1. 1 Reliability Deployment Task Force (RDTF Meeting) December 20 th 2011 December 20, 2011

2. 2 Updates Status Update: Resource Adequacy Increase RRS by 500 MWs and Decrease NSRS by 500 MWs Offer Floor for RUC Commitments for Capacity Insufficiency Impact of New Power Balance Penalty Curve on PNM December 20, 2011

3. 3 Status Update: Resource Adequacy CategoryItemCompleted In Progress FutureNotes 1 Online Non-Spin standing deployment & offer floor  NPRRs 426 /428 ERCOT Board approved 12/13/11 Implementation: 1/5/12 Offline Non-Spin offer floor  NPRR 428 ERCOT Board approved 12/13/11 Implementation: 1/5/12 Responsive Reserve & Regulation Up offer floor  NPRR 427 ERCOT Board approved 12/13/11 Implementation: 1/5/12 Institutionalize the process to recall units for capacity  NPRR 432 Urgency determination: PRS 12/15/11 2 Expansion of Responsive Reserve with a corresponding reduction in Non-Spin  Draft Ancillary Service Methodology at Reliability Deployment Task Force 12/20/11 The proper price for RUC units deployed for capacity  Draft NPRR at RDTF 12/20/11 The proper magnitude and slope of the Power Balance Penalty Curve  Analysis of potential impact underway No system software changes necessary.

4. 4 Status Update: Resource Adequacy CategoryItemCompleted In Progress FutureNotes 3 Raising System Wide Offer Cap  Low Sustainable Limit problem for units RUCed online for capacity  Compensation for RUC commitments for reliability reasons  Review Peaker Net Margin Cap  ERCOT (Summer Items) Proposed EILS Rule Change  PUC Project No. 39948: Proposal for Publication 12/15/11 Potential 30-minute emergency response product  ERCOT staff exploring options Implement aggregated Controllable Load Resources  ERCOT staff developing concept in conjunction with Market Participants Posting non-binding near real-time forward prices  NPRR 351 Phase I of Look-Ahead SCED ERCOT Board approved 12/13/11 Implementation: 6/20/12

5. 5 Updates Status Update: Resource Adequacy Increase RRS by 500 MWs and Decrease NSRS by 500 MWs Offer Floor for RUC Commitments for Capacity Insufficiency Impact of New Power Balance Penalty Curve on PNM December 20, 2011

6. 6 Increase RRS by 500 MWs and Decrease NSRS by 500 MWs ERCOT has a draft version of the ERCOT Methodologies for Determining Ancillary Service Requirements document The proposed changes are: –The minimum RRS requirement will change from 2300 MW to 2800 MW and will no longer be tied to the forecasted Reserve Discount Factor –The NSRS calculation: Base NSRS Req. = 95 th Percentile of Net-Load Forecast Error – Avg. Reg. Up Req. becomes Base NSRS Req. = 95 th Percentile of Net-Load Forecast Error – Avg. Reg. Up Req. – 500MW of RRS –The cap for NSRS will decrease from 2000 MW to 1500 MW –The floor of 1375 MW across peak hours (7-22) will still be applied December 20, 2011

7. 7 Updates Status Update: Resource Adequacy Increase RRS by 500 MWs and Decrease NSRS by 500 MWs Offer Floor for RUC Commitments for Capacity Insufficiency Impact of New Power Balance Penalty Curve on PNM December 20, 2011

8. 8 NPRR 6.4.3.1Energy Offer Curve for RUC-Committed Resources (1)Prior to the end of the Adjustment Period for an Operating Hour during which a Generation Resource has been committed by ERCOT as part of a Reliability Unit Commitment (RUC) process, the QSE shall ensure that an Energy Offer Curve that prices all energy from LSL to HSL at or above $XXX/MWh for the Operating Hours in the RUC commitment period, has been submitted and accepted by ERCOT. (2) If the QSE receives a RUC Dispatch Instruction from ERCOT for its Generation Resource during the Operating Period that includes a RUC- Committed Hour, then the QSE shall be exempt from the submission timeline requirement specified in paragraph (1) above and shall instead submit the required Energy Offer Curve as soon as reasonably practicable after receipt of the RUC Dispatch Instruction. (3)The requirement in paragraph (1) above is not applicable for Weekly Reliability Unit Commitment (WRUC)-instructed hours during which the Resource was Day-Ahead Market (DAM)-committed or QSE self-committed. December 20, 2011

