1. June 17, 20031 Strategic Framework Business Definition and Strategic Issues Board of Director’s Meeting June 17, 2003 ERCOT Strategic Planning Task Force

2. June 17, 20032 “we don’t make the market… …we make the market better”

3. June 17, 20033 What are the constraints that shape our current space? Retail Services Geography Value Chain Texas Electricity LSEs End Users Resources TDSPs Fuel Telephone

4. June 17, 20034 What business are we in? Retail Services Geography Value Chain Texas Electricity LSEs ERCOT: a Market Institution formed to Maximize Market Liquidity End Users Resources TDSPs Fuel “We don’t make the market…...we make the market better” Telephone

5. June 17, 20035 Why a “Market Institution”? We are: an independent market organization; guided by informal business norms based on industry standards and practices; governed by formal rules established by the state and market participants; to direct the procurement and allocation of resources to achieve a desired result. …we are a market institution.

6. June 17, 20036 What is our desired result? ERCOT is a Market Institution formed to attain the maximum dollar volume of transactions between Resources and LSEs; at the lowest possible cost to those entities. …ERCOT strives to maximize market liquidity.

7. June 17, 20037 How do we transform our desired result into practice? Maximize Market Liquidity = Maximize Dollar Volume Minimize Related Costs

8. June 17, 20038  market costs – “private good”  socialized costs – “public good” PUCT TDSPs Resources LSEs PMs of Generation of Retail Services of Market Efficiencies of Reliability of Metering and Data Aggregation of Transmission of Market Design/Modifications of Market Monitoring of Enforcement CostResponsibility Who is responsible for the trade off between costs and dollar volume?

9. June 17, 20039 ERCOT (including QSEs) PUCT TDSPs Resources LSEs PMs Cost What are ERCOT’s responsibilities? Responsibility of Generation of Retail Services of Market Efficiencies of Reliability of Metering and Data Aggregation of Transmission of Market Design/Modifications of Market Monitoring of Enforcement  market costs – “private good”  socialized costs – “public good”

10. June 17, 200310 Reliability RMR procurement load forecasting transmission outage coordination scheduling and monitoring RMR dispatch (unit commitment) procurement responsive reserve non-spinning reserve regulation service balancing energy - imbalance balancing energy - congestion out of merit service load shedding administration service interruption investigation NERC compliance open & non-discriminatory * Congestion Management TCR market administration open & non-discriminatory * Transmission Services congestion zone designation grid planning generator interconnect studies transmission project tracking open & non-discriminatory * Settlement and Billing billing credit and collections payments open & non-discriminatory * Metering and Data Aggregation SCADA and polling data aggregation usage data aggregation load profiling UFE analysis meter inspections open & non-discriminatory * Central Registration Certifications A/S Provider Balancing Energy Provider Retail Electric Provider maintenance of relationships technology to Resource Resource to QSE ESI ID to REP REP to QSE open & non-discriminatory * * coordination, reporting, education and communications What are ERCOT’s responsibilities?

11. June 17, 200311 Reliability RMR procurement load forecasting transmission outage coordination scheduling and monitoring RMR dispatch (unit commitment) procurement responsive reserve non-spinning reserve regulation service balancing energy - imbalance balancing energy - congestion out of merit service load shedding administration service interruption investigation NERC compliance open & non-discriminatory * Congestion Management TCR market administration open & non-discriminatory * Transmission Services congestion zone designation grid planning generator interconnect studies transmission project tracking open & non-discriminatory * Settlement and Billing billing credit and collections payments open & non-discriminatory * Metering and Data Aggregation SCADA and polling data aggregation usage data aggregation load profiling UFE analysis meter inspections open & non-discriminatory * Central Registration Certifications A/S Provider Balancing Energy Provider Retail Electric Provider maintenance of relationships technology to Resource Resource to QSE ESI ID to REP REP to QSE open & non-discriminatory * * coordination, reporting, education and communications What are ERCOT’s responsibilities?

12. June 17, 200312 Reliability RMR procurement load forecasting transmission outage coordination scheduling and monitoring RMR dispatch (unit commitment) procurement responsive reserve non-spinning reserve regulation service balancing energy - imbalance balancing energy - congestion out of merit service load shedding administration service interruption investigation NERC compliance open & non-discriminatory * Congestion Management TCR market administration open & non-discriminatory * Transmission Services congestion zone designation grid planning generator interconnect studies transmission project tracking open & non-discriminatory * Settlement and Billing billing credit and collections payments open & non-discriminatory * Metering and Data Aggregation SCADA and polling data aggregation usage data aggregation load profiling UFE analysis meter inspections open & non-discriminatory * Central Registration Certifications A/S Provider Balancing Energy Provider Retail Electric Provider maintenance of relationships technology to Resource Resource to QSE ESI ID to REP REP to QSE open & non-discriminatory * * coordination, reporting, education and communications What are ERCOT’s responsibilities?

