Market Mitigation Concept Group Update Jim Galvin April 26, 2004

5/26/20162 Purpose of the Today’s Report  Identify the status of the MMCG Whitepaper  Introduce key items of consensus  Identify open items for vote at the May 10 th TNT meeting  Educate and answer questions

5/26/20163 Key items of Consensus  Purpose of Mitigation  Independent Market Monitor Language  Definitions with exception of definition of Market Power which will come from PUCT rulemaking  Competitive Test has general agreement in content but requires additional analysis of ERCOT constraints

5/26/20164 Key items of Consensus  Competitive Test  Element Competitiveness Index (ECI)- MMCG defines this as a HHI base algorithm for determining market concentration  Testing of known ERCOT constraints is ongoing  ECI is the preferred method while additional constraints are studied

5/26/20165 Key items of Consensus  Competitive Test (Cont)  Annual test will identify the competitive constraints for the year  Monthly tests will be conducted to allow constraints to change competitive status for the given month based on an appropriate index parameter  Daily tests will be conducted to allow change in competitive status for that day at an appropriate index parameter

5/26/20166 Key items of Consensus  Competitive Test (Cont)  An assigned committee of the ERCOT Board will review the ECI Competitive Test and make a recommendation for Board approval by April 1, 2005  Appendix A of the whitepaper will include potential options if ECI does not meet stakeholder requirements  Analysis of actual data on ERCOT constraints has been deemed valuable and worth the additional time to ensure the effectiveness of the ECI method

5/26/20167 Decision Points for Vote  Floor Prices (page 7)-  Consensus that the system software design should be able to accommodate Floor Prices  Option 1 is identified floor at -$1000  Option 2 proposes a -$75.00/MWh floor for Renewable and Nuclear Resources and -$30.00/MWh for all other Resources

5/26/20168 Decision Points for Vote  System Wide Mitigation Cap (pages 7-9)-  Option 1- No CSM (Competitive Solution Method) Bid curve will extend to $1000 above its offer curve (or output schedule) upper limit to its HASL and the Offer Floor below its offer curve lower limit to its LASL  Option 2- CSM method where cap is lesser of $1000 or System-wide Mitigation Cap (1.5% x 95% of all energy offers)

5/26/20169 Decision Points for Vote  System Wide Mitigation Cap (pages 7-9)-  Option 3- No Market Participant may submit an Offer curve containing prices exceeding $300/MWh with a slope that exceeds $15/MWh per MW for the portion of the Offer curve priced above $300/MWh

5/26/ Decision Points for Vote  Extending offer curve if there is no offer (pages 9- 10)-  Option 1- Extend offer curve to the Offer Floor  Option 2- Resource technology specific

5/26/ Decision Points for Vote  Mitigation of CRR revenue shortfall due to oversold CRR’s (pages 11-13)-  Option 1- All constraints that have oversold CRR impacts shall have their available capacity allocated pro-rata to the impacted CRRs for CRR settlement purposes. Impacted CRR holders shall be refunded the amount paid for the oversold capacity based on the Shadow Price of the constraint in the CRR Auction where the impacted CRR was bought

5/26/ Decision Points for Vote  Mitigation of CRR revenue shortfall due to oversold CRR’s (pages 11-13)-  Option 2- The Mitigated Offer Floors shall be applied to all Resources for capacity above its LASL that have shift factors greater than 1/3 of the largest Resource shift factor relative to the import terminal of the constraint and that are owned and/or operated by a QSE and its Affiliates that own more than 25% of the capacity of the constraint in CRRs (floors are resource technology specific)

5/26/ Decision Points for Vote  Mitigation of CRR revenue shortfall due to oversold CRR’s (pages 11-13)-  Option 3- Resources with absolute shift factors greater than 1/3 of the largest Resource absolute shift factor relative to the import terminal of a derated, oversold and binding constraint and that are owned and/or operated by a QSE and its Affiliates that own CRRs that impact the same constraints may be required to refund a portion of their CRR payments if the Resources offered energy for capacity above its LASL (including by offer curve extension) at prices below the Technology-specific Safe Harbor Prices

5/26/ Decision Points for Vote  Mitigation of CRR revenue shortfall due to oversold CRR’s (pages 11-13)-  Option 4- No mitigation, with responsibilities placed on the Independent Market Monitor

5/26/ Work in Progress  Mitigation for EHDAM (pages 13-15)  The Relaxed Mixed Integer Programming (MIP) method used to reflect Start-up Cost and Minimum- energy Cost in the corresponding nodal LMP shall be investigated for desirability and feasibility  Relaxed MIP results in LMP’s that include Make Whole and minimizes uplift  Energy offers in EHDAM may be mitigated to System- wide Mitigation Cap or not mitigated  CRR mitigation in EHDAM in discussion

5/26/ Work in Progress  Mitigation for Ancillary Services (pages 15-17)  Option 1- $1000 offer cap  Option 2- No Market Participant may submit an Offer curve containing prices exceeding $300/MW with a slope that exceeds $15/MW per MW for the portion of the Offer curve priced above $300/MW  Option 3- CSM

5/26/ Work in Progress  Real Time Mitigation  Board remanded the vote taken on March 31 st back to TNT  Real Time Mitigation included the following:  Mitigated Offer Cap for all Resources is equal to 14.5 MMBtu/MWh x FIP. Resources may provide the ERCOT Independent Market Monitor with verifiable costs requesting its individual pre-approved Mitigated Offer Cap be set at verifiable cost plus 15%.  This vote also included elimination of the 25% adder in the DARUC Cost Allocation provision

5/26/ Future Meeting Dates  Joint meetings with Congestion Management Concept Group April 29 and 30  Will schedule additional meetings as needed to bring the items reviewed today for vote on May 10 TNT General Session

5/26/ Actions for TNT  TAKE A DEEP BREATHE!  Please review the whitepaper in detail for vote on May 10