1 Protocol Revision Subcommittee Presentation to the ERCOT Technical Advisory Committee December 1, 2005

2 PRS Summary 6 PRRs for Approval 6 PRRs for Approval 0 System Changes – IA/CBA0 System Changes – IA/CBA 6 Non-System Changes – IA only6 Non-System Changes – IA only Prioritization Process Prioritization Process

3 PRR 625 – Clarification of Emergency QSE Purpose (ANP, IGEN, WMS/RMS JTF) Addresses when and how an Emergency QSE may be used Benefit Clarifies process for Virtual/Emergency QSE and shortens the timeframe for default Market Impact Decreases time to post credit and could transfer risk from market to QSE System Change NoN/A AssumptionsN/A PRS Vote Recommended approval with 3 opposing & 9 abstaining; all segments present Effective Date February 1, 2006

4 PRR 625 – Clarification of Emergency QSE Impact Analysis Item Reviewed Description NoImpact Credit Monitoring/Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact Occasional increase in workload

5 PRR 633 – TSP Data Information Requirements Purpose (CNP, IOU, NDSWG) Addresses data requirements for modeling grid changes provided by TSPs; Benefit Increases TSP resource use efficiency Market Impact None System Change NoN/A AssumptionsN/A PRS Vote Approved as revised by PRS with 1 abstention; all segments present Effective Date February 1, 2006

6 PRR 633 – TSP Data Information Requirements Impact Analysis Item Reviewed Description NoImpact Credit Monitoring/Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact

7 PRR 634 – ESI IDs Inadvertently Placed Into Inactive Status Purpose (CNP, IOU, DEWG) Provides ERCOT the ability to re-instate ESI Ids incorrectly placed into an inactive status Benefit Accurate settlement data Market Impact Accurate settlement data System Change NoN/A AssumptionsN/A PRS Vote Unanimously approved; all segments present Effective Date February 1, 2006

8 PRR 634 – ESI IDs Inadvertently Placed Into Inactive Status Impact Analysis Item Reviewed Description NoImpact Credit Monitoring/Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact

9 PRR 641 – Clarifying RPRS Scheduling Language -- URGENT Purpose (BP, IPM) Addresses conflict in the basis on which a QSE must adjust the BES bids for the deployed unit – (LSL/HSL) Benefit Eliminates conflicting Protocols Market Impact N/A System Change NoN/A AssumptionsN/A PRS Vote Unanimously approved; all segments present Effective Date January 1, 2006

10 PRR 641 – Clarifying RPRS Scheduling Language -- URGENT Impact Analysis Item Reviewed Description NoImpact Credit Monitoring/Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact

11 PRR 643 – Shorten Payment Default Timelines -- URGENT Purpose (ERCOT, ISO, CWG) Reduces the number of days from 3 to 2 to cure a breach before it becomes a default under the LSE, QSE & TCR agreements; provides process to make collateral postings due by 3 p.m. instead of 5 p.m. Benefit Potential reduction in liability to market participants Market Impact Reduces timeframe to 4 business days for notices and cures when ERCOT issues a collateral call System Change NoN/A AssumptionsN/A PRS Vote Approved as amended by PRS with 1 abstention; all segments present Effective Date January 1, 2006

12 PRR 643 – Shorten Payment Default Timelines -- URGENT Impact Analysis Item Reviewed Description NoImpact Credit Monitoring/Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact

13 PRR 644 – A/S Re-qualification -- URGENT Purpose (ERCOT, ISO) Allows re-qualification for QSEs to supply Responsive, BES, Regulation and Non-Spin based on demonstrated historical performance Benefit Streamlines testing; may reduce costs Market Impact Provides greater flexibility than current re- qualification procedures System Change NoN/A AssumptionsN/A PRS Vote Unanimously approved as modified by PRS; all segments present Effective Date January 1, 2006

14 PRR 644 – A/S Re-qualification -- URGENT Impact Analysis Item Reviewed Description NoImpact Credit Monitoring/Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact

15 Recommended TAC Actions Approval Approval PRR 625 – Clarification of Emergency QSEPRR 625 – Clarification of Emergency QSE PRR 633 – TSP Data Information RequirementsPRR 633 – TSP Data Information Requirements PRR 634 – ESI Ids Inadvertently Placed Into Inactive StatusPRR 634 – ESI Ids Inadvertently Placed Into Inactive Status PRR 641 – Clarifying RPRS Scheduling Language -- URGENTPRR 641 – Clarifying RPRS Scheduling Language -- URGENT PRR 643 – Shorten Payment Default Timelines -- URGENTPRR 643 – Shorten Payment Default Timelines -- URGENT PRR 644 – A/S Re-qualification -- URGENTPRR 644 – A/S Re-qualification -- URGENT

