Step 2 for a single REA > ∑ Additional Available Zonal UBES (DBES) MW from other REAs Unit A (Shift Factor = 0.5) If constraint has market solution and zone has market solution, resource part of a market solution. Unit Z (Shift Factor = 0) If zone has market solution, resource part of a market solution. OC: Market Solution! Zone: NO Market Solution!

7. Market Solution 7 Summary Potential Market Solution for Constraint Market Solution for Zone Resulting Market Solution for Resource Instruction % of Occurrences 1 With SF<>0With SF=0 1) 2) 3) 4) YNYNYNYN YYNNYYNN YNNNYNNN YYNNYYNN 10% 45% 1% 44% 1.Data from manually verified intervals in 9/2002, 12/2002, and 1/2003. 2.Data from intervals in 9/2002 and 12/23/2002 – 1/28/2003 Number of Instructions 2 Category 2Category 3Category 4 Market Solution 2931382134 No Market Solution 385924782445