1. CRR Update to CMWG Matt Mereness Manager, DAM and CRR Auction Congestion Management Working Group June 5, 2013

2. Outline of Discussion May 2013 CRR Shortfall Long-Tem Auction Sequence Status CRR Implementation Roadmap update NPRR484 update CRR Model Build Process and Other Improvements Appendix of Settlement Details for Deration and Shortfall Calculations CMWG June 2013

3. May 2013 Shortfall Discussion

4. CRR Shortfall Data CMWG June 2013 In recent months, higher than normal shortfalls in DAM congestion rent have been experienced Data below represents funding after balancing account settlements are complete (estimating May) Please note that ERCOT is investigating a defect with SFT settlement calculations related to option modeling that may cause less CRRs derations in final calculations Estimated impact under review April 2013May 2013 Total Owed CRRAHs$42.5 M$86 M Underfunding$3.9 M$12M Percentage9%14%

5. CRR Shortfall for May 2013 Shortfalls occur when there are network topology differences between the CRR and DAM models –May 2013 shortfalls appear to be largely outage-related (i.e., outages not considered in CRR due to timing of the submission) –May 2013 experienced higher than normal congestion Key constraints –>80% of the shortfall can be attributed to constraints at four stations CGRSW, MOSSW, MGSES, and TEASLEY DAM study –ERCOT performed a study for one day with high shortcharges (Operating Day 5/9) Removed 3 outages that were not considered in CRR model, and reran DAM The CRR shortfall reduced by more than half CMWG June 2013

6. CRR Shortfall for May 2013 Outages discussed at May Board appear to be contributor 2013 is peak of West Texas / CREZ construction and outages Outages are not all received in time for CRR model build Joint CWG/MCWG May 2013

7. Long-Tem Auction Sequence Status

8. Long-Term Auction Sequence Status We are here: CMWG June 2013

9. Long-Term Auction Sequence Summary Sequence 1 Summary Reminder 70% due to prior scaling in Year 2/Year1 auction July-December 2013 Transaction bid limits 2,000/CRRAH (up to 6,000/Counterparty) Credit Lock = $ 489 million Number of participating CRRAH = 148 Number of bid/offer transactions = 96,187 Number of cleared Transactions = 18,425 Net Revenue of Auction = $ 32 million Delayed start of auction due to ERCOT’s removal of an erroneous contingency definition (DBNDELM8) in the market systems that could have commercially significant impacts on auction results. Auction published 1 week early CMWG June 2013

10. Long-Term Auction Sequence Summary Sequence 2 Summary Reminder 45% model scaling for Jan1-June 2014 Transaction bid limits 2,000/CRRAH (up to 6,000/Counterparty) Credit Lock = $500 million Number of participating CRRAH = 142 Number of bid/offer transactions = 96,317 Number of cleared Transactions = 21,184 Net Revenue of Auction = $56 million Auction published 1 week early NPRR530/LCRA Load Zone changes and re-posting model CMWG June 2013

11. Long-Term Auction Sequence Summary Lessons learned and FAQ Regarding scaling of ownership, should ERCOT provide inventory to include scaling values (PCRR vs regular CRR inventory)? Protocols/system changes for new report to improve NPRR463 Can ERCOT consider later NOMCRs and outage that come in after the model snapshot? Discuss more later in presentation Credit Lock issues (missed lock date, transposed values) Consider protocols/system changes to make credit lock and bid dates the same (so CRRAH has better visibility into Counterparty lock and can change if missed or an error) Discuss more later in presentation Why was I not awarded for a CRR bid that was in the money Most likely due to budget constraint Since ERCOT published 2 auctions early, will ERCOT change timeline? Too early for that decision CMWG June 2013

