Protocol Revision Subcommittee Tom Burke June 28, 2012

2 Summary of Revision Requests 9 NPRRs Recommended for Approval 2 Other Binding Documents Recommended for Approval

3 Items for a Vote Unopposed Recommendations NPRR436*, Clarify the Use of the Defined Term Season and Its Derivatives NPRR438, Additional Minimum Counter-Party Qualification Requirements, Including Risk Management Capability Requirements NPRR455, CRR Shift Factors Report NPRR458*, Establishment of ERCOT’s Central Counterparty Role NPRR462*, Removal of Consumer Benefit Test from the ERCOT Planning Criteria NPRR468*, Alignment of System-Wide Offer Cap and Scarcity Pricing Mechanism Language with PUCT Substantive Rules – U RGENT Recommendations with Opposing Votes NPRR416, Removal of the RUC Clawback Charge for Resources Other than RMR Units NPRR459, Better Matching Forward Collateralization with Forward Risk in the Real-Time Market – U RGENT NPRR469, Modifications to CCTs – U RGENT (* denotes no impacts)

4 NPRR Descriptions NPRRs Recommended for Approval

5 NPRR416, Creation of the RUC Resource Buyback Provision Purpose (Exelon/Calpine) This NPRR adds a buyback provision for Resources committed by ERCOT’s RUC process that allows all RUC Clawback Charges associated with the RUC commitment to be waived and RUC Make- Whole Payments to be forfeited. PRS VoteOn 4/19/12, PRS unanimously voted to recommend approval of NPRR416 as amended by the 4/18/12 STEC comments and as revised by PRS. On 6/21/12, PRS voted via roll call vote to endorse and forward the 4/19/12 PRS Report as amended by the 6/20/12 ERCOT comments and Impact Analysis for NPRR416 to TAC with a recommended priority of 2012 and rank of 365. There were three opposing votes from the Consumer (2) and IPM Market Segments and two abstentions from the IREP and IPM Market Segments. Effective Date/PriorityUpon System Implementation – Priority 2012; Rank 365 ERCOT Impact$190k - $215k; no impacts to ERCOT staffing; impacts to MMS User Interface, EMS, MMS, S&B, CSI, EIS, and IEP; ERCOT business functions will be updated Business Case Highlights Increased efficiency in RUC selection process and lowering RUC uplift costs; economic efficiencies for both the demand and supply sides of the market; removes unnecessary value transfers where more than adequate incentives already exist to incent the desired bidding and offer behaviors.

6 NPRR436, Clarify the Use of the Defined Term Season and Its Derivatives Purpose (OWG) This NPRR deletes the reference to the Operating Guides and capitalizes uses of the word “Season” and its derivatives where applicable according to the definition in Section 2.1, Definitions. PRS VoteOn 5/17/12, PRS unanimously voted to recommend approval of NPRR436 as amended by the 4/23/12 OWG comments and as revised by PRS. On 6/21/12, PRS unanimously voted to endorse and forward the 5/17/12 PRS Report and Impact Analysis for NPRR436 to TAC. Effective Date/PriorityAugust 1, 2012 ERCOT ImpactNo impacts. Business Case Highlights To remove ambiguity between the starting and ending dates of the Seasons in the Operating Guides and the Protocols and standardizes the timeframes of various testing and test result submission dates found throughout the Protocols.

7 NPRR438, Additional Minimum Counter-Party Qualification Requirements, Including Risk Management Capability Requirements Purpose (ERCOT) This NPRR establishes minimum requirements for Counter-Parties to participate in the ERCOT markets. PRS VoteOn 5/17/12, PRS voted to recommend approval of NPRR438 as amended by the 4/30/12 Credit WG comments and as revised by PRS. There were two abstentions from the Municipal and Independent Generator Market Segments. On 6/21/12, PRS unanimously voted to endorse and forward the 5/17/12 PRS Report and Impact Analysis for NPRR438 to TAC. Effective Date/PriorityUpon System Implementation of PR014_01, Implementation of NPRR347 and NPRR400 ERCOT ImpactLess than $5k (ERCOT systems), $110k-$130k (staffing); estimated ongoing impact of one FTE in to oversee the verification process; impacts to CMM; ERCOT business functions will be updated; no impacts to ERCOT grid operations and practices. Business Case Highlights Reduce risk in the ERCOT market and satisfy expected CEA exemption requirements; will also make the ERCOT market more consistent with other ISO requirements.

8 NPRR455, CRR Shift Factors Report Purpose (MISUG) This NPRR creates a report on the Market Information System (MIS) Secure Area that provides Shift Factors for any binding constraints in a CRR Auction. PRS VoteOn 4/19/12, PRS unanimously voted to recommend approval of NPRR455 as revised by PRS. On 6/21/12, PRS voted to endorse and forward the 4/19/12 PRS Report and Impact Analysis for NPRR455 to TAC with a recommended priority of 2014 and rank of 900. There were two abstentions from the Municipal and IPM Market Segments. Effective Date/PriorityUpon System Implementation – Priority 2014; Rank 900 ERCOT Impact$245k - $270k; impacts to CRR, ISM, and MIS; ERCOT business functions will be updated; Business Case Highlights Provides ability to validate CRR Auction prices based on the binding constraints; Greater transparency of pricing information to the public; Provides additional means of identifying potential errors within the CRR Auction power flow solution; helps to detect network model errors; proper modeling of the ERCOT System, improves CRR Auction revenue adequacy; Increases the accuracy of constraint price information; Improved CRR Auction revenue adequacy benefits all Market Segments; Improved risk management and better risk controls.

9 NPRR458, Establishment of ERCOT’s Central Counterparty Role Purpose (ERCOT) This NPRR establishes ERCOT as the central counterparty to all transactions in the ERCOT market, except those involving bilateral trades or self-arranged services. PRS VoteOn 5/17/12, PRS voted to recommend approval of NPRR458 as submitted. There were two abstentions from the Cooperative and Municipal Market Segments. On 6/21/12, PRS voted to endorse and forward the 5/17/12 PRS Report as amended by the 6/13/12 ERCOT comments and Impact Analysis for NPRR458 to TAC. There was one abstention from the Cooperative Market Segment. Effective Date/PriorityAugust 1, 2012 ERCOT ImpactNo impacts. Business Case Highlights Enhance ERCOT’s ability to net any amount owed to a Market Participant with the amount of the Market Participant’s debt to ERCOT, thus reducing default risk.

10 NPRR459, Better Matching Forward Collateralization with Forward Risk in the Real-Time Market - U RGENT Purpose (NRG) This NPRR more appropriately collateralizes for forward risk in the RTM; and instructs that ERCOT should exercise its judgment to remove Operating Days from credit calculations when the use of those Operating Days is leading to unreasonable results based on expected forward market outcomes. PRS VoteOn 6/21/12, PRS voted via roll call vote to recommend approval of NPRR459 and the proposed Other Binding Document, Procedure for Setting Forward Risk Multiplier, as amended by the 6/18/12 NRG comments and as revised by PRS and to forward to TAC. There were two opposing votes from the Cooperative Market Segment and ten abstentions from the Cooperative, Municipal (2), IOU, Independent Generator (2), Consumer (2), and IPM (2) Market Segments. Effective Date/PriorityTo be determined. ERCOT ImpactTo be determined. Business Case Highlights Avoid defaults due to high prices, but reduce the cost of collateral posting for all Market Participants on an annual basis; increase in collateral requirements could reduce the cost or occurrence of a default from Real-Time market activity.

11 NPRR462, Removal of Consumer Benefit Test from the ERCOT Planning Criteria Purpose (ERCOT) This NPRR removes the consumer benefit test from the ERCOT planning criteria consistent with the Public Utility Commission of Texas (PUCT) Project 39537, Rulemaking to Implement HB 971, Relating to Economic Criteria for a Certificate of Convenience and Necessity for an Electric Transmission Project. PRS VoteOn 5/17/12, PRS voted to recommend approval of NPRR462 as amended by the 5/16/12 Oncor comments and as revised by PRS. There was one abstention from the Cooperative Market Segment. On 6/21/12, PRS voted to endorse and forward the 5/17/12 PRS Report and Impact Analysis for NPRR462 to TAC. There was one abstention from the Cooperative Market Segment. Effective Date/PriorityAugust 1, 2012 ERCOT ImpactERCOT business functions will be updated. Business Case Highlights Planning criteria will be consistent with the PUCT rulemaking in Project

12 NPRR468, Alignment of System-Wide Offer Cap and Scarcity Pricing Mechanism Language with PUCT Substantive Rules - U RGENT Purpose (ERCOT) This NPRR removes the specifics for determining the System-Wide Offer Cap (SWCAP) and operating the scarcity pricing mechanism language from the Protocols. The SWCAP and scarcity pricing mechanism language will be incorporated into the proposed Other Binding Document (OBD), System-Wide Offer Cap and Scarcity Pricing Mechanism Methodology. PRS VoteOn 6/21/12, PRS unanimously voted to grant NPRR468 Urgent status. PRS then unanimously voted to recommend approval of NPRR468 and the proposed Other Binding Document, System-Wide Offer Cap and Scarcity Pricing Mechanism Methodology, as submitted and to forward to TAC. Effective Date/PriorityAugust 1, 2012 ERCOT ImpactNo impacts. Business Case Highlights Incorporating specifics for determining the SWCAP and scarcity pricing mechanism into an Other Binding Document allows for language to be updated in a timelier manner.

13 NPRR469, Modifications to CCTs - U RGENT Purpose (Edison Mission) This NPRR proposes changes to the Constraint Competitiveness Tests (CCTs) to resolve the issues with the current design. PRS VoteOn 6/21/12, PRS unanimously voted to grant NPRR469 Urgent status. PRS then voted via roll call vote to recommend approval of NPRR469 as amended by the 6/20/12 ERCOT comments and as revised by PRS and to forward to TAC. There were seven opposing votes from the Municipal (3), IOU (2), and Consumer (2) Market Segments and five abstentions from the Cooperative (3) and IPM (2) Market Segments. Effective Date/PriorityTo be determined. ERCOT ImpactTo be determined. Business Case Highlights Improve the current process by providing a more robust analysis and a more defensible outcome; prevent market power and market abuse.

14 Other Binding Documents OBDs Recommended for Approval Addition of Procedure for Setting Forward Risk Multiplier (NPRR459) Addition of System-Wide Offer Cap and Scarcity Pricing Mechanism Methodology (NPRR468)

15 Project Priority List (PPL) Prioritization Review At the 6/21/PRS meeting, PRS reviewed upcoming revision request project efforts providing stakeholder input on the priority and plan of action for various items in the project queue In general, PRS supported the target start dates for revision request projects planned for the remainder of 2012 In addition, PRS took specific action on the following items NPRR442, Energy Offer Curve Requirement for Generation Resources Providing Reliability Must-Run Service reprioritized to Priority 2012; Rank 720 NPRR207, Unit Deselection referred to WMS to review and how it relates to NPRR416 NPRR241, AIL Calculation and Credit Reports Publish Corrections requested that ERCOT Staff file an NPRR to delete NPRR241 grey-boxes NOGRR034, Rescind Telemetry Performance Calculation Exclusions referred to ROS/NDSWG to review NPRR219, Resolution of Alignment Items A33, A92, A106, and A150 will be discussed at July PRS meeting SCR755, ERCOT.com Website Enhancements referred to MISUG SCR756, Enhancements to the MarkeTrak Application referred to RMS/MTTF to review