October 02, 2009 Austin, Texas Quick Start Task Force Meeting 1

Summary  Background  Framework Market Market Reliability Reliability Ancillary Services Ancillary Services Definitions & Other Definitions & Other 2

Background  Wind Generation Resources Over 8,000 today; 15,000 estimated by 2015 Over 8,000 today; 15,000 estimated by 2015 Inherently variable and incompletely predictable Inherently variable and incompletely predictable Will introduce operational challenges Will introduce operational challenges  Existing thermal Generation Resources can synchronize and be fully loaded ~900 MW10 minutes ~900 MW10 minutes ~1,000 MW10-15 minutes ~1,000 MW10-15 minutes ~3,700 MW15-30 minutes ~3,700 MW15-30 minutes 3

Framework 4 Ancillary Services Definitions & Other

Market  SCED Cannot commit Off-line Generation Resources Cannot commit Off-line Generation Resources Some Generation Resources can synchronize within SCED timeframe Some Generation Resources can synchronize within SCED timeframe Therefore, market solutions ignored, causing potentially artificially higher energy prices Therefore, market solutions ignored, causing potentially artificially higher energy prices  Market Participants may self-commit Exposed to price risk Exposed to price risk Not economically optimal Not economically optimal 5

Market – Efficiency Improvements  2008 State of the Market Report “…Under the nodal market design, the introduction of a day- ahead energy market with centralized Security Constrained Unit Commitment (“SCUC”) that is financially binding promises substantial efficiency improvements in the commitment of generating resources.”  Systematic reliance on non-centralized unit commitment decisions for over 5,000 MW would impair the promised substantial efficiency improvements. 6

Reliability – Normal  Day-Ahead Reliability Unit Commitment Received by 1600 in Day-Ahead Received by 1600 in Day-Ahead  Hour Reliability Unit Commitment Received throughout the Adjustment Period Received throughout the Adjustment Period May be received intra-Operating Period May be received intra-Operating Period 1 hour before Real-Time1 hour before Real-Time  Clawback is 50% (DAM) or 100% (no DAM) 7

Reliability – Emergency  Emergency Condition Occurs when SCED fails Occurs when SCED fails LMPs held for most recently solved interval LMPs held for most recently solved interval  Emergency Mechanisms Verbal Dispatch Instruction unit commitment Verbal Dispatch Instruction unit commitment VDI settled as HRUC [ ] VDI settled as HRUC [ ] No clawback during EEA (DAM) [5.7.2(3)] No clawback during EEA (DAM) [5.7.2(3)] 8

Reliability – Observations  RUC Normal does not utilize flexibility and has clawback Normal does not utilize flexibility and has clawback Emergency may utilize flexibility and has no clawback Emergency may utilize flexibility and has no clawback  Clawback If RTSPP > Energy Offer Curve, Quick Start Units could have provided market solution without RUC Dispatch Instruction If RTSPP > Energy Offer Curve, Quick Start Units could have provided market solution without RUC Dispatch Instruction Similar to Zonal OOME unit commitment Similar to Zonal OOME unit commitment 9

Ancillary Services  NSRS 30-minute timeline 30-minute timeline Dispatch Instructions to 100% of capacity Dispatch Instructions to 100% of capacity  Observation No Nodal comparable mechanism to Zonal Balancing Energy Capable Non-Spinning Reserve Service (BESCNSRS) No Nodal comparable mechanism to Zonal Balancing Energy Capable Non-Spinning Reserve Service (BESCNSRS) 10

10MNSRS  Avoids cost related to sub-optimal operation of On-line reserved capacity  Provides intermediate mechanism to ensure reliability between RRS and NSRS  Recommended in GE Wind Report  Exists in PJM, Caiso, MISO, ISO-NE and NYISO  Would encourage investment in innovative technology 11

Definitions  Observations Terms “commit” and “reserve” intermixed Terms “commit” and “reserve” intermixed Some RUC definitions inconsistent, unclear or recursive Some RUC definitions inconsistent, unclear or recursive  Undefined terms Quick Start Unit Quick Start Unit COP status of Quick Start Units COP status of Quick Start Units 12

Nodal QS Strategy 13 Go-Live Q Version 2.0 Now Q NPRR NOGRR QSTF & Other Forums Phase 1: Issue Definition Phase 2: Comparables Phase 3: Solution No System Change NPRR/NOGRR Comprehensive Solutions NPRR/NOGRR Other Changes

Questions and Answers 14