ERCOT Wholesale Market Basics Module 1 Overview

Mission and Organization Role of ERCOT Market Participants TOPICS Module 1 Quick facts about ERCOT Mission and Organization Role of ERCOT Market Participants Here is the agenda for Module 1. First, some facts about ERCOT. Then we will go into the mission and organization of ERCOT. Third we will discuss ERCOT’s role in the electric industry. Finally, we will take a high level look at the different Market Participants. ERCOT Wholesale Market Basics 2

TOPIC 1: Quick Facts Module 1 ERCOT Wholesale Market Basics 3

About ERCOT Member-based 501(c)(4) nonprofit corporation Quick Facts Module 1 About ERCOT Member-based 501(c)(4) nonprofit corporation Annual 2009 budget of ~$168 Million Over 700 full-time employees in Taylor and Austin, Texas Revenue neutral Fees charged to cover expenses Budget includes base operations, projects, and monitoring. Does not include Nodal – budget of $263 million ERCOT is a private, not-for-profit 501-C6 corporation in Texas. We have facilities in Taylor and Austin. In addition to reliable operations, ERCOT provides centralized registration, meter data acquisition, data aggregation, and load profiling. (Protocol Section 1) Currently we have about 570 FTEs. The 2007 budget is around 133.8 million dollars. WE ARE REVENUE NEUTRAL. We do not take a cut of the market. However we do charge QSEs a fee (based on LRS) for ERCOT, Texas Reliability Entity, and Nodal. Other fees apply to studies, special connections (WAN), etc. This information can be found at the bottom of the protocol library page – ERCOT Fee Schedule ERCOT Wholesale Market Basics 4

1995: Texas PURA enabled wholesale market deregulation Quick Facts Module 1 ERCOT IN TIME 1995: Texas PURA enabled wholesale market deregulation 1996: ERCOT became a non-profit ISO 1999: SB7 enabled retail market competition 2000: ERCOT Protocols developed by stakeholders 2001: Wholesale & pilot retail markets opened 7/31 2002: Full retail market opened 1/1 2003: PUCT orders wholesale market redesign 2006: NODAL Protocols approved by PUCT 2010: Texas Nodal Market Implementation ERCOT Wholesale Market Basics

ERCOT is: The Texas Reliability Entity under NERC/FERC Quick Facts Module 1 ERCOT is: The Texas Reliability Entity under NERC/FERC A NERC Interconnected System 1 of 3 in USA An Independent System Operator 1 of 7 RTO/ISO in USA ERCOT Wholesale Market Basics

ERCOT Capacity and Demand Quick Facts Module 1 ERCOT Capacity and Demand One of the largest single control areas in US 38,000 miles of transmission 85% of Texas load Capacity ~73,000 MW Reserve Margin ~16% for 2009 ~70% Natural Gas All-time Peak Demand August 2006 – 62,339 MW Fuel Type 2007 Natural Gas 71.7% Coal 20.5% Nuclear 6.4% Wind 0.4% (capacity is reduced to 8.7% of total) Water 0.7% Other 0.3% *includes installed cap * cap factors ERCOT Wholesale Market Basics 7

ERCOT Market Involvement: Quick Facts Module 1 ERCOT Market Involvement: Bilateral Wholesale Market 95% ~ $27 billion Balancing Energy and Ancillary Services market Other 5% ~ $1.9 billion Registered Market Participants: >900 Include QSE, LSE, Resources, TDSP ERCOT Wholesale Market Basics

ERCOT Retail Market Involvement: Quick Facts Module 1 ERCOT Retail Market Involvement: How many retail customers in ERCOT? ~21 million How many customers with the “Power to Choose” electric service provider? ~5.9 million How many of those have exercised the “Power”? ~50% of residential load ~76% of non-residential ~30 million retail transactions (~330,000/month) ERCOT Wholesale Market Basics

