Resource Cost Working Group August 2, 2017 WMS Update

Long-Term Solution to Coal Index Price

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 RCWG reviewed revised draft NPRR for Coal Fuel Index Price “CFIP” Coal Fuel Index Price: “Delivered to ERCOT” index price based on PRB 8400 coal plus rail transportation Considering using 8800 Btu/lb coal index instead of 8400 $0/MMBtu fuel adder for coal and lignite Min Energy and Make-Whole caps from $18/MWh to 10.5*CFIP

Long-Term Solution to Coal Index Price - continued Preliminary Cost Impact of $275k to $375k, but simplifications may reduce impact Retain existing Coal and Lignite generic price formats for Minimum Energy and Make-Whole caps but possibly update values monthly or quarterly instead of utilizing a daily CFIP RCWG to review additional information and continue discussion at next meeting Variability of coal index prices over monthly and quarterly periods ERCOT to provide historical changes to CFIP

Exceptional Fuel Costs Included in the Mitigated Offer Cap (MOC)

Exceptional Fuel Cost Included in the Mitigated Offer Cap Background: On certain days in February and March 2014 (Polar Vortex), some Resources were mitigated in real-time to below their actual cost due to large differences between FIP and their actual gas price (i.e. Waha) NPRR664 implemented a manual Real-Time Make-Whole Payment process for exceptional fuel events that expired May 1, 2015 Also provided for a resource-specific Fuel Index Price (FIPR) of Houston Ship Channel, Waha or weighted-average price NPRR714 extended the manual process for Make-Whole with a sunset date of 6/1/17

Exceptional Fuel Cost Included in the Mitigated Offer Cap Background (continued): TAC assignment to investigate alternatives to NPRR664 Prefer exceptional fuel costs in LMPs to avoid make-whole and uplift, but also concerned with incorrect LMPs RCWG/WMS have discussed several options without reaching consensus Option 1: Continue with existing Real-Time Make-Whole Payment Option 2: Pursue “Exceptional Fuel Cost flag” concept Option 3: Increase MOC Capacity Factor Multipliers during Cold Weather Events ERCOT has proposed a new revised option

Exceptional Fuel Cost Included in the Mitigated Offer Cap Overview of draft NPRR During an exceptional fuel event, a QSE can submit a weighted average fuel price (WAFP)1 to ERCOT. WAFP must exceed FIP + Fuel Adder + $2, and applicable to at least 10% of the total fuel burned in the applicable Operating Hour WAFP can only be submitted during the adjustment period for each Operating Hour (i.e. 1 hour at a time) ERCOT would use the WAFP in the MOC calculation in place of FIP & FA After the event, QSE must provide documentation of the WAFP to ERCOT for validation, including attestation by an officer Failure to provide sufficient, timely and supportable documentation may result in limiting ability to submit exceptional fuel cost for up to 12 months RCWG to continue discussion at the next meeting 1 Applicable only to intraday or same-day gas purchases

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 TAC Assignment: Alternative to NPRR664 Fuel Index Price for Resource Definition… Aging Projects-NPRR664, Index Fuel Price On-going Reviewing draft NPRR Coal Index – Long Term Solution RMR Issue: Contract length – “significant investment” language On-hold Developed draft NPRR based on WMS guidance. On-hold pending PUCT RMR rulemaking Re-assigned to QMWG? Switchable Generation Resource DSWG Whitepaper Joint DSWG/RCWG assignment Next RCWG Meeting – Wednesday August 23, 2017