12. CRR Implementation Roadmap Update

13. CRR Roadmap from last year

14. CRR Implementation Roadmap Update CMWG June 2013

15. NPRR484 Project Update

16. The project for NPRR484 is in the planning stages and portions are planned for implementation as early as October 2013 As discussed at PRS, NPRR484 phases: –Phase 1 includes the CRR and Credit changes to implement path-specific adders Where each CRR (bid or owned) carries a path credit adder based on historical DAM and CRR clearing prices –Phase 2 deferred invoicing in 2015 ERCOT plans to deliver Phase 1 in two deliveries across 2013 and 2014 Phase 1a include path-specific adders in CRR and Credit calculations Phase 1b to complete any refinements in prices and reporting as needed Presenting at TAC tomorrow since: –Market collateral requirements would be potentially impacted in October –Credit and collateral logic is complex and dependent on market paths and portfolio composition for each company –Market calls for specific scope/details/examples will be planned to support market details and questions for project as early as July 2013 CMWG June 2013

17. CRR Model Build Process and Other Improvements

18. CRR Model Build Process ERCOT has updated and posted the CRR Network Model Build Process Whitepaper –Discussed at CMWG in early 2012 –ERCOT received and incorporated comments received –CMWG did not discuss further –ERCOT has posted most recent version for review and discussion as needed –ERCOT’s engineering judgment is key part of CRR Model build process, so interested in a balance of transparency and flexibility Market Participants identified four areas of potential modeling change * –1. Treatment of SPS related to open switching action (2 SPS) –2. Treatment of RAPs in multi-month auctions –3. CRR Contingency modeling improvement –4. Define methodology for CRR model update (improve accuracy) * All four of these have been consistent for past two years CMWG June 2013

19. CRR Model Build Process 1. Treatment of SPS opening monitored line (2 SPSs) –SPSs for Monticello, Elkton –CRR Auctions have had constraints bind on equipment in CRR Auction, however, if overloaded in real-time are automatically opened by SPS –SPS methodology for CRR In CRR model the SPS protected Equipment has a Normal and Emergency rating Currently: SPS Equipment emergency rating is changed to model SPS with a 9,999 rating so the protected equipment does not bind in contingency flow Issue: The SPS can potentially bind in the CRR base case (normal flow) and create congestion that does not show up in Real-Time Action Plan: ERCOT plans to start with the August Auction changing normal rating to 9,999 (basecase) for these 2 SPSs. This will be updated in the Network Model build sequence for August. CMWG June 2013

20. CRR Model Build Process 2. Treatment of RAPs in multi-month auctions –RAPs undergo an annual review and have expiration dates tied to them –Typically review is April/May for ERCOT and TSP analysis –Historically ERCOT has excluded RAPs in multi-month auctions for months auctioned after these RAPs “expire” –Issue: Market suggested including them for all future months even after expiration –Response: In 2013 five RAPs were expired and two were added that would impact the CRR auction. So if ERCOT had used these RAPs in previous auctions, potentially oversold situations could arise. –Action Plan: None unless CMWG wants to further discuss. CMWG June 2013

21. CRR Model Build Process 3. CRR Contingency modeling improvement –ERCOT’s Operational model is a breaker-to-breaker model –ERCOT CRR Model is bus-branch model –The Contingency building tool successfully builds equivalent contingency definitions in most of the ERCOT system, but not at all stations depending on station configuration. –Issue: For certain stations the contingency definition is not accurate. –Response: ERCOT agrees there are some inaccuracies for certain stations and scenarios. –Action Plan: ERCOT has initiated a study to determine the scope of the issue, and then consider impacts. If a broad issue ERCOT may consider significant enhancements to Topology Processor and CRR Vendor network model code If impacts are found to be localized, ERCOT may consider managing changes to a subset of contingencies that have a proven negative impact in auction results ERCOT plans to report back at next CMWG CMWG June 2013

22. CRR Model Build Process 4. Define methodology for CRR model update (improve accuracy) –ERCOT CRR model is based on an Operation snapshot weeks before the Operating Month targeted in the auction –Issue: Some market participants observe important outages or NOMCRs that come into ERCOT systems between model snapshot and closing of bid window and believe they should be included in the auction. –Response: ERCOT agrees changes in timing could be considered. –Action Plan: ERCOT will participate in any ideas, such as protocol changes to move CRR model posting timeline closer to bids window close, which would also results in a snapshot of NOMCRs and Outages closer to the Operating Month. Extreme example would be to post model Monday of bid window close to gain almost 2 weeks, but CRRAHs have less time to consider posted CRR model for bidding. CMWG June 2013