For additional details about ERCOT, please go to: Quick Facts Module 1 For additional details about ERCOT, please go to: http://www.ercot.com/content/news/presentations/2008/ERCOT_Quick_Facts_May_2008.pdf For more information on the Nodal market redesign, please go to: http://nodal.ercot.com For more information on the Retail Market, please go to: http://www.powertochoose.org ERCOT Wholesale Market Basics

TOPIC 2: Mission and Organization Module 1 Part Two… ERCOT Wholesale Market Basics 11

Mission and Organization Module 1 The mission of ERCOT Nurtures the development of an effective and highly reliable electricity market in Texas To fulfill obligations established by Texas Legislature, we will… Ensure access to transmission and distribution systems Ensure reliability and adequacy of the regional electrical network Ensure information relating to customer choice is conveyed in timely manner Ensure that electricity production and delivery are accurately accounted for ERCOT Wholesale Market Basics

Mission and Organization Module 1 Governed by… ERCOT Board of Directors Governmental oversight by… Texas Legislature Establishes laws related to electricity industry Public Utility Commission of Texas Provides regulatory oversight Creates substantive rules based on laws North American Electric Reliability Corporation as the Electric Reliability Operator Texas RE monitors and reports compliance to NERC ERCOT Wholesale Market Basics

Mission and Organization Module 1 The Board of Directors is made up of sixteen members Nine representatives from seven market segments One Independent Retail Electric Provider One Independent Generator One Independent Power Marketer One IOU One Municipal One Cooperative Three Consumers One Office of Public Utility Counsel as an ex officio voting member One Commercial One Industrial Five Unaffiliated Directors ERCOT CEO as an ex officio voting member Chair of the PUCT as an ex officio non-voting member ERCOT Wholesale Market Basics

Mission and Organization Module 1 ERCOT Administration Board of Directors Finance and Audit Committee HR and Governance Committee Special Nodal Program Committee Texas Regional Entity Advisory Committee Technical Advisory Committee Distributed Generation Task Force Renewable Technologies Working Group TAC and Subcommittees Organizational Review Task Force Training Seminar Working Group Transition Plan Task Force Five Subcommittees Commercial Operations Subcommittee Protocol Revision Subcommittee Reliability and Operations Subcommittee Retail Market Subcommittee Wholesale Market Subcommittee ERCOT Wholesale Market Basics

Mission and Organization Module 1 ERCOT Stakeholders: Retail consumers, investor- and municipal-owned electric utilities, cooperatives, river authorities, independent generators, power marketers and retail electric providers Stakeholder Process: Each market segment elects representatives to serve on the Board of Directors and stakeholder committees, subcommittees, working groups and task forces, which make recommendations to the board regarding ERCOT market rules and procedures ERCOT Wholesale Market Basics

Mission and Organization Module 1 Board and Committees are comprised of ERCOT stakeholders and establish the policies and procedures for ERCOT, including the Market Rules To become involved in the stakeholder process… Participate in the public meetings Sign up for email distribution lists To find additional information, visit the following sites: Committee and Subcommittee webpage: http://www.ercot.com/committees/index.html Meeting and event calendar: http://www.ercot.com/calendar/index.html Email distribution lists: http://lists.ercot.com ERCOT Wholesale Market Basics

Mission and Organization Module 1 Market Rules ERCOT Protocols and Guides are established, revised and approved by market participants through the stakeholder process ERCOT Guides constitute amplifications to the ERCOT Protocols Commercial Operations Market Guide Competitive Metering Guide Data Transport Guides Load Profiling Guide Operating Guides Retail Market Guide Settlement Metering Operating Guide Texas SET Guides RULES ARE ESTABLISHED, REVISED, AND APPROVED BY THE MARKET. ERCOT Wholesale Market Basics 18

Mission and Organization Module 1 ERCOT Protocols Protocol Revisions Any Market Participant can submit a Protocol Revision Request Any Market Participant can submit comments on any pending PRR Protocol Interpretations (PIR) Submitted to ERCOT General Counsel ERCOT shall respond within ten (10) Business Days of receipt For more information on Protocols, go to: http://www.ercot.com/mktrules/protocols/index.html ERCOT Wholesale Market Basics

