Texas Regional Entity Compliance Report TAC July 9, 2009

Page 2 of 16 Overview  NERC Organization Registration update  Load Serving Entity (LSE) Registration JRO update  NERC Standards Self-Certification Schedule  NERC Audit & Enforcement Highlights  Critical Infrastructure Protection - Spot Check  Critical Performance Metrics and Criteria for the ERCOT Nodal Market  Zonal PRR and OGRR progress TEXAS RE REPORT JULY 9, 2009

Page 3 of 16 NERC Organization Registration Update ●Texas RE and other ERCOT Stakeholders submitted comments on the proposed changes to NERC Rules of Procedures (section 500); These changes can modify:  The rules dealing with organization registration and certification  Appendix 5, the Organization Registration and Certification Manual ●Comments to changes are posted on the NERC website: ●Texas RE also provided comments on NERC’s technical feasibility exemptions (TFEs) procedure (CIP) TEXAS RE REPORT JULY 9, 2009

Page 4 of 16 NERC LSE Registration Update ●Stakeholders from the Load Serving Entity Registration Working Group (LSERWG) made additional comments for Texas RE staff to incorporate into the NERC LSE JRO Matrix and proposed Agreement ●Texas RE met with Transmission Owners (TOs) on July 1 st to further streamline the proposed agreement and matrix content ●Texas RE made changes to the proposed agreement and matrix content, based on stakeholders comments and sent out for final review TEXAS RE REPORT JULY 9, 2009

Page 5 of 16 NERC Standards Self-Certification Schedule Self-Certification Activity by NERC FunctionStart Due Critical Infrastructure Protection (CIP) Standards, July 1 August 3 CIP for Generator Owner (GO), Generator Operator (GOP) and Transmission Owner (TO) Distribution Provider (DP), Purchasing-Selling Entity (PSE), August 3 Sept 3 Transmission Planner (TP) and TO (non CIP Standards) ●All submissions will be via the Texas RE Portal ●100% of NERC GO/GOP self-certification submissions for non CIP Standards in June, were received by Texas RE ●All GO, GOP and TO registrants are required to complete the CIP Self Certification even if they are being audited this year. TEXAS RE REPORT JULY 9, 2009

Page 6 of 16 NERC Audit & Enforcement Highlights ●Seven (7) NERC standards Audits; One (1) Protocol Audit conducted in June, as scheduled ●NERC observers attended five (5) NERC standards Audits and provided favorable comments on the conduct of the audit team ●Texas RE and the other seven (7) regions are continuing efforts to coordinate compliance activities for multi-region registered entities, with particular focus currently on PSEs (Purchasing Selling Entities) ●Focus in June has been to prepare for spot checks of NERC CIP standards ●Texas RE will conduct one spot-check in July for thirteen (13) requirements TEXAS RE REPORT JULY 9, 2009

Page 7 of 16 Public Notice of Penalties (NOP) Filed at FERC ●Violations and Settlements that have reached FERC are published at:  TEXAS RE REPORT JULY 9, 2009

Page 8 of 16 Critical Infrastructure Protection - Spot Check ●First spot check of CIP-002, Critical Cyber Asset identification was initiated in June, 2009 ●One market participant, who has not reached auditably compliant stage, volunteered to provide their methodology for review as part of this spot check ●This effort will enable Texas RE to better understand the work load associated with CIP-002 standard auditing and enforcement ●Initial review of the methodology found it to be very good ●Concern exists regarding how methodologies will be coordinated between Registered Entities TEXAS RE REPORT JULY 9, 2009

Page 9 of 16 Critical Performance Metric and Criteria for the ERCOT Nodal Market ●Preliminary measures and criteria were published on June 3 rd at (under Hot Topic Briefs – ERCOT Nodal Metrics Project 37052) ●Workshops were conducted to collect stakeholder comments ●Workshop was held on: Friday, June 12 th at the PUCT, and was well attended ●Second workshop was held on July 13 th at the Met Center, room 206 ●A new NPRR was submitted on July 2 nd, jointly authored by the PUCT, ERCOT ISO, and Texas RE to enhance existing nodal protocols with additional language, metrics, and pass/fail criteria TEXAS RE REPORT JULY 9, 2009

