Technical Advisory Committee Presentation to the ERCOT Board of Directors October 21, 2008

TAC Summary 2 PRRs for Approval 2 PRRs for Approval 5 NPRRs for Approval 5 NPRRs for Approval Approval of methodology document associated with PRR772, Description of MCPE Cap and Shadow Price Cap Methodology Approval of methodology document associated with PRR772, Description of MCPE Cap and Shadow Price Cap Methodology ERCOT Methodology for Determining Ancillary Service Requirements ERCOT Methodology for Determining Ancillary Service Requirements Discussion of “study horsepower” Discussion of “study horsepower” Appeal of 2009 selection of CSCs, zones, CREs, and boundary generators. Appeal of 2009 selection of CSCs, zones, CREs, and boundary generators.

PRR765– Time of Use Revisions Purpose (Direct Energy for Profiling WG) Revision to comply with PUC Subst. R (l), Advanced Metering, by removing requirement for PUC pre-approval before implementing a new time-of-use schedule. Benefit Conforms with PUC Rules Market Impact N/A System Change NoN/A AssumptionsN/A TAC Vote TAC recommended approval unanimously; all Market Segments were present Effective Date November 1, 2008

PRR765– Time of Use Revisions Item Reviewed Description NoImpact Credit Monitoring/ Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact

PRR769 – EECP Media Appeal Change Purpose (Operations Working Group) Removes the required energy conservation media appeal from EECP Step 2 and allows ERCOT to issue a media appeal for energy conservation at management’s discretion without CEO authorization. Benefit Allows ERCOT to use operational judgment in issuing energy conservation media appeal. Market Impact N/A System Change NoN/A AssumptionsN/A TAC Vote TAC unanimously recommended approval; all Market Segments were present Effective Date November 1, 2008

PRR769 – EECP Media Appeal Change Item Reviewed Description NoImpact Credit Monitoring/ Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact

NPRR102– Implementation of PUC Subst. R (f), Publication of Resource and Load Information Purpose (ERCOT for TPTF) Incorporates disclosure requirements from PUC Rules. Benefit Compliance with PUC Rules. Market Impact N/A System Change Yes Impacts EMS, MMS, COMS, EIS and MIS AssumptionsN/A TAC Vote TAC recommended approval unanimously; all Market Segments were present Effective Date Upon Texas Nodal implementation; no incremental impact to nodal schedule

NPRR102– Implementation of PUC Subst. R (f), Publication of Resource and Load Information Item Reviewed Description NoImpact Credit Monitoring/ Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact $1.5M-$2.0M 0.25 FTE impact to EIS Impacts to EMS, MMS, COMS, EIS and MIS 49 reports delivered at Go-Live, 24 post- Go-Live

NPRR113– Load Resource Type Indicator for Ancillary Service (AS) Trades and Self-Arranged AS Purpose(ERCOT) Adds indicator to self-arranged Ancillary Service (AS) and AS trades to show if Responsive Reserve services are being provided. Benefit Increases transparency of which RRS type is being provided. Market Impact N/A System Change Yes Impacts MMS, EMS, and EIS AssumptionsN/A TAC Vote TAC unanimously recommended approval; all Market Segments were present Effective Date Upon Texas Nodal implementation; no incremental impact to nodal schedule

NPRR113– Load Resource Type Indicator for Ancillary Service (AS) Trades and Self-Arranged AS Item Reviewed Description NoImpact Credit Monitoring/ Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact $500k-$1M Impacts to MMS, EMS, and EIS

NPRR124– Resource Node Updated Definitions Purpose(ERCOT) Clarifies definition of Resource Node and specifies the different Resource Node types that meet nodal requirements. Benefit Accommodates full range of intended capability in nodal market. Market Impact N/A System Change Yes Impacts MMS AssumptionsN/A TAC Vote TAC unanimously recommended approval; all Market Segments were present Effective Date Upon Texas Nodal implementation; no incremental impact to nodal schedule

