ERCOT’S COMPLIANCE ASSESSMENT and ENFORCEMENT PROGRAM March 23, 2005

Compliance Program Overview

Protocols & Guides NERC Standards Audits / Investigations Data Gathering & Reporting Functional Model Enforcement

Compliance Program Overview ERCOT Compliance does not make the rules! Compliance enforces rules as set forth by stakeholders and market participants: –ERCOT Protocols –ERCOT Operating Guides AND through the NERC Standards as established by the electric industry

Compliance Assessment Process

Assessment Processes Periodic Data Collection and Monitoring Self Certification & Audits – Most Common, Eventually will Combine into Certification Activity Investigations Triggered by Events – ERCOT’s investigation process

Compliance Assessment Process ERCOT Compliance currently has 28 Compliance Monitoring & Measurement Requirements Templates have been developed for 11 of those requirements 17 additional templates remain to be developed NERC has 45 additional Compliance templates Compliance is required regardless of whether or not a template exists

Levels of Non-Compliance

Consequences of Non-Compliance NERC Level assessed based on violation severity Recurring violations result in higher levels Simulated $$$$ penalties Letters sent to higher levels of mgmt Posting at NERC’s website Additional reserves (RRS) for DCS fails Review by NERC Board

Occurrence Within A Rolling 12 – Month Period Level Non- Compliance 1 st 2 nd 3 rd 4 th and Greater 1 (1) Letter to Mgr (1) $1,000 or $1/MW $2,000 or $2/MW 2 (1) $1,000 or $1/MW $2,000 or $2/MW $4,000 or $4/MW 3 $1,000 or $1/MW $2,000 or $2/MW $4,000 or $4/MW $6,000 or $6/MW 4 $2,000 or $2/MW $4,000 or $4/MW $6,000 or $6/MW $10000 or $10/MW NERC Proposed Penalty Matrix

Consequences of Non-Compliance ERCOT Letters of Non-Compliance Posting on ERCOT’s website PUCT Notified Disqualification for some A/S ERCOT does not have the authority to levy fines at this time!

Corrective actions need to be taken – or explanation of circumstances provided – for non-compliance Corrective Action plans are tracked to completion Failure to complete Corrective Action plans will result in further posting and escalation Late delivery of data or other information will be escalated in steps, finally resulting in non-compliance Lateness and Corrective Action Plans

Where can more information be found?

ERCOT’s Compliance Homepage Complete links to NERC & ERCOT Templates Compliance Processes Notices and Reports Links to NERC items “

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