23. Credit Lock Improvements Significant Credit Lock issues observed –With increased auction sequences ERCOT has observed many Counterparty and CRRAH credit failures that have significant impacts to participation in CRR Auction (forget to lock credit, transpose credit values on TOU entries, etc) –ERCOT willing to work with market on Protocols/System changes to consider whether to merge (or at least overlap) the credit and bidding timelines so discrepancies can be discovered and fixed by companies –Current sequence: Credit lock on Monday (no changes after lock) Bid window opens Tues-Thursday –Consider best sequence and visibility for alignment and change by company of credit values. CMWG June 2013

24. QUESTIONS?

25. Appendix of Settlement Details for Deration and Shortfall

26. What is Deration Factor? Slide 26 Deration Factor is an hourly value calculated for oversold constraints.  Prior to the DAM execution in each Operating Day, the MMS performs a SFT (Simultaneous Feasibility Test) to evaluate the DAM transmission capacities against outstanding CRRs  The SFT calculates the total power flow for each transmission constraint by summing power flows created by all outstanding CRRs against the limit of the constraint.  If the total flow exceeds the corresponding transmission constraint limit, the constraint is determined to be oversold or violated  Settlements will receive through MMS the amount by which the constraint is oversold for the hour. Two conditions must exist for the calculation of Deration Factor to be necessary: A constraint is determined to be oversold/violated by the CRR Day Ahead SFT. The same constraint is binding in the Day Ahead Market and this is also reflected by a non-zero shadow price.

27. Calculation of Deration Factor If a Constraint C, has both a positive DASP (Day Ahead Shadow Price) and CRRSFTVIOL: Calculate Deration Factor per Constraint for each Operating Hour of the Operating Day: DRF_ = CRRSFTVIOL_ / CRRPOSTOT_ Calculate only CRR Total Positive Impact per Constraint for each Operating Hour of the Operating Day: CRRPOSTOT_ = Max (0, DAWASF_ _ - DAWASF_ _ ) * PTPSRSKTOT Slide 27 CRRSFTVIOL CRR SFT Violated Amount – the MW amount by which the constraint is oversold for the Operating Hour. PTPSRSKTOT Point to Point Source and Sink Total – the total DAOBL, DAOBLR, OPT, and OPTR for all CRR Owners for a source and sink Settlement Point pair, for the Operating Hour.

28. Slide 28 In the DAM, if the Congestion Rent is equal to or greater than the net amounts due to all CRR Owners for any Settlement Interval, then ERCOT shall pay the net amounts due to the CRR Owners and put any excess amount into the CRR Balancing Account. In the DAM, if the Congestion Rent is less than the net amounts due to all CRR Owners then ERCOT shall short-pay each CRR Owner on a prorated basis. At the end of the month, ERCOT shall pay any positive balance in the CRR Balancing Account to each short paid CRR Owner. Any remaining balance must be allocated to all QSEs on the QSEs Load Ratio Share based on ERCOT wide peak 15-minute Settlement Interval for the month. What is the monthly Balancing Account?

29. Slide 29 Day Ahead CRR Credit Total Day Ahead Congestion Rent DACRRSAMTTOT i = (-1) * Min (0, DACONGRENT + DACRRCRTOT + DACRRCHTOT ) Hourly Short-Fall Charges to CRR Owners Day Ahead CRR Charge Total DACRRCRTOT DAOBLCRTOTDay-Ahead Obligation Credit Total DAOBLRCRTOT Day-Ahead Obligation with Refund Credit Total DAOPTAMTTOTDay-Ahead Option Amount Total DAOPTRAMTTOT Day-Ahead Option with Refund Amount Total DAFGRAMTTOTDay-Ahead FGR Amount Total DACRRCHTOT DAOBLCHTOT Day-Ahead Obligation Charge Total DAOBLRCHTOT Day-Ahead Obligation with Refund Charge Total DACONGRENT DAESAMTTOT Day-Ahead Energy Sale Amount Total DAEPAMTTOT Day-Ahead Energy Purchase Amount Total RMRDAEREVTOT RMR Day-Ahead Energy Revenue Total DARTOBLAMTTOT Day-Ahead Real Time obligation Amount Total (Day-Ahead CRR Shortfall Amount Total)