9. 9 RUC Committed Resources Dispatched for Capacity (12/01/2010 to 10/31/2011) 8640 Effective RUC Unit Hours –1787 hrs (20.7%) were dispatched above LSL for capacity (LMP =LSL+2) 1560 hrs(18.1%) with prices below $100 71 hrs(0.8%) with prices between $100 and $200 33 hrs(0.38%) with prices between $200 and $300 16 hrs(0.19%) with prices between $300 and $400 8 hrs (0.09%) with prices between $400 and $500 38hrs (0.4%) with prices between $500 and $3000 61hrs (0.7%) with prices greater than or equal to $3000 ‘Effective RUC Unit Hours’ considers multiple units committed for the same hour as different unit hours while ‘Effective RUC hours’ considers it as single hour. December 20, 2011

10. 10 RUC Committed Resources Dispatched for Capacity (12/01/2010 to 10/31/2011) 8640 Effective RUC Unit Hours –LMP =LSL+2 to determine dispatch for capacity 2107 hrs (24.4%) were dispatched above LSL for capacity –2008 hrs (23.2%) with prices below $500 –38 hrs (0.4%) with prices between $500 and $3000 –61 hrs (0.7%) with prices greater than or equal to $3000 December 20, 2011

11. 11 RUC Committed Resources (12/01/2010 to 10/31/2011) December 20, 2011

12. 12 RUC Committed Resources (12/01/2010 to 10/31/2011) December 20, 2011

13. 13 0 to LSL Energy from ONRUC 8640 Effective RUC Unit Hours Average ONRUC LSL is 82 MW, BP is 99.6 MW, HSL is 207 MW –5741 hrs (66.4%) are at or below LSL (BP-LSL<2MW) Average ONRUC LSL is 85MW –2899 intervals (33.6%) are above LSL for transmission or capacity Average ONRUC LSL is 75.5MW 3071 Effective Hours with at least one resource on ONRUC status Average system total ONRUC capacity –LSL is 230.5 MW; –HSL is 581.8MW; –BP is 279.9MW Effective RUC Unit Hours’ is SCED duration, summed up to hour level, for each RUC committed resource when it was online. ‘Effective RUC Unit Hours’ considers multiple units committed for the same hour as different unit hours while ‘Effective RUC hours’ considers it as single hour. December 20, 2011

14. 14 Updates Status Update: Resource Adequacy Increase RRS by 500 MWs and Decrease NSRS by 500 MWs Offer Floor for RUC Commitments for Capacity Insufficiency Impact of New Power Balance Penalty Curve on PNM December 20, 2011

15. 15 Impact of New Power Balance Penalty Curve on PNM December 20, 2011 PB Violation MWCurrentOriginal CPS ProposalNew CPS ProposalIMM Proposal 0200 1 1250 5 5300 10300 10400500350400 20400500350400 20500750400500 30500750400500 301000 5001000 401000 5001000 402250 10002250 502250 10002250 503001 20004000 753001 20004000 7530013400 4000 15030013400 4000 15030013600 4000 25030013600 4000 25030013800 4000 40030013800 4000 40030014000 50030014000 50030014000

16. 16 Impact of New Power Balance Penalty Curve on PNM December 20, 2011 1.Original CPS Proposal (Submitted to RTDF) : Same as existing curve between 1-10 MW and 30-75. Penalty cost higher between 10-30 and above 75 MW under-generation. 2.New CPS Proposal (Submitted to PUCT) : Same as existing curve between 1-10 MW. Lower penalty between 10-75 MW, while finishing higher for 75 MW and up. 3.IMM Proposal : Same as existing curve except for after 50 MW under-generation, the penalty increase from existing $3001/MWh to $4000/MWh 4.All at $3001 PNM addition is calculated as the sum of time weighted difference between new penalty and old penalty for each level of Power Balance violation. For the first 3 cases, the assumption is that Power Balance Violation amount is not changing when the curve changed. For the last one since the new penalty is above SWCAP, all offers will be used before violating Power Balance and hence only intervals were the rampable room in SCED offered below SWCAP is less than Power Balance violation were considered. i.e. the effect of increase in prices when the rampable room in SCED offered below SWCAP is greater than Power Balance violation due to clearing more from the offer stack was not considered. Proposed CurvePNM change Excluding intervals GTBD >66,195 MW Original CPS14,42711,339 New CPS 8,0826,032 IMM22,47417,740 All at 300114,70012,830

17. 17 Apendix December 20, 2011

18. 18 RUC Committed Resources (12/01/2010 to 10/31/2011) December 20, 2011

19. 19 RUC Committed Resources (12/01/2010 to 10/31/2011) December 20, 2011

20. 20 RUC Committed Resources (12/01/2010 to 10/31/2011) December 20, 2011

21. 21 RUC Committed Resources (12/01/2010 to 10/31/2011) December 20, 2011

22. 22 RUC Committed Resources December 20, 2011