The Texas Nodal Market Trip Doggett ERCOT Interim President and Chief Executive Officer Mike Cleary ERCOT Chief Technology Officer Executive Briefing 28 January 2010

2 NATF - Executive Briefing Agenda Program Status 2010 Market Trials Market Readiness Market Trial Engagement Questions 28 January 2010

3 NATF - Executive Briefing Objectives For This Session Dec 1 st is Go-Live Risk of discrepancies between protocols and systems & processes -Functionality is in place -Risk always exists between how the system works in the market and the written protocols Expect various reactions from your people Transparency 28 January 2010

4 307 Days to Go-Live 0 Items Impacting Go-Live Date Market Trials 2.1: Market Connectivity –On Schedule 160 of 292 QSEs Qualified for MMS transaction submittal –64 / 114 QSEs w/ Resources 79 % of Generation Qualified Window Closes for Qualification on Aug 13 th Market Trials 3.0: Congestion Revenue Rights (CRR ) –Started Jan 4 th 41 of 78 CRRAH Qualified to date First Monthly Auction for March begins on February 12 th –CRR allocation starts on Feb 1 st Market Trials 3.0: Real Time Markets / Outage Scheduler –Starting Feb 1 st Metrics: –Outage Scheduler Qualification Tracking to be added 2/5/2010 –LMP Trending and Reasonableness to be added 2/10/2010 Outage Scheduler Qualifications will continue through March 30th NATF - Executive Briefing28 January 2010

5 307 Days to Go-Live 0 Items Impacting Go-Live Date Market Trials 4.0: DAM/RUC –Starting Thursday Apr 1 st, for Operating Day Friday April 2 nd On Schedule –Submission Qualifications underway in Market Trials 2.1 Market Trials 5.0: Full Functionality –Starting May 17 th 2 Week Slippage –Mitigation plan in place to pull back on track »Overtime and budget monitoring Market Readiness –26 of 36 outreach sessions completed NATF - Executive Briefing28 January 2010

6 Integrated Nodal Timeline NATF - Executive Briefing28 January 2010

7 Nodal Defects Trends - High Priority (Must Fix Before Go-Live) NATF - Executive Briefing28 January Q2010 Real-Time Telemetry (1-day response time) Real-Time Submissions (across the 7 day week) Network Model Confirmation Quality/realistic data (daily offers) 2Q2010 Load Frequency Control (2-hour nodal grid frequency control May) 24x7 monitoring Day-Ahead Market & Reliability Unit Commitment (2-5 days a week) Settlement Trials Improved Data Quality (bids/offers) 3Q2010 Proving Readiness Final system tests and scenarios 48-hr LFC Test (48-hour grid control) 168-hour Test (Board approval) Final Market Participant Qualification (Window closes Aug 13th) 4Q2010 Go-Live Sequence Board Approved Go-Live Sequence Parallel Operations: Network Modeling and Outages Execute/Settle CRR Auction for December November- Operational production activities sequencing into go-live (eg Load Forecasting and Resource Offers) Dec 1 Go-Live Parallel zonal/nodal 30-days

8 Market Trials Participation Qualification is mandatory Qualification window closes on Aug 13 th Market Participants will provide all Nodal ICCP data feeds on a continuous basis and will provide all SCED-specific market submission items on a daily basis Three-Part Supply Offers, Output Schedules, and Incremental/Decremental (Inc/Dec) Offers Quality Bid/Offer submissions are a necessity ERCOT will not be scripting bid and offers for each QSE High Participation in the DAM market will help test the system Errors will be found Critical errors will be fixed before Go-Live Non-Critical errors will be moved to the parking deck NATF - Executive Briefing28 January 2010

9 Next Steps Continue to review metric status online: Feel free to reach out to Trip or Mike with questions or issues NATF - Executive Briefing28 January 2010

10 Received Questions 1. How about the proposal to do only 2-week updates of NMMS? Why would it be workable? What is a pseudo-switch and how would it operate? 2. How about that unscheduled outage of NMMS last Friday? Cause? Any data lost? Lessons learned? 3. Have we determined any workarounds necessary for scheduled go-live? Will we have the opportunity to weigh in on feasibility and side-effects of workarounds prior to use of them? NATF - Executive Briefing12 November 2009

11 Question Topics Service Level Agreements Defect Status Credit Management Data Quality System Performance Robustness of Functionality Outages and Testing Support Windows Others? NATF - Executive Briefing28 January 2010

12 Nodal Program Risks & Issues NATF - Executive Briefing18 January 2010 Risk/IssueImpacted Milestone TargetCategoryProbabilitySeverityStatus Integration Testing - Risk Continued risk around technology delivery of business systems integration due to complexity and continuing maturing of application and data dependencies. ProgramMay 2010Scope / Schedule / Budget LowMedPhase 3 On track; planning complete, execution in progress. Execution of work plan, with specific focus on January Market Trials functionality, under way. Later phase schedules have slipped due to environment issues and focus on Phase 2.1, Phase 3 delivery. Post Phase 3 Market Trials delivery mitigated by two weeks. Market Interaction Operating Level Agreements (OLAs) Need to determine operating level agreements associated with market interactions to assist ERCOT in establishing operational thresholds. ERCOT is responsible for ensuring any market thresholds required before Go-Live are defined, managed through the appropriate stakeholder processes and communicated in a timely fashion. Examples are Network Model Load Frequency; DAM Sizing; CRR sizing ProgramApril/ May 2010 Scope / Budget HighLowOn track. Phase 2.1 OLAs established and communicated to the market during Oct. 8 Market Readiness Seminar. Phase 3 complete. Phase 4 and 5 OLA definitions in process.

13 Nodal Program Risks & Issues NATF - Executive Briefing18 January 2010 Risk/IssueImpacted Milestone TargetCategoryProbabilitySeverityStatus Reconciling Protocols, Systems and Market Expectations Experience by other ISOs in deploying nodal markets has shown that expectations of the market participants are often missed, despite best efforts at defining tariffs or protocol requirements. ERCOT needs to assume such a risk exists for this nodal implementation as well. Phase 3Feb 2010 (Change control submitted) Scope / Schedule / Budget MedLowWork underway to trace protocols, requirements and business processes alignment analyses are in progress. SMEs added to the team in May. Credit Management – Business & Technical Exposure Credit Management rules and exposure calculations will change significantly with the implementation of the Nodal Program. During the requirements and design phase of the program stakeholder concerns have been expressed that may result in requested system changes as the program moves into Market Testing of Credit Management. Phase 5July 2010Scope / Schedule / Budget HighMedERCOT business and Nodal Program reviewing Credit concerns and next steps.