Proposal for Consideration Regarding Holistic Solution to Congestion Irresolvable in SCED Issue:How do you identify when constraint is irresolvable Proposal:Adopt criteria developed by task force A non-competitive constraint is deemed irresolvable if the constraint cannot be resolved through SCED dispatch for more than two consecutive hours for more than 4 consecutive days or more than 20 hours in a rolling thirty day period. Those hours will be priced at the current shadow price cap pursuant to Section 3.5., Current Values for the Transmission Shadow Price Caps in the ERCOT Business Practice Manual for Setting the Shadow Price Caps and Power Balance Penalties in SCED.

Proposal for Consideration Regarding Holistic Solution to Congestion Irresolvable in SCED Issue:Adjustment of the shadow price cap when the constraint is irresolvable Some themes heard in the task force meetings – THEME: Shadow price cap needs to be re-evaluated when constraint is deemed irresolvable and the Irresolvable Shadow Price Cap shall not be higher than current shadow price caps pursuant to Section 3.5, Current Values for the Transmission Shadow Price Caps in the ERCOT Business Practice Manual for Setting the Shadow Price Caps and Power Balance Penalties in SCED THEME: Irresolvable Shadow Price Cap needs to maximize the dispatch of generation Calculation of shadow price cap needed to maximize dispatch of generation Mitigated Offer Cap of lowest shift factor unit/shift factor of lowest unit used to resolve constraint THEME: Shadow price cap should rely on scarcity pricing concepts from the Commission Resource Adequacy Rule and send a price signal that reflects the marginal cost to resolve the constraint (firm load shed) and provide adequate incentive/development opportunity for peaking capacity (Direct Energy Proposal) To meet this objective Direct Energy proposes a floor of $2000 per MWh for the Irresolvable Shadow Price Cap THEME: There needs to be a back-stop in place to protect consumers from inefficient transfer of wealth Direct Energy proposes including a back-stop based upon peaker net margin Peaker net margin based upon annualized fixed cost of new gas turbine unit ($95,000 per MW/year) and measured by either tracking shadow price per MWh for the irresolvable constraint or resource node LMPs that impact irresolvable constraint during congested intervals for the irresolvable constraint If peaker net margin exceeds $95,000 per MW/year, then lower shadow price cap to currently effective LCAP pursuant to PUC Subst. R (currently $500 per MWh) for the remainder of the calendar year or shadow price cap necessary to dispatch generation Reset shadow price cap to Irresolvable Shadow Price cap on January 1 st of the next calendar year

Proposal for Consideration Regarding Holistic Solution to Congestion Irresolvable in SCED Direct Energy believes the following formula could be applied holistically to irresolvable constraints and it addresses each of the objectives identified in the task force (Irresolvable Shadow Price Cap) Irresolvable Shadow Price Cap in a calendar year = Minimum of A or B until peaker net margin threshold exceeded then implement Option 1 or 2 A = current value for the Transmission Shadow Price Cap in Section 3.5 of the ERCOT Business Practice Manual for Setting Shadow Price Caps and Power Balance Penalties in SCED B= max of (Mitigated Offer Cap of lowest shift factor unit/shift factor of lowest unit used to resolve constraint) or $2000 per MWh Option 1:If peaker net margin exceeds $95,000 per MW/year, then lower Irresolvable Shadow Price Cap to currently effective LCAP pursuant to PUC Subst. R for the remainder of the calendar year. ERCOT shall reset shadow price cap to the Irresolvable Shadow Price Cap on January 1 st of the next calendar year. Option 2:If peaker net margin exceeds $95,000 per MW/year, then lower Irresolvable Shadow Price Cap to Minimum of A or C A = current value for the Transmission Shadow Price Cap in Section 3.5 of the ERCOT Business Practice Manual for Setting Shadow Price Caps and Power Balance Penalties in SCED C = max of (mitigated offer cap of lowest shift factor unit/shift factor of lowest unit used to resolve the constraint) or currently effective LCAP pursuant to PUC Subst. R for the remainder of the calendar year. ERCOT shall reset the shadow price cap to the Irresolvable Shadow Price Cap on January 1 st of the next calendar year. Issue:When does ERCOT terminate the Irresolvable Shadow Price Cap for the constraint? Proposal:ERCOT terminates the Irresolvable Shadow Price Cap when ERCOT determines the constraint is resolvable and ERCOT must provide 30 day notice to the market before implementation. The Irresolvable Shadow Price cap would increase to the current transmission shadow price cap pursuant to the Business Practice Manual.