1. Presentation to House Regulated Industries Committee Chairman Phil King Trip Doggett Chief Operating Officer The Electric Reliability Council of Texas

2. 2 June 23, 2008House Regulated Industries ERCOT’s role Ensure nondiscriminatory access to transmission/distribution system Ensure reliability/adequacy of the grid Ensure timely information about customer’s choice of Retail Electric Provider (REP) Ensure accurate accounting of electric production and delivery

3. 3 June 23, 2008House Regulated Industries What is causing high wholesale market prices? Natural Gas Prices Up 100% Since Summer 2007 Record High Temperatures Led to Record High Usage (set new June record) Significant Congestion between the North and South Zone –Forced Outages in Critical areas –Planned Outages in Critical areas –New North to South Commercially Significant Constraint in Zonal Market Design

4. 4 June 23, 2008House Regulated Industries ERCOT improvements to address congestion Expedited implementation of Protocol Revision Request (PRR) 764. This allows ERCOT to address some transmission constraints with local congestion management techniques, which should be more efficient than Zonal congestion management techniques. ERCOT is evaluating each transmission contingency element/limiting element pair combination to determine if use of zonal balancing will be effective for managing the flow on the limiting transmission element. Based on this evaluation, ERCOT will present a list of recommended changes to TAC. Assess constraints to identify chronic congestion and identify new projects needed to address. Monitor the current transmission projects impacting Central Texas described in the following slides. Implement Texas Nodal 12 June 2008

5. 5 June 23, 2008House Regulated Industries Central Texas transmission projects that will mitigate congestion Project NameVoltageDistanceIn-Service Date 1.Jack Creek Projects including autotransformer 345 kV & 138 kV June - September 2008 2.Sandow 5 Generator138 kVN/AJuly 2009 3.Hutto-Salado double circuit & autotransformer 345 kV & 138 kV 63 circuit milesJune 2010 4.TNP - Bell County double circuit 345 kV88 circuit milesMay 2011 5.Clear Springs – Hutto double circuit 345 kV168 circuit miles August 2011

6. 6 June 23, 2008House Regulated Industries Central Texas projects that will mitigate congestion

7. 7 June 23, 2008House Regulated Industries The current zonal market vs. the future nodal market Zonal CharacteristicsNodal Characteristics Transmission Congestion Rights (TCRs)Congestion Revenue Rights (CRRs) No day-ahead energy marketDay-ahead energy and ancillary services co-optimized market Day-ahead market for Ancillary Services Replacement reserve service (RPRS) and Out of Merit Capacity (OOMC)Daily Reliability Unit Commitment (DRUC) Hour-ahead studiesHourly Reliability Unit Commitment (HRUC) Portfolio-based offers by zoneResource-specific Offers Balancing energy service (BES) every 15 minutesSecurity constrained economic dispatch (SCED) every 5 Zonal congestion management by portfolio for CSCs minutes (still 15 minute settlement) Resource-specific for local congestion All congestion management will be Resource-specific Enhanced load frequency control Zonal average shift factors for ResourcesActual shift factors for Resources Zonal market clearing price for Nodal locational marginal prices (LMP) for generation balancing energy for generation and loads Zonal-weighted LMPs for loads

8. 8 June 23, 2008House Regulated Industries Texas Nodal: Status of implementation Why it matters: A nodal market will allow ERCOT to manage congestion more efficiently What is available now –Majority of functionality delivered from vendors –QSE’s and TSP’s engaged with their systems and submissions –Heart of Real-Time is close; system control test week of 6/23 –Day Ahead Market and adjustment period market activities: Much progress but initial testing below expectations; better data required; informative learning experience What we are working on –Vendor releases late; some with quality below expectations –Gaps in functionality discovered –Amount of rework under-estimated –Insufficient staffing to handle activities –Common Information Model (CIM) implementation is leading edge –CIM delay is factor in postponing Dec 1 go-live date –Uncertainty in CIM delivery and implementation delays completion of integrated schedule 23 June 2008

9. 9 June 23, 2008House Regulated Industries Texas Nodal: Status of implementation Recent changes to drive resolutions –Revising project schedules to account for program level activities, increase testing times, include break/fix support and transition activities –Sending ERCOT staff to vendor sites to oversee/assist with testing –Improving release management process –Increased scrutiny of data quality –Developing an integrated schedule to accommodate delay of CIM importer and downstream functionality –Reviewing PM roles and assignments