1. T&D Losses Reflecting Losses in DR within ERCOT August 22, 2012

2. Losses Introduction Reflecting T & D Losses in DR 08-22-121 o Loss factors are calculated on a 15 minutes basis to estimate amount of electricity lost in the transmission and distribution system o TDSPs create and assign loss codes (often, although not necessarily, based upon voltage level) to ESIIDs and provide the coefficients used in the calculation of loss factors o [Metered Load * (1/(1-DLF))] * (1/(1-TLF)) Unaccounted for Energy (UFE) added after losses

3. Losses Introduction (continued) Reflecting T & D Losses in DR 08-22-122 o Losses are forecasted for two days in advance with actual losses calculated the day after flow o QSEs are charged but load typically pays for these losses, although the load never sees that electricity pass through its meter o This is not about losses behind the meter, but rather describes the losses between two accepted lines of demarcation – the generation meter and the load meter

4. Concept Reflecting T & D Losses in DR 08-22-123 o The grid impact of 1 MW of metered demand response is not the same as 1 MW of additional generation o 1 MW of generation satisfies something less than 1 MW of metered load as electricity due to losses o Conversely, 1 MW of metered load curtailment replaces something more than 1 MW of generation as losses are avoided

5. Losses Illustrated Reflecting T & D Losses in DR 08-22-124 Transmission Level service 1.3% to 2.6% Distribution Level service – Primary 2.0% to 11% Distribution Level service – Secondary 4.0% to 19% 9.7 MWs 30 MWs 8.9 MWs 8.1 MWs

6. Suggested Solution Reflecting T & D Losses in DR 08-22-125 o Demand Response that is offered in any ERCOT related program or market should be grossed up to reflect the applicable transmission and distribution losses that would have applied to measured curtailed volumes

7. Benefits Reflecting T & D Losses in DR 08-22-126 o More equitably compensates DR for grid impact o Recognizes true impact on grid including reducing stress on distribution assets o Volumes of offered demand response not curtailed are adjusted for losses by LSE for retail electricity billing o Most beneficial for smaller customers o Untapped (and needed) DR potential o Utilize smart meters o Inline with goals of SB1125

8. Benefits (continued) Reflecting T & D Losses in DR 08-22-127 o Aligns ERCOT with other regions for DR reporting o Most other ISOs with a history of successful demand response programs incorporate this concept into their programs, including PJM, ISO-NE, and NYISO o Facilitates LMP – G for Real Time Market dispatch o LMP – G settlement would gross up curtailed volumes to bill customer for G; curtailed volumes should also be grossed up o Should speed implementation of Loads in Real Time Market dispatch as methodologies will be defined

9. Issues List Reflecting T & D Losses in DR 08-22-128 o Items to be considered: o UFE o NOIE losses o Impacts for LR o Impacts to ALR o Impacts to CLR o ERS Settlement calculations o ERS Compliance calculations

10. UFE Reflecting T & D Losses in DR 08-22-129 o Including UFE will foster consistency. o If participating in Real Time Market, and with the LMP – G concept, an LSE would be charged for the same volume as the DR QSE would be paid o Customers receiving statements would see same volumes o Including UFE will increase uncertainty, making it more difficult for: o Compliance o Reserves procurement in SCED o Budgeting o Recommendation: Do not adjust for UFE o Differences should be small so benefits will be limited

11. NOIE Losses Reflecting T & D Losses in DR 08-22-1210 o NOIEs are not required to provide Distribution Loss Factors to ERCOT o Providing DLFs for use only for demand response opens potential for gaming o Recommendation: All meters behind NOIE territories are grossed up for only the Transmission Loss Factors

12. Impacts for LR Reflecting T & D Losses in DR 08-22-1211 o QSEs determine volumes to schedule based upon expected load and forecasted losses o Actual loss factors not available until T+1 and therefore cannot give real time awareness o Telemetry provided to ERCOT would be grossed up by the appropriate forecasted loss factors o [Metered Load * (1/(1-DLF Forecasted ))] * (1/(1-TLF Forecasted )) o LR settlement is unchanged as it is based upon scheduled volumes o LR compliance is unchanged since telemetry would be grossed up

13. Impacts for LR (continued) Reflecting T & D Losses in DR 08-22-1212 o Should the telemetry be grossed up by ERCOT or by the QSE? o Implementation at ERCOT would entail a single change vs. all QSEs making changes o Implementation at QSE would ensure QSE personnel see the values used for meeting their obligations and those used for compliance o If a QSE doesnt implement, harms only that QSE and their customers o Recommendation: QSEs responsible for grossing up for losses o Would introduce some (likely very small) level of loss forecast risk

14. ERS Compliance Calculation - Alternate Reflecting T & D Losses in DR 08-22-1213 o Alternate o Contract Capacity (CC) offers could be maximized by QSEs based upon expected actual loss factors o Maximum Base Load (MBL) submitted based upon metered value but grossed up for losses by ERCOT for availability and performance calculations o Availability calculation to be based upon CC, grossed up metered volumes and MBL (DLF and TLF) o Performance compares grossed up metered values vs. grossed up MBL

15. ERS Compliance Calculation - Default Reflecting T & D Losses in DR 08-22-1214 o Default o CC offers could be maximized by QSEs based upon expected actual loss factors o Availability calculation to be based upon CC and grossed up metered volumes (actual DLF and TLF) o Performance compares grossed up metered values vs. CC

16. ERS Compliance Calculation - Risks Reflecting T & D Losses in DR 08-22-1215 o Risks o May increase availability risk as actual loss levels will not be known in advance o Difference of submitting grossed up CC and metered MBL is a potential source of confusion o QSEs that offered based upon metered volumes for consistency and to avoid confusion would reduce availability risk and not be affected for performance risk

17. ERS Settlements Calculation - Settlements Reflecting T & D Losses in DR 08-22-1216 o Settlements unchanged o Would continue to use the availability and performance metrics to get combined performance factor o Costs allocated based upon load ratio share

18. Next Steps Reflecting T & D Losses in DR 08-22-1217 o Identify / resolve outstanding issues: o LR o ERS o ALR o CLR o LR – change in Operating Guide? o ERS – NPRR with small changes to compliance sections

19. Chair Contact Information Tim Carter 713-646-5476 tim.carter@constellation.com Reflecting T & D Losses in DR 08-22-1218