16 Review of System Project Prioritization Process Presentation to the ERCOT Board of Directors November 15, 2005

17 Protocol Revision Subcommittee 431 PRRs submitted since March, Required System Changes -- Other System Changes Originate in other Subcommittees, PUC or ERCOT PRRs address: -- PUC Orders & Recommendations -- Credit & Settlement -- Procedures -- Metrics & Data Requirements -- Ancillary & Balancing Energy Services -- Alignment to ERCOT Systems -- Reliability Must Run -- Administrative Requirements

18 History of System Change Prioritization Market Open Market Open No specific review – “start-up mode”No specific review – “start-up mode” Created annual prioritization review and Impact Analysis for each PRR instead of only on request per Protocol Section 21Created annual prioritization review and Impact Analysis for each PRR instead of only on request per Protocol Section 21 Initiated System Change Requests (SCRs) for non-PRR system changes from the PUC Staff, ERCOT and other subcommitteesInitiated System Change Requests (SCRs) for non-PRR system changes from the PUC Staff, ERCOT and other subcommittees Integration of Impact Analysis into annual prioritization reviewIntegration of Impact Analysis into annual prioritization review Requested estimate of market costs/benefits via PRR formsRequested estimate of market costs/benefits via PRR forms Criteria Score used by ERCOT to assist in comparing projects of different typesCriteria Score used by ERCOT to assist in comparing projects of different types Intra-year review of priority list based on new PRRs/SCRsIntra-year review of priority list based on new PRRs/SCRs Cost-benefit analysis applied to all system changesCost-benefit analysis applied to all system changes Move from annual review to a dynamic monthly reviewMove from annual review to a dynamic monthly review

19 Monthly Project Prioritization Process Board of Directors TAC PRS PRS provides priority and ranking TAC approves, rejects or remands to a subcommittee Board of Directors approves, rejects or remands to TAC SCRPRR High(1.X) 1.1 High 1.2 Medium 1.3 Low ForcedRank Medium(2.X) 2.1 High 2.2 Medium 2.3 Low ForcedRank Low(3.X) 3.1 High 3.2 Medium 3.3 Low ForcedRank System Changes From PRRs, SCRs, PUC Staff & ERCOT

20 Cost-Benefit Analysis Description Cost-Benefit Analysis (CBA) integrated into ERCOT and stakeholder review of PRRs, SCRs and other system projects Cost-Benefit Analysis (CBA) integrated into ERCOT and stakeholder review of PRRs, SCRs and other system projects CBA reports CBA reports Assignment of Cost/Benefit by ERCOT statutory requirement and ERCOT corporate goalAssignment of Cost/Benefit by ERCOT statutory requirement and ERCOT corporate goal Assumptions underlying cost/benefit determinationAssumptions underlying cost/benefit determination Includes non-quantifiable impacts Estimation of ERCOT/Market Participant costs and benefitsEstimation of ERCOT/Market Participant costs and benefits ERCOT cost estimate based on mid-point of Impact Analysis

System Change Prioritization Results Prioritization incorporated cost-benefit analysis of each priority 1 and 2 project by TAC subcommittees and ERCOT Prioritization incorporated cost-benefit analysis of each priority 1 and 2 project by TAC subcommittees and ERCOT ERCOT assisted PUC Staff on its projectsERCOT assisted PUC Staff on its projects Subcommittees recommended priorities/ranks to PRSSubcommittees recommended priorities/ranks to PRS PRS reviewed combined PUC, Market and ERCOT project lists PRS reviewed combined PUC, Market and ERCOT project lists PUC projects update market monitoring systemsPUC projects update market monitoring systems Market projects primarily reflect PRRs or SCRsMarket projects primarily reflect PRRs or SCRs ERCOT projects include computer system projects and other infrastructure projectsERCOT projects include computer system projects and other infrastructure projects

System Project Status ERCOT (9) $12.4 MM Market (6) $5.3 MM Carryovers (69) $5.3 MM PUC (7) $2.6 MM 2006 Cut-Line -- $25.6 MM

System Project Status Projects immediately above the projected 2006 cut- line accomplish the following: Projects immediately above the projected 2006 cut- line accomplish the following: Improve State Estimator accuracyImprove State Estimator accuracy Improve accuracy of congestion management solutions by reducing the delay in updating the network topologyImprove accuracy of congestion management solutions by reducing the delay in updating the network topology Upgrade ERCOT Digital Certificate technologyUpgrade ERCOT Digital Certificate technology Expand Taylor Data Center to maintain necessary redundancy and increased storage capabilityExpand Taylor Data Center to maintain necessary redundancy and increased storage capability Automate manual processes for DC-tie schedulingAutomate manual processes for DC-tie scheduling Continue IT service oriented architecture improvement using TIBCOContinue IT service oriented architecture improvement using TIBCO

System Project Status The cut-line serves as a point of reference for project management The cut-line serves as a point of reference for project management Based on ERCOT’s capabilities as the year unfolds, projects below the cut-line may be doneBased on ERCOT’s capabilities as the year unfolds, projects below the cut-line may be done Projects immediately below the 2006 cut-line include: Projects immediately below the 2006 cut-line include: Risk Management (includes Security Auditing & Monitoring software)Risk Management (includes Security Auditing & Monitoring software) MV90 Upgrade Part 2 – Software InstallationMV90 Upgrade Part 2 – Software Installation Vendor & Contract ManagementVendor & Contract Management ESI ID Account Table SplitESI ID Account Table Split DC Tie AutomationDC Tie Automation Projects of note below the 2006 cut-line include: Projects of note below the 2006 cut-line include: Mass Customer TransitionMass Customer Transition Settlement Disputes ExtractsSettlement Disputes Extracts Extract/Report EnhancementsExtract/Report Enhancements

Prioritization Process Review September 2005 project prioritization process review September 2005 project prioritization process review Changes now in place Changes now in place PRR Submission Form changed to reflect existence of nodal protocols and greater emphasis on CBAPRR Submission Form changed to reflect existence of nodal protocols and greater emphasis on CBA PRR will be rejected as incomplete if data not providedPRR will be rejected as incomplete if data not provided Action Items Action Items Revisit/revise priority definitions (e.g., 1.1, 1.2, etc.)Revisit/revise priority definitions (e.g., 1.1, 1.2, etc.) Post CBAs showing primary benefit driver assumptionsPost CBAs showing primary benefit driver assumptions Clarify how PUCT Staff projects are incorporated onto the project list (i.e., who approves putting projects on list and who reviews priority)Clarify how PUCT Staff projects are incorporated onto the project list (i.e., who approves putting projects on list and who reviews priority) Modify process to ensure necessary commercial projects (e.g., extracts) are done when compared to reliability-related projectsModify process to ensure necessary commercial projects (e.g., extracts) are done when compared to reliability-related projects

26 Review of Outstanding System Changes PRS initiated review of outstanding PRRs awaiting system implementation PRS initiated review of outstanding PRRs awaiting system implementation Special PRS meetings – October 7 & 27, 2005Special PRS meetings – October 7 & 27, 2005 Briefed TAC as to PRS review – November 3, 2005Briefed TAC as to PRS review – November 3, 2005 Goals Goals Developed criteria to apply to current system changes to ensure appropriate prioritizationDeveloped criteria to apply to current system changes to ensure appropriate prioritization Criteria Criteria Highest priority for changes due to Statute, PUC order, NERC Compliance or if critical to reliability (grid operations, IT infrastructure or commercial settlement)Highest priority for changes due to Statute, PUC order, NERC Compliance or if critical to reliability (grid operations, IT infrastructure or commercial settlement) Other priorities based on “value” to all or fewer market segments with CBA ratio as the default measure and consideration of longevity and non-quantifiable benefits (e.g., risk exposure)Other priorities based on “value” to all or fewer market segments with CBA ratio as the default measure and consideration of longevity and non-quantifiable benefits (e.g., risk exposure)

27 Review of Outstanding System Changes Next Steps Next Steps ERCOT internally assessing application of new criteria to existing projectsERCOT internally assessing application of new criteria to existing projects ERCOT to report at November PRS meetingERCOT to report at November PRS meeting PRS to approve criteria for use and apply to the current project listPRS to approve criteria for use and apply to the current project list PRS reports findings to TAC (1Q 2006)PRS reports findings to TAC (1Q 2006) Observations Observations Prioritizations may not change from present due to ongoing, monthly review process by PRSPrioritizations may not change from present due to ongoing, monthly review process by PRS Prioritization is evolutionary and rankings will change as new PRRs are introduced or market events dictatePrioritization is evolutionary and rankings will change as new PRRs are introduced or market events dictate

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