Resource Cost Working Group October 17, 2016 WMS Update

Significant Capital Costs for RMR Contracts 3.14.1 Reliability Must Run ERCOT may execute RMR Agreements for no less than one month and no more than one year, with one exception. ERCOT may execute an RMR Agreement for a term longer than 12 months if the Resource Entity must make a significant capital expenditure to meet environmental regulations or to ensure availability to continue operating the RMR Unit so as to make an RMR Agreement in excess of 12 months appropriate, in ERCOT’s opinion. The term of a multi-year RMR Agreement must take into account the appropriate RMR exit strategy discussed in Section 3.14.1.4, Exit Strategy from an RMR Agreement. In the event ERCOT chooses to contract for an RMR Unit for longer than one year, ERCOT shall annually re-evaluate the need for the RMR Unit under the criteria set forth in paragraph (b) above. If ERCOT determines the RMR Unit is no longer needed, ERCOT shall enter into exit negotiations with the contract signatories to attempt to exit the contract early. However, ERCOT shall not enter into such negotiations until a Market Notice is issued providing the anticipated RMR exit time frame. The RMR standard Agreement is included in Section 22, Attachment B, Standard Form Reliability Must-Run Agreement. ERCOT shall post each RMR Agreement in its entirety, including amendments or modifications thereto, within five Business Days of execution on the MIS Secure Area. Options for WMS Consideration Require ERCOT Board approval for any RMR Agreement with a term longer than 12 months or capital expenditures greater than $3M Require ERCOT Board approval for all RMR Agreements Leave as-is

Settlement of Switchable Generation Resources (SWGRs) Continued discussion of potential benefits and costs of the settlement options for switchable generation resources ERCOT working to develop revised options based on these discussions for review at the next RCWG meeting

Long-Term Solution to Coal Index Price VCMRR014 provided an interim solution $1.10 fuel adder for coal and lignite resources that is added to the $1.50 Solid Fuel Price Sunsets 6/1/18 ERCOT provided separate draft NPRR/VCMRR’s for Coal Fuel Index Price and for Emission Costs Coal Fuel Index Price NPRR/VCMRR “CFIP” Coal Fuel Index Price: “Delivered to ERCOT” index price based on PRB 8400 coal plus rail transportation $0/MMBtu fuel adder for coal and lignite Emission Cost NPRR/VCMRR Provides for more timely calculation of Emission Costs RCWG to have a detailed review at the next RCWG meeting

Generation Resource Compensation during a Market Restart Continued discussion of guiding principles for Resource compensation during a market restart Refer to the attached document “Market Continuity Guiding Principles”

Fuel Cost Components in the Fuel Adder Background: Fuel Adder is used in calculation of Offer Caps and Make-whole payments Default is $0.50/MMBtu, but a Resource can elect to submit an “actual” fuel adder, subject to verification by ERCOT Fuel costs can include a number of components, such as commodity and capacity costs for transportation, storage, etc. Issue: Should fixed-cost components be included in establishing an actual Fuel Adder for a Resource? Status: RCWG has developed and discussed a list of gas cost components Decided to take a step back and establish guiding principles

WMS Open Action Items for RCWG Status Comments Review removal of PPA applied in Verifiable Cost from Protocol Pending Keep existing PPA language until NPRR664 is finalized Selection process for Fuel Index Vendors Completed NPRR765 Remove Vendor Names for Fuel Indices from the Protocols approved 3/31/16 Alternative to NPRR664 Fuel Index Price for Resource Definition… On-going NPRR714 extended make-whole process for exceptional fuel events to 6/1/17. Ideal solution would have exceptional fuel costs reflected in LMP’s. ERCOT working on proposal Fixed Cost Issues – Pipeline Capacity and Penalties Developing guiding principles Coal Index – Long Term Solution ERCOT drafting NPRRs and VCMRRs Market Continuity Workshop: How verifiable costs for renewables are addressed Developing market continuity guiding principles RMR Issue: Contract length – “significant investment” language Developed options and will prepare NPRR based on WMS guidance >>> Next RCWG Meeting on Wednesday, October 26, 2016 <<<