Mission and Organization Module 1 ERCOT Protocol Revision and System Change Requests Protocol Revision Request Process Changes to ERCOT systems or processes and related protocols Submitted for evaluation through the stakeholder governance process System Change Request Process Changes to ERCOT computer systems which do not require protocol revision Submitted for consideration to appropriate TAC subcommittee, TAC, and ERCOT Board ERCOT Wholesale Market Basics

Mission and Organization Module 1 ERCOT Protocol Revision Count Since 2001 Over 800 Zonal Market Protocol Revisions Proposed Not all are passed for implementation Nodal Market Transition Approximately 170 Protocol Revisions have been issued though Nodal Market is scheduled for 2010 launch ERCOT Wholesale Market Basics

Mission and Organization Module 1 Typical Protocol Revision Lifecycle Day 1 Comment Period PRR ERCOT Market Rules 21 Draft PRR Working Group Stakeholder Committee Sub Committee Protocol Task Force 30 PRS ERCOT BOARD 60 Single Stakeholder TAC 120 90 ERCOT Wholesale Market Basics

TOPIC 3: Role of ERCOT Module 1 Part 3 of Section 1. ERCOT Wholesale Market Basics 23

ERCOT’s role as defined in the Protocols Role of ERCOT Module 1 ERCOT’s role as defined in the Protocols Ensure system reliability Run a competitive wholesale market Facilitate retail registration / switching Ensure transmission grid reliability and adequacy Ensure access to the transmission and distribution systems for all buyers and sellers of electricity on nondiscriminatory terms Ensure that electricity production and delivery are accurately accounted for among the Generation Resources and wholesale buyers and sellers, and TDSPs in the ERCOT Region Ensure that information relating to a Customer's choice of Retail Electric Provider in the state of Texas is conveyed in a timely manner to the persons who need that information SUMMARY: ERCOT’s role is to keep the lights on and run a competitive wholesale market, facilitate retail switching transactions, and enforce Protocols. ERCOT Wholesale Market Basics 24

Core processes to fulfill role Wholesale Market Operations Role of ERCOT Module 1 Core processes to fulfill role Wholesale Market Operations Power Operations Commercial Operations System Planning Operations Areas To carry out its appointed duties, ERCOT is involved in many activities every day within its four operations areas: Market Operations includes maintaining the intricate balance between forecasted electricity power generation schedules and actual electricity demands among all competing market participants. Production Operations includes transmission grid security, planning, and market support. Financial (Commercial) Operations includes client relations, meter acquisition and data aggregation, settlements, billing, business rules, registration, load profiling, and renewable energy credit program management. Registration includes acting as a centralized registration agent for both retail premises and market participants for the entire state of Texas. ERCOT Wholesale Market Basics 25

Wholesale Market Operations Day-Ahead Ancillary Services Capacity Role of ERCOT Module 1 Wholesale Market Operations Day-Ahead Ancillary Services Capacity Market Selection & Dispatch based on competitive bids “Balanced” schedules by QSEs Financial Market for Hedging Congestion ERCOT operates a day-ahead ancillary services capacity market. These services (discussed in detail later on) are selected and dispatched based on competitive bides. All QSEs must submit balanced schedules. The generation and load must be equal. Cannot submit a schedule of 100MW of generation and only 90MW of load. How 'bout something like this: When we speak of Market Operations, what do we mean? For starters, we hold a day-ahead ancillary services capacity market. Here we reserve capacity that we can deploy the following day to maintain reliability of the grid. During the operating day, to ensure that generation and load are always balanced, we dispatch generation based on competitive bids. And all through this process, QSEs are submitting balanced schedules to inform us of their supplies and obligations. ERCOT Wholesale Market Basics 26

Power Operations Managing Reliability Role of ERCOT Module 1 Power Operations Managing Reliability Monitoring and coordinating transmission capacity Ensuring adequate reserves (Ancillary Services), “just in case” Issuing dispatch instructions to ancillary service and transmission service providers Real-time congestion management ERCOT Wholesale Market Basics