NPRR124– Resource Node Updated Definitions Item Reviewed Description NoImpact Credit Monitoring/ Liability Budget Staffing Computer Systems Business Functions Grid Operations Impact Impacts to MMS $100k-$150k

NPRR129– Section 15, Synchronization of Zonal Protocols Purpose(ERCOT) Synchronizes Section 15, Customer Registration, in nodal protocols. Benefit Completes nodal protocols. Market Impact N/A System Change NoN/A AssumptionsN/A TAC Vote TAC recommended approval unanimously; all Market Segments were present Effective Date Upon Texas Nodal implementation; no incremental impact to nodal budget or schedule

NPRR144– Five RUC Deployments Needed Before Requiring Verifiable Costs Purpose (Verifiable Costs Working Group) Increases the time QSEs have to prepare verifiable cost submissions for units unlikely to be struck in RUC. Benefit Reduces ERCOT costs. Market Impact N/A System Change NoN/A AssumptionsN/A TAC Vote TAC recommended approval unanimously; all Market Segments were present Effective Date Upon Texas Nodal implementation; no incremental impact to nodal budget or schedule

MCPE Cap and Shadow Price Methodology PRR772, Description of MCPE Cap and Shadow Price Cap Methodology, approved by the BOD in September. PRR772, Description of MCPE Cap and Shadow Price Cap Methodology, approved by the BOD in September. Section 7.1 requires: Section 7.1 requires: Process for making adjustments to the methodology must be reflected in a separate market bulletin; Process for making adjustments to the methodology must be reflected in a separate market bulletin; Process must be approved by the BOD. Process must be approved by the BOD. TAC unanimously voted to endorse the document: “Process for Adjusting Market Clearing Prices of Energy and Shadow Prices in the ERCOT Zonal Market.” TAC unanimously voted to endorse the document: “Process for Adjusting Market Clearing Prices of Energy and Shadow Prices in the ERCOT Zonal Market.”

Ancillary Services Methodology ERCOT Staff presented its proposed Methodology for Determining Ancillary Service Requirements. ERCOT Staff presented its proposed Methodology for Determining Ancillary Service Requirements. Contains significantly different approach to procuring Regulation Reserve Service and Non-spin Reserve Service. Contains significantly different approach to procuring Regulation Reserve Service and Non-spin Reserve Service. Many TAC members concerned about insufficient study of the costs and incremental reliability benefits of the proposed changes. Many TAC members concerned about insufficient study of the costs and incremental reliability benefits of the proposed changes. TAC endorsed the proposed changes (22 in favor, 6 opposed (5 consumer and 1 REP) and one abstention (IPM)), with instructions: TAC endorsed the proposed changes (22 in favor, 6 opposed (5 consumer and 1 REP) and one abstention (IPM)), with instructions: ROS to examine opportunities to better optimize the incremental AS; ROS to examine opportunities to better optimize the incremental AS; WMS to explore alternative allocations of the costs of the incremental AS. WMS to explore alternative allocations of the costs of the incremental AS.

Discussion of Study Horsepower Stakeholders have expressed concern that certain decisions are made with insufficient background analysis. Stakeholders have expressed concern that certain decisions are made with insufficient background analysis. ERCOT Staff resource constraints. ERCOT Staff resource constraints. Stakeholder resources are also insufficient. Stakeholder resources are also insufficient. Recent Examples: Recent Examples: Study of LaaR capability for AS capacity: long delayed due to scarce stakeholder resources to update the dynamic model. Study of LaaR capability for AS capacity: long delayed due to scarce stakeholder resources to update the dynamic model. Ancillary Services Methodology: Changes based on GE Study without extensive analysis for application to ERCOT- specific facts. Ancillary Services Methodology: Changes based on GE Study without extensive analysis for application to ERCOT- specific facts. OGRR 208: Issue before the Board next month, in which the need for a study has also been raised. OGRR 208: Issue before the Board next month, in which the need for a study has also been raised.