13. June 17, 200313 Reliability RMR procurement load forecasting transmission outage coordination scheduling and monitoring RMR dispatch (unit commitment) procurement responsive reserve non-spinning reserve regulation service balancing energy - imbalance balancing energy - congestion out of merit service load shedding administration service interruption investigation NERC compliance open & non-discriminatory * Congestion Management TCR market administration open & non-discriminatory * Transmission Services congestion zone designation grid planning generator interconnect studies transmission project tracking open & non-discriminatory * Settlement and Billing billing credit and collections payments open & non-discriminatory * Metering and Data Aggregation SCADA and polling data aggregation usage data aggregation load profiling UFE analysis meter inspections open & non-discriminatory * Central Registration Certifications A/S Provider Balancing Energy Provider Retail Electric Provider maintenance of relationships technology to Resource Resource to QSE ESI ID to REP REP to QSE open & non-discriminatory * * coordination, reporting, education and communications What are ERCOT’s responsibilities?

14. June 17, 200314 Reliability RMR procurement load forecasting transmission outage coordination scheduling and monitoring RMR dispatch (unit commitment) procurement responsive reserve non-spinning reserve regulation service balancing energy - imbalance balancing energy - congestion out of merit service load shedding administration service interruption investigation NERC compliance open & non-discriminatory * Congestion Management TCR market administration open & non-discriminatory * Transmission Services congestion zone designation grid planning generator interconnect studies transmission project tracking open & non-discriminatory * Settlement and Billing billing credit and collections payments open & non-discriminatory * Metering and Data Aggregation SCADA and polling data aggregation usage data aggregation load profiling UFE analysis meter inspections open & non-discriminatory * Central Registration Certifications A/S Provider Balancing Energy Provider Retail Electric Provider maintenance of relationships technology to Resource Resource to QSE ESI ID to REP REP to QSE open & non-discriminatory * * coordination, reporting, education and communications What are ERCOT’s responsibilities?

15. June 17, 200315 Reliability RMR procurement load forecasting transmission outage coordination scheduling and monitoring RMR dispatch (unit commitment) procurement responsive reserve non-spinning reserve regulation service balancing energy - imbalance balancing energy - congestion out of merit service load shedding administration service interruption investigation NERC compliance open & non-discriminatory * Congestion Management TCR market administration open & non-discriminatory * Transmission Services congestion zone designation grid planning generator interconnect studies transmission project tracking open & non-discriminatory * Settlement and Billing billing credit and collections payments open & non-discriminatory * Metering and Data Aggregation SCADA and polling data aggregation usage data aggregation load profiling UFE analysis meter inspections open & non-discriminatory * Central Registration Certifications A/S Provider Balancing Energy Provider Retail Electric Provider maintenance of relationships technology to Resource Resource to QSE ESI ID to REP REP to QSE open & non-discriminatory * * coordination, reporting, education and communications What are ERCOT’s responsibilities?

16. June 17, 200316 Reliability RMR procurement load forecasting transmission outage coordination scheduling and monitoring RMR dispatch (unit commitment) procurement responsive reserve non-spinning reserve regulation service balancing energy - imbalance balancing energy - congestion out of merit service load shedding administration service interruption investigation NERC compliance open & non-discriminatory * Congestion Management TCR market administration open & non-discriminatory * Transmission Services congestion zone designation grid planning generator interconnect studies transmission project tracking open & non-discriminatory * Settlement and Billing billing credit and collections payments open & non-discriminatory * Metering and Data Aggregation SCADA and polling data aggregation usage data aggregation load profiling UFE analysis meter inspections open & non-discriminatory * Central Registration Certifications A/S Provider Balancing Energy Provider Retail Electric Provider maintenance of relationships technology to Resource Resource to QSE ESI ID to REP REP to QSE open & non-discriminatory * * coordination, reporting, education and communications What are ERCOT’s responsibilities?

17. June 17, 200317 What are our Strategic Issues? Major Strategic Issues : - What Risks exist and how should we manage them (Credit, Cyber Security, Facilities)? - What Market Design Problems can we help to solve (Texas Nodal, RBS, Day Ahead, Futures)? - What Market Mechanics Inefficiencies can we help to improve (WMS, RMS, TAC, TDSPs)? - What Market IT Needs are appropriate for us to meet (IT Forum, outreach program)? · all of Texas? · jurisdictions beyond Texas? · retail services other than electricity? · service to fuel providers and end-users? - Should we be in all or a portion of the Transmission business (“Transco Model”)? - Should we play a stronger Enforcement role (as suggested by some Market Participants)? - Should we expand our space to include: Additional Strategic Issues :