Role of ERCOT Module 1 Power Operations The ERCOT power operations system monitors and analyzes all grid components every 2-4 seconds for status, loading and output ERCOT directs the safe and reliable operation of the power system in conjunction with transmission control centers of the TDSPs ERCOT monitors the grid and every 4 seconds and works in conjunction with each TDSP control center to direct the safe and reliable operation of the power system. ERCOT is the “big picture” control center – and makes the system decisions. ERCOT Wholesale Market Basics 28

Commercial Operations Role of ERCOT Module 1 Commercial Operations Operation of the retail transactions and financial settlement of the wholesale market Registration Retail premises Market participants Retail Transactions Data Acquisition Load Profiling Data Aggregation Settlement and billing Commercial operations – everything behind the scenes as well as the important stuff – the MONEY. ERCOT Wholesale Market Basics 29

ERCOT Client Services Contact us… Wholesale Client Services Role of ERCOT Module 1 ERCOT Client Services Wholesale Client Services Retail Client Services Market Rules Market Education Contact us… Send an e-mail to ClientRelations@ERCOT.com Call us at 512-248-3900 The best way to ask questions about ERCOT’s role (or anything else about ERCOT) is to go to your account manager. Also, you can email or call Client Services – either Wholesale or retail – by phone or email. ERCOT Wholesale Market Basics 30

Wholesale Client Services Role of ERCOT Module 1 Wholesale Client Services Account Management Services Market Participant Education Support Market Participant Registration Support Market Participant Qualification Support Market and Operations Interfaces Market and Operations Support Protocol Assistance Market Participant Settlement Support ERCOT Wholesale Market Basics

Wholesale Client Services Role of ERCOT Module 1 Wholesale Client Services Market Support Services Market Participant Communications Market Education Support Market Participant Registration Management Market Participant Settlement Forensics Market Participant Identity Management 3900 Line ERCOT.com services content Market Notices Freq. Asked Questions ERCOT Wholesale Market Basics

Retail Client Services Role of ERCOT Module 1 Retail Client Services Address needs of Market Participants during the certification process Actively participate in the Stakeholder process to communicate and resolve issues, and monitor the rules of the Market to assist MPs with any questions/issues Provide education as needed for Retail Issues Liaison between ERCOT and MPs for all Retail Market Operation functions Retail Market Call Bi-weekly Mondays and Wednesdays ERCOT Wholesale Market Basics

Account Managers Act as the liaison between ERCOT and MPs as the Role of ERCOT Module 1 Account Managers Act as the liaison between ERCOT and MPs as the primary contact for all Market questions and issues Maintain business relationships with all MPs to facilitate issue resolution Analyze issues as they arise to provide support to MPs in their business functions with ERCOT and between other MPs Advocate MP issues within ERCOT and provide communication back to Market SME Account Manager Account ERCOT chose this Account Management model b/c it; Provides a single point of contact for account Builds personal relationships between account staff and account manager Places the accountability on the account manager – not the account – to find the appropriate resource to resolve the issue Serves operations staff by allowing them to focus on their task at hand (system operations) Supports service continuity by dealing with a primary and/or secondary account manager ERCOT Wholesale Market Basics

Role of ERCOT Module 1 Market Education Learning Management System https://www.ercottraining.com/lms/default.asp Market Operations NERC Compliance Texas Nodal Training http://nodal.ercot.com/training/index.html ERCOT Wholesale Market Basics

TOPIC 4: Market Participants Module 1 Yippee…I’m almost done. Part 4 of Section 1. ERCOT Wholesale Market Basics 36

Qualified Scheduling Entities (QSE) Resource Entities (RE) Market Participants Module 1 Qualified Scheduling Entities (QSE) Resource Entities (RE) Load Serving Entities (LSE) Transmission and Distribution Service Providers (TSP, DSP, TDSP) Others Power Marketers Aggregators Types of MPs: QSE – only ones ercot financially settles with RES – make the power TDSPs deliver the power LSE – distribute the power via NOIE or CRs In between (independent of ERCOT) are the power marketers and aggregators. ERCOT Wholesale Market Basics 37

