Demand Side Working Group Chairman Slides June 27, 2008 Mary Anne Brelinsky Vice President 1

Demand Side Working Group Agenda 2

2008 DSWG Goals Update 3

Original Proposed Interim RRS Negative Bidding 4

WMS Motion on DSWG/CWG Proposed Solution “Demand Side Working Group (DSWG) – Draft NPRR, Load Acting As Resource (LaaR) Negative Offers:  Mary Anne Brelinsky provided a review of recent DSWG activities and presented a draft NPRR to address LaaR negative offers for WMS consideration, noting that there is not a stop gap measure to prevent negative bidding behavior in nodal, that there is not time for a software credit solution, and that the Credit Work Group (Credit WG) supports the measure for inclusion in the Protocols. Market Participants discussed that the solution is not ideal and that the issue may need to be taken up again after nodal go-live.  Mr. R. Jones moved that WMS endorse the approach of DSWG with the requirement that DSWG file a System Change Request (SCR) to create a dual bid stack for LaaR in Responsive Reserve Service (RRS) bidding. Mark Smith seconded the motion.  Market Participants discussed the possibility that other solutions might be limited should the proposal be tied to an SCR; whether a sunset provision would be appropriate; and that the Impact Analysis (IA) should clarify how the engine would handle prioritization and oversubscription.  Mr. R. Jones and Mr. Smith accepted Mark Bruce’s friendly amendment that WMS direct the DSWG to file an NPRR for split bid stack, with the DSWG approach as the interim solution. Market Participants discussed that the DSWG solution does not require system changes, and provides a starting point since the market-supported split bid stack cannot be in place by nodal go-live; that there are Market Participants that are adamantly opposed to a split bid stack solution; that examples of competition between Load and generation for AS would be helpful; and that if a discussion needs to be held regarding efficiency issues, supply should be rationed with prices and mot administrative maneuvers.  The motion carried with one objection from the Consumer segment.” 5

Current Procurement Method Used for LaaR Award 2,300 MW of RRS = Single Bid Stack = LaaR offer= Gen offer Prices Stacked from lowest to highest offer. Most LaaR offered at zero dollars. = Self Arranged Less than 1,150 MWs of LaaRs Offered Below MCPC 2,300 MW of RRS = Single Bid Stack Gen RRS sets MCPC More than 1,150 MWs of LaaRs Offered Below MCPC Last MW of LaaR Awarded 6

DSWG Proposed LaaR RRS Solution LaaR Offered Below MCPC is Prorated when Market Oversubscribed: Solution awards LaaRs offered below the cleared MCPC and allocates LaaR RRS capacity across all awards. Solution removes any incentive to submit negative bids. 2,300 MW of RRS = Single Bid Stack = LaaR offer= Gen offer Prices Stacked from lowest to highest offer. Most LaaR offered at zero dollars. = Self Arranged Less than 1,150 MWs of LaaRs Offered Below MCPC 2,300 MW of RRS = Single Bid Stack Gen RRS sets MCPC More than 1,150 MWs of LaaRs Offered Below MCPC All LaaR bid below MCPC is awarded. 7

DSWG Proposed LaaR RRS Solution Proposed Solution: Solution awards all LaaRs offered below the cleared MCPC and removes any incentive to submit negative bids. Pros: –Impact on ERCOT and Market Participants’ systems is minor and cost to implement is expected to be less than $50 K –Eliminates the incentive for LaaRs to bid negative –Need for secondary RRS solicitations unlikely Cons: –In Zonal proposal would requires QSEs to closely monitor LaaR awards and ensure that LaaRs “unarm” as required; in Nodal this issue exists regardless of solution –Proration of all LaaR bids is likely and will be up to the QSEs bidding LaaR to manage the amount of LaaR armed at any one time to conform to Protocol limits (not perceived at this time to be a significant problem) 8

Protocol Revision Required for Solution General Procurement Requirements (6) For each Ancillary Service procurement process, ERCOT shall select capacity bids submitted by QSEs, such that: (e) All QSE bids for RRS from LaaR, whose offer price is equal to or less than the MCPC, shall be awarded proportionately to meet the limit for LaaR providing RRS established in Section 6.5.4, Responsive Reserve Service. 9