Page 10 of 16 ERCOT Protocol and Operating Guides Violation Monitoring ●Monthly monitored protocols using reports supported by ERCOT  Resource Plan Metrics, SCPS2 ●All other protocols and operating guides rely on events or incidents to trigger reporting by ERCOT ●Violations may be uncovered alternatively by Texas RE via compliance audits (3 year and 6 year cycles) TEXAS RE REPORT JULY 9, 2009

Page 11 of 16 ERCOT Protocol and Operating Guide Violation Policy Change ●Recommend that all Protocols and Operating Guides include:  Definitions of metrics to be monitored by Texas RE  Definition of explicit pass/fail criteria  Monitoring methodology to be used  Responsible entity for developing and maintaining any reporting applications  Availability of resources to develop system applications for monitoring and identifying possible violations Texas RE Report July 9, 2009

Page 12 of 16 PRR – Removing Access to Restricted Systems and Facilities ●Texas RE authored a PRR covering the requirement for market participants to manage access to restricted systems and facilities (per Board direction) ●Reporting criterion was included requiring market participants to adequately restrict access and report failures to Texas RE ●Flexibility is provided to allow market participants to address the need for security within their own framework ●Requested as urgent (per Board direction) Texas RE Report July 9, 2009

Page 13 of 16 PRR 787 – SCPS2 Metric & Outage Definitions PRR 787: Defines enforcement methodology and adds exemptions to the SCPS2 scoring calculation ●PRS approved on June 18 ●Revised CEO Impact Analysis reflects no change to Outage Scheduler Budget request: ●Texas RE will require an additional 0.75 FTE to monitor and process the new exemptions ●This estimate is based on:  The recent exemptions requests from stakeholders, 300 to 400 exemptions per stakeholder (approximately 2 per month)  Texas RE is not able to independently verify the new exemptions  These exemptions could impact ERCOT settlements process due to Texas RE’s time consuming manual review and approval process of exemptions Texas RE Report July 9, 2009

Page 14 of 16 PRR 811 – Real Time Production Potential PRR 811: Establishes a requirement for Wind Generation Resources to telemeter a real time signal indicating the real time production potential which will be a function of wind and turbine availability ●Was addressed at July 7 QMWG meeting to address data requirements and to prepare comments for PRS ●Texas RE supports PRR 811 with modification to support compliance Concerns: A metric and criteria that define passing and failing are required as well as the method for monitoring the metric (e.g. exception report, ISO complaint) ●If approved, Texas RE will coordinate with ERCOT ISO to develop Spot- Check performance query capability Texas RE Report July 9, 2009

Page 15 of 16 PRR 812 – Wind Generator Forecasting for Scheduling Metric PRR 812: This PRR adds a requirement for wind-powered generation resources to update resource plans and schedules every hour using the ERCOT provided most likely short-term wind power forecast as the standard for accuracy ●PRS approved on June 18 ●Texas RE supports this protocol with modification to support compliance Concerns: A metric and criteria that define passing and failing are required as well as the method for monitoring the metric (e.g. exception report, ISO complaint) ●Texas RE is coordinating with ERCOT ISO to develop Texas RE’s capability to conduct Spot Check queries of Resource Plan performances Texas RE Report July 9, 2009

Page 16 of 16 OGRR Special Protection System (SPS) Operations Under No Contingency OGRR 224: Places an obligation on Resource owners who have an SPS to monitor the flows monitored by the SPS in the base case and reduce output as needed before the arming point of the SPS is Reached ●Texas RE supports the OGRR as written Texas RE Report July 9, 2009