TDSP QSEs QSEs Market Participants Bilateral Power delivery Module 1 Electricity sellers Electricity buyers Bilateral Load Power delivery TDSP Resources Serving transactions Entities Bilateral QSEs QSEs transactions EMPHASIZE THE QSE ACKNOWLEDGEMENT FORM!!!!!!!!!!!!!!!!!!! Power reliability ERCOT Wholesale Market Basics 38

Qualified Scheduling Entities (QSE) Market Participants Module 1 Qualified Scheduling Entities (QSE) Only QSEs can schedule, bid and financially settle with ERCOT for energy and capacity Typical Functions Schedule Load and Generation Bid into the Ancillary Service market Provide Ancillary Services Power Marketing Power marketers do not have to be QSEs, but have to work with one. ONLY MP ERCOT FINANCIALLY SETTLES WITH. QSE ERCOT Wholesale Market Basics 39

All Resource Entities must be represented by a QSE. Market Participants Module 1 Resource Entities Generation Facilities capable of providing energy Loads capable of decreasing demand (LaaR) Can provide reserve capacity All Resource Entities must be represented by a QSE. Loads acting as Resources (LAAR) Load acting as a Resource (LAAAR) DG and small generators – may not need QSE – depends on situation. Renewable – must register with ERCOT and have meter information for REC ERCOT Wholesale Market Basics 40

All LSEs must be represented by a QSE. Market Participants Module 1 Load Serving Entities (LSE) Provide electric service to Retail and Wholesale customers LSE Types CR REP: Any entity that sells electricity to customers in Texas in a competitive area Opt-in Entity: Municipality or Cooperative that offers Customer Choice NOIE Municipality or Cooperative that does NOT offer Customer Choice All LSEs must be represented by a QSE. ERCOT Wholesale Market Basics 41

* ERCOT polls certain meters; some entities use a MRE Market Participants Module 1 Transmission & Distribution Service Providers (TSP, DSP, TDSP) Local distribution / electric delivery company (DSP) Own, operate, and maintain transmission and distribution lines (TSP, TDSP) Work with ERCOT in retail switching process Provide meter data to ERCOT for Settlement* Rates for service remain regulated by PUCT Collaborate with ERCOT for transmission system planning and reliability Transmission Reservations are not required in ERCOT. * ERCOT polls certain meters; some entities use a MRE MRE: Meter Reading Entity. Part of ERCOT-registered TDSP. Responsible for meter reads that are not polled by ERCOT. ERCOT Wholesale Market Basics 42

Other Market Players – Power Marketer Market Participants Module 1 Other Market Players – Power Marketer Buy and sell electricity at wholesale No certificated service area Either…authorized by FERC to sell electricity at market-based rates Or…is registered with PUCT as a power marketer* Wholesale Power Marketers don’t have to be a QSE but have to work with one. * PUCT Substantive Rule 25.105, Registration and Reporting by Power Marketers ERCOT Wholesale Market Basics 43

Other Market Players – Aggregators An Aggregator is a Buyer’s Agent Market Participants Module 1 Other Market Players – Aggregators An Aggregator is a Buyer’s Agent Represents a group of customers who have banded together to buy electricity For example, groups may form from religious group, neighborhood association, or employer Can recruit members from competitive areas Must be registered with the PUCT ERCOT Wholesale Market Basics 44

ERCOT is overseen by the PUCT and is revenue-neutral Summary Module 1 ERCOT is overseen by the PUCT and is revenue-neutral Market Rules are established & revised by the market ERCOT’s role is: To keep the lights on To run a competitive wholesale market To facilitate retail switching transactions To enforce Protocols QSEs submit schedules & bids to ERCOT ERCOT settles financially only with QSEs All participants play a significant role ERCOT Wholesale Market Basics 45