Appeal of TAC action on 2009 Zones, CSCs, CREs, and Boundary Generators

Zones & CSCs: 30,000 ft. View Specification of Zones and CSCs determines: Specification of Zones and CSCs determines: Which congestion management tools ERCOT will use in particular instances of congestion—balancing energy vs. OOM instructions; and Which congestion management tools ERCOT will use in particular instances of congestion—balancing energy vs. OOM instructions; and Which congestion costs will be directly assigned and which costs will be uplifted. Which congestion costs will be directly assigned and which costs will be uplifted.

Review: Annual CSC & Zone Designation Process (Protocols §7.2) November 1: Recommended CSCs, zone designations, and resulting CREs due to the Board. November 1: Recommended CSCs, zone designations, and resulting CREs due to the Board. Steps in development of recommendations: Steps in development of recommendations: ERCOT Staff originates the set of CSC candidates based on: ERCOT Staff originates the set of CSC candidates based on: Steady State Working Group summer peak load flow data. Steady State Working Group summer peak load flow data. Prior year and projected congestion costs. Prior year and projected congestion costs. “ERCOT’s operational experience.” “ERCOT’s operational experience.” ERCOT Staff develops Shift Factors and performs cluster analyses for each candidate CSC. ERCOT Staff develops Shift Factors and performs cluster analyses for each candidate CSC. ERCOT Staff forwards candidate CSCs to the appropriate TAC subcommittee to develop a recommendation to the TAC and the Board of Directors (typically considered in October) ERCOT Staff forwards candidate CSCs to the appropriate TAC subcommittee to develop a recommendation to the TAC and the Board of Directors (typically considered in October) ERCOT Staff develops the list of CREs and boundary generators (typically for the November Board meeting). ERCOT Staff develops the list of CREs and boundary generators (typically for the November Board meeting).

CSC 4 – West to North Sweetwater; Abilene Mulberry Creek – Long Creek CSC 5 – North to West Long Creek – Sweetwater; Abilene Mulberry Creek CSC 3 – South to North Temple - Lake Creek & Temple Pecan - Creek Tradinghouse CSC 2 – North to South Lake Creek – Temple & Tradinghouse – Temple Pecan Creek CSC 1 – North to Houston Singleton - O’Brien 5 Singleton – T. H. Wharton Recommended 2009 CSCs and Zones

CSC Analysis – load moving zones Scenario 3b Scenario 3g Scenario 3h Scenario 3i North to South South to Houston West to North West to South North to West total

CSC Analysis – generation moving zones Scenario 3b Scenario 3g Scenario 3h Scenario 3i North to South 0000 South to Houston 0000 West to North West to South 0000 North to West 0000 total

Board Remand and TAC Reconsideration September 16 th meeting of the Board: September 16 th meeting of the Board: TAC presented recommendation on Option 3(i). TAC presented recommendation on Option 3(i). Remanded to TAC due to procedural concerns. Remanded to TAC due to procedural concerns. Directed TAC to return in November with a CSC recommendation and accompanying CREs. Directed TAC to return in November with a CSC recommendation and accompanying CREs. October 8 th —special joint meeting of WMS and TAC. October 8 th —special joint meeting of WMS and TAC. WMS approved a motion to eliminate option 3(b). WMS approved a motion to eliminate option 3(b). WMS approved a motion to adopt the zones, CSCs, CREs, and boundary generators associated with option 3(i). WMS approved a motion to adopt the zones, CSCs, CREs, and boundary generators associated with option 3(i). TAC failed to approve a motion to adopt the zones, CSCs, CREs, and boundary generators associated with option 3(h). TAC failed to approve a motion to adopt the zones, CSCs, CREs, and boundary generators associated with option 3(h). TAC approved a motion to adopt the zones, CSCs, CREs, and boundary generators associated with option 3(i). TAC approved a motion to adopt the zones, CSCs, CREs, and boundary generators